Wall Street fell for the second straight month, with the S&P 500 posting the biggest monthly loss since December 2022 as markets were pricing in higher terminal rates following the Fed’s hawkish rhetoric. With the US Treasury yields jumping to a fresh 16-year high, investors seemed to shift their funds to high-yielder money markets, or cash, which caused the profit-taking moment throughout September, which is also usually the weakest month on stock markets. In the meantime, an oversold market may require a technical rebound, the US avoided a government shutdown as Biden singed a temporary funding bill through mid-November. On the economic front, a few key data will be on investors’ radar, including the ISM manufacturing, the JOLTS job openings, and the non-farm payroll data. The US labour market is expected to slow down, with the new jobs adding only 163,000 in August. However, the ISM manufacturing PMI points to a 12th consecutive contraction due to inflationary pressure and high interest rates.
The ASX 200 extended the second straight weekly losses, but the surge in energy stocks buffered the decline. The financial sector was also resilient on banking stocks’ comeback on higher rate expectations after the country recorded a re-accelerated headline CPI of 5.2% in August, but this pressed on the technology and real estate stocks as the Australian government bond yields have also jumped following the global trend. The RBA’s rate decision will be critical to gauge market sentiment, and the building approvals data for August is one of the key economic barometers for the country’s housing markets.
The slump in the Chinese stock markets decelerated as fears of their property woes abated, and Alibaba’s logistic arm, Cainiao, filed for IPO, heating up the delivery industry in the country, which could be a positive sign for the IPO markets. In the meantime, the devaluation of the Chinese Yuan slowed, which also supported its share markets. China’s economic data offered optimism to investors, with its manufacturing PMI expanding for the first time since March. But the data came out over the weekend, which may point to a higher open in the Hong Kong stock markets on the return after the golden week holiday.
What are we watching?
- Bond yields soar: The US 10-year bond yield spiked to a new 15-year high since 2007, and the yields on the 2-year bond hit a 17-year high. Soaring bond yields may continue to restrain market liquidities, pressing on risk assets.
- The US dollar strengthens further: The dollar index rose for the eleventh straight week to the highest seen in November 2022. The currency markets priced in higher for longer rates, with the US Treasury yields surging, which continued to support a robust USD.
- Energy stocks outperform: The energy stocks were the only sector that finished higher in the S&P 500 in September. This suggests that investors re-balanced their positions due to jumping and oil prices.
- Crude oil heads off 100: Crude prices soared to the highest level since August 2022 as undersupply concerns overshadowed recession fears. The OPEC meeting will be critical for crude market trends this week, while a technical correction may be near due to emerging bearish divergence in both WTI and Brent futures.
- Gold tumbles: Gold prices plunged amid jumping bond yields and a firm US dollar, with the spot gold posting the biggest weekly decline since June 2021. The precious metal found support at 1,848, and an oversold signal may cause a rebound in the near term.