Last week, the US major averages posted the best weekly performance since June amid earnings optimism and growing bets for the Fed to slow down rate hikes, with the tech-heavy index, Nasdaq rising 5%. Fed officials seem to start dividing on the rate hike path, though most members still stick to the higher-for-longer stance. With some major companies’ earnings coming as stronger-than-expected, investors may see the selloff has been overdone, despite Snap’s revenue shock on Friday. Hence, the rest of the mega-cap techs, including Apple, Microsoft, Alphabet, Amazon, and Meta Platforms' third-quarter performance may steer the market’s tone for this week.
On the economic front, both US and China will report their Q3 GDP, and whether the US can reverse two consecutive negative growth in the first half will be a key focus for the country’s economic trajectory. And how bad of an impact the zero-covid policy has on the world’s second-largest economy is also what investors are eyeing. In addition, three major central banks, including BOJ, BOC & ECB will all hold their policy meeting this week.Click to enlarge the table
What are we watching?
- VIX falls under 30: The market’s fear gauge, the CBOE volatility index, fell to below 30 from above 32 last week, suggesting that market participants became less concerned about the Fed-induced recession risk.
- US bond yields at decades highs: The US 10-year bond yield climbed to 4.22%, which is still at its highest level since 2008, though a sharp pullback from 4.33% last Friday. Only a continuation fall in bond yields could sustain the current bottom-up pattern in equities.
- USD/JPY pulls back from a fresh 32-year high: The BOJ intervened exchange rate by selling USD following the move in September, causing Yen to jump as high as 2.6% against the US dollar before retreating last Friday. However, this may only slow down the devaluation in Yen since the central bank keeps the Ultra-low monetary policy.
- Gold forms potential double bottom pattern: Spot gold price rebounded at its September low of 1,617 last Friday as the US dollar retreated from the week's high due to a pullback in bond yields.
- Hang Seng Index eases falling amid policy optimism: China is considering cutting quarantine time for inbound travellers amid a slump in its economic growth, which may boost a rebound momentum in Hong Kong stocks, which are at the lowest levels in two years.
Economic Calendar (24 Oct – 28 Oct)Click to enlarge the table