STATE OF THE MARKETS

Stocks, yields rise ahead of PPI. US stocks erased earlier losses after news of increasing jobless claims that may soften the Federal Reserve’s rate hikes plan. The tech-laden Nasdaq (+1.13%) climbed the most, followed by S&P (+0.75%) and Russell (+0.63%), including the Dow (+0.55%) as yields jumped higher across the board on investors’ optimism. Both the shorter 2Y and 10Y benchmark yield rose 8bps to 4.32% and 3.49% respectively, as the Dollar index eased below the 104.80 barrier.

In the commodity markets, crude oil continued its downward trajectory for the fifth day as lower demand expectations amid recession fears. The black gold settled near $71.80/bl after jumping to $75.20 in the London session. Gold continued to receive bids above the $1,780 mark as Dollar weakened below the 105 handle. Elsewhere, iron ore reversed earlier losses and jumped back to $109.50/tn after reports of higher demand projections in 2023.

In the FX space, demand for Yen in the short and medium term eased as Swiss jumped back to the demand territories, signaling a hedging market ahead of the PPI on Friday and FOMC next week. On the sides, demand for Kiwi eased off giving way to Aussie and Euro. Long term sentiments were little changed.

On Friday, markets expect a cautious session with heavy liquidation as investors geared up to close their book for the year. Earnings to watch are thin as only Li Auto (LI), Johnson Outdoors (JOUT) and Byrna Tech (BYRN) are of interest to long term investors as well as the very much awaited PPI figures and consumer sentiments in the United States.

OUR PICK – No New Picks

No new picks going into the weekend. Markets were full of hope today as jobless claims rose to 230k from 226k prior while markets expect a clamp down to 220k; giving hope of easing from the Federal Reserve as stated by Chair Powell recently. Markets now look forward to seeing the Producer Price Index (PPI) stabilized at 0.2% though core PPI to rise to 0.2% signaling peak inflation that may see money flowing back to equities. However, as of Wednesday, US equities reported an outflows of -$9.2 billion with some $290 million out of taxable bonds. Apparently, idle cash was plowed in the short term money markets that saw an inflows of close to $39 billion.

Trades updates: 

Equities:  WBA (10% undervalued, 4.69% yields), M (41% undervalued, 2.74% yields), SQ (about fairly valued with 4.96 z-score), CRON (32% undervalued with 23.21 z-score) and AUY (12% undervalued, 2.15% yields) pulled back over the week. VIPS (37% undervalued with 3.92 z-score) jumped higher as China sentiments improved and T (about fairly valued, 5.76% yields) held steady as investors bid for the yields.

FX & Commodities:  We remain bearish EUR/JPY while AUD/USD was stopped out and we may re-enter below 0.6850.

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Disclaimer:

This article is for general information purpose only. It is not an investment advice or a solicitation to buy or sell any securities. Opinions expressed are of the authors and not necessarily of MFM Securities Limited or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.