A hard landing for the US stock market | 13 October 2023

#SP500:

U.S. employers in September turned their back on Federal Reserve officials who have been expecting job growth to cool, adding 336,000 positions in a return to the fevered hiring seen during the coronavirus pandemic and potentially bolstering the case for another interest rate increase. Upward revisions to the July and August job totals showed stronger job gains in those months as well, to the tune of 119,000 additional positions, enough to turn what had seemed like a slowdown in hiring into an analytical headache for the U.S. central bank. Bond markets took the data to justify another jump in the interest rate demanded to buy long-term U.S. government debt, with the yield on the 30-year Treasury bond rising 10 basis points after the release of the jobs data and again breaching 5% - a level not seen since before the 2007-2009 financial crisis - before easing somewhat. We expect the Federal Reserve to raise interest rates at its meeting on 1 November, which is negative for equity market capitalization.

Trading recommendation: sell 4324 and take profit 4179.

XAUUSD:

Global demand for gold has fallen for the second quarter in a row. This, combined with the rise in US Treasury yields, signals a decline in the precious metal's price. The fall in demand has been attributed to both central bank sales and limited jewellery purchases. Emerging market central banks are being forced to sell their gold reserves to support the stability of their national currencies, while jewellers are cutting back on purchases due to weak jewellery sales in North America and China. Interestingly, there had been expectations of strong demand growth from China this year, but in practice the situation has been different.

Trading recommendation: sell 1864 and take profit 1820.

#WTI:

Oil has decent growth prospects as investors are deeply concerned about the massive hydrocarbon supply deficit resulting from production cuts by OPEC+ countries. Current oil prices are unsatisfactory for Saudi Arabia, whose government budget is expected to run a deficit again. As a result, Saudi Arabia has started to cut energy production in an attempt to boost oil prices. In an indication of future U.S. supply, U.S. oil rigs fell five to 497 this week, their lowest number since February 2022, energy services firm Baker Hughes said. Investment funds have been actively buying crude oil contracts over the past three weeks, suggesting growing optimism in the market.

Trading recommendation: buy 80.05 and take profit 82.50.