Nowhere to hide this week for investors – it’s all about Friday’s triple witching event in markets – the latest US inflation report, the US bank earnings reports and the Bank of England bond buying.
But before then markets will have to deal with the fallout of the US jobs report for last month and the new common belief that it was too strong for the US Federal Reserve to reduce the size of its interest rate rise on November 2.
That sparked an accelerating selloff on Friday which broke the nice bear market rally on Monday and Tuesday.
As well there’s the still evolving fallout from the OPEC+ production cut (from November 1 but in essence half in place already because so many OPEC countries can’t meet their quotas).
The situation in the UK remains very uncertain with investors wanting to hear what the Bank of England plans to do when its 65 billion pounds of bond buying ends on Friday. The BoE will end up buying vastly less than that amount.
Failure to have a new, longer lasting policy in place before Friday could very well send the fragile UK bond market off on another sell-off so that’s why there’s plenty of confidence we will hear soon just what will be put in place.
Further complicating things for investors will be dealing with the fallout from Friday’s US September jobs report. There were 263,000 new jobs reported for last month – down from 315,000 in August with unemployment dipping to 3.5% (from 3.7%) and wage growth slowing to an annual rate of 5%.
That ended up being seen as a negative and Wall Street and European market sold off – today it will be the turn of the ASX and other markets in the Asian region to sell off with a 60-point drop at the opening for the Australian market expected.
Friday’s selloff offshore ended last week’s bear trap rebound as investors saw the jobs report keeping the Fed’s interest rate rises at 0.50% to 0.75% for the rest of 2022.
US and European shares fell sharply on Friday cutting gains for the week, but still leaving them above their most recent lows the week before.
Over the week as a whole, US shares still rose 1.5% and Eurozone shares were up 1.3%. Japanese shares rose 4.5% as did Australian shares with both missing out on the Friday fall which came after US jobs data.
Bond yields rose again in the US, UK and Europe, but they fell in Australia.
Oil prices rose as OPEC cut oil production and metal prices rose slightly, but iron ore prices fell. The $A fell as the $US rose which is now expected was risk moves from on to off and back again with each major data release.
The Dow fell 630.15 points, or 2.1%, to end the week at 29,296.79. The S&P 500 lost 2.8% to finish at 3,639.66 while the Nasdaq slid 3.8% to 10,652.41, which is less than 1% above its low of the year.
The major averages still ended the week higher but gave back some of those early gains. Still the Dow rose 2% for the week, while the S&P added 1.5%. Nasdaq eked out a 0.7% gain.
The market didn’t like Elon Musk’s U-turn on the purchase of Twitter and Tesla shares fell more than 10%. Investors are realising that the Tesla boss is as unpredictable as ever, and that he may have less time to devote to cars. Twitter shares rose 12.2%.
The falling unemployment rate sparked a jump in rates, in turn weighing on stocks. The 2-year year Treasury yield rose 6 basis points to 4.316% and the 10-year yield ended at 3.89%.
The Aussie dollar ended at 63.70 US cents, down from 64 cents a week earlier.
There’s a wariness about the strength of UK markets heading into this week.
Numerous media reports tell of investors, pension funds and other investors getting their portfolios in order (IE cashed up) before the BoE removes its support for the gilts market on October 14.
“The BoE stepping in has not erased the issue,” said Dan Melley, partner at Mercer told the Financial Times.
The BoE has signalled that it will not prolong the gilt-buying facility beyond this week but the UK markets want the central bank to signal that it will be ready to step in again to provide de-facto support post October 14.
Kerrin Rosenberg, chief executive of Cardano, an advisory firm and investment manager, is urging the BoE not to consider that “the job is done” on October 14, the FT reported.
“The Bank needs to be ready to take that action again, if they need to,” he says. “While the industry is able to bear more volatility that is not without limit. We know from our portfolio and from our clients that there is only a certain amount of collateral buffer.”
