World's Strongest

03 November 2023

Dear clients,

Global stocks are enjoying their strongest weekly rally in over a year, global yields are falling and corporate earnings reports have been surprisingly upbeat.

If all goes according to plan, markets will end this pivotal week with the release of the US jobs report, which will bolster optimism for a peak in global rates.

World stocks (.MIWD00000PUS) rose 4.2% for the week, the biggest weekly gain since November 2022. The S&P 500 Index had its best day in six months, also helped by strong corporate earnings and outlook - Apple reported better-than-forecast quarterly sales and earnings, though shares were down slightly in after-hours trading.

The premise is that the Federal Reserve, Bank of England, European Central Bank and other central banks have finished raising rates.

While the Fed made a dovish pause on Wednesday, the Bank of England made a hawkish pause on Thursday. But the overall reaction of the markets was the same - a huge rally in bonds, equities and risk assets. Ten-year bonds posted their sharpest rise in more than a month.

Wall Street's three major indexes are well positioned to register their strongest week this year, and all are looking at weekly gains of about 5%.

Investors are now waiting to see when the easing cycles will begin and how far they will go. About 70-75 basis points of Fed rate easing next year is built into the U.S. rate curve, and nearly 50 basis points of expected rate cuts are reflected in the U.K. rate curve.

US 10-year bond yields are down about 40 basis points from their peak of over 5% just a few days ago, and the dollar is falling. That's music to the ears of emerging markets.

According to CME's FedWatch tool, the probability of a Fed rate hike in December is less than 20%, down from 39% a month earlier. Still, some tension remains after solid factory orders data lifted two-year bond yields, while Treasury borrowing plans and Fed Chairman Jerome Powell's views on inflation lifted ten-year bond yields.

A weekend in Japanese markets drove the yen down to 150.40 per dollar at the end of the week, with the yen hitting a one-year low against the dollar and a 15-year low against the euro after the Bank of Japan changed its yield curve adjustment policy. However, traders continue to watch for signs of intervention by Japanese authorities.

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Good luck in trading!
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