New record highs for stocks
Looking solely at stock markets, one could get the impression that nothing goes wrong, and the remaining pandemic constraints are just a tentative phenomenon, which still allows economies to run up and grow. Of course, some key stocks such as Facebook and Amazon could not jump back into uncharted waters following their earnings releases last week, though overall, guidance from businesses has surprisingly signaled little concern about their future performance, with the pan-European STOXX 600 unlocking a fresh record high at 479.62 in the first day of November on the back of financials and energy.
Wall Street is also having a rosy start to the month. However, a glance at bond markets suggests that some uneasiness exists among investors probably in the face of the persisting inflation pressures and monetary policy normalization.
Bond yields reflect some anxiety
Particularly, last week’s gap narrowing between shorter- and longer-term global bond yields reflected weakening prospects for longer-term economic growth as central banks shift to monetary tightening.
The Fed is widely expected to announce the start of bond tapering on Wednesday, but the outlook on interest rates remains cloudy. As the ECB chief Christine Lagarde expressed last week, markets are trying to get ahead of central banks, pricing earlier rate hikes, but policymakers keep talking down the scenario, reiterating that high inflation is transitory including the former Fed chairwoman Janet Yellen, who attempted to cool inflation expectations today.
The 10-year treasury yield corrected higher to 1.5821% during the early US trading hours, while the 2-year equivalent remains elevated near last week’s highs at 0.5209%
RBA policy announcement ahead
The RBA will probably try to push back rate hike expectations early on Tuesday as international borders are just reopening this month in Australia and China’s economy seems to be losing pace. However, failure to meet some of its bond buying targets last week raised speculation that February could be a long deadline for deciding on additional bond tapering actions. If the RBA flags some form of an earlier stimulus withdrawal, aussie/dollar could fracture the key resistance of 0.7558 to test the 0.7615 barrier.
ISM manufacturing PMI inches above expectations
On the data front, the ISM manufacturing PMI index for October inched above expectations to 60.8, revealing that strong sales continue, but at the same time “Import costs and delays keep hurting businesses, requiring more safety stock for uncertainty”.The dollar ignored the minor upside surprise in the ISM data, remaining almost stable around 114.15 against the yen. Euro/dollar and pound/dollar were in quiet trading as well, flattening at 1.1565 and 1.3670 respectively.
Oil tests key resistance; gold on the sidelines
In commodities, oil prices are under the spotlight again ahead of the OPEC’s monthly meeting on Thursday, which will see oil exporters debating about further supply increases. WTI oil futures have resumed their positive momentum today, currently looking for a close above October’s ceiling of 84.65 – 85.39.In precious metals, gold is directionless for the sixth consecutive day, stuck below the $1,808 resistance.
