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What’s ahead in October?

Bull market

“Higher for longer rate” stance rattled Wall Street, can company earnings defeat bears?

Wall Street fell for the second straight month on the bond jitters as the 10-year Treasury yields spiked to a fresh 15-year high following the Fed’s hawkish reiteration, which spooked investors. And the IPO frenzy seemed to be short-lived, with ARM and Instacart, pulling back to just above their debut prices. Both the S&P 500 and Nasdaq posted the biggest monthly decline since December 2022. 10 out of 11 sectors in the S&P 500 finished lower in September, with the Real Estate and Technology leading losses, down 7.8% and 6.9%, respectively. By contrast, the energy sector outperformed, up 2.5% for the month due to surging crude oil prices, which positively correlated with inflation. However, the stock markets may need a decent rebound as the S&P 500 declined nearly 5% in September, and the Fear & Greed gauge moved into “Extreme Fear” territory, suggesting the market may have been oversold.

Notably, most mega-cap tech stocks declined throughout the month, with Nvidia slumping 12%, followed by Apple (-9%), and Amazon (-8%), while Tesla and Meta Platforms were slightly higher, which bring an old debate back: Can AI stocks sustain their stellar performance? The upcoming third-quarter company earnings will be critical for the market trend on whether earnings growth can justify these stocks’ valuations. The US earnings season usually kicks off with airlines and banks in the first half of the month, followed by Netflix and Tesla in the mid-month, and then mega-caps, such as Apple, Alphabet, Microsoft, and Meta Platforms, at the end of the month.

With the absence of the Fed’s meeting this month, economic data, including the US non-farm payroll, the September CPI, and the third-quarter GDP, will be in the spotlight for clues of the largest economic growth trajectory. But “good news” can be “bad news” as the resilient economic front usually strengthens expectations for higher interest rates.

Both the ASX and the Aussie dollar were under pressure due to risk-off sentiment. RBA’s rate decision and the CPI are key to shaping market trends  

In September, the Australian stock markets extended the decline amid prevailing risk-off sentiment on Wall Street. China’s property woes added to its downside pressure, sending the ASX 200 down 2.5% for the month. 10 out of 11 sectors finished in the red, with Real Estate and Technology leading losses, both down more than 8%, while Energy was the only sector that ended in the green on soaring oil prices. Major energy stocks, such as Whitehaven and Santos, were up 16.8% and 3% on the positive energy demand outlooks ahead of the Northern Hemisphere’s winter. Financial stocks were also resilient due to a jump in insurers' premium payments. QBE Insurance Group and Sancorp outperformed the broad markets, up 4.9% and 2.5% for the month, as the big insurers lifted their premium by 12%.  At the same time, subdued metal prices continued to press on miner’s socks, including BHP, Rio Tinto, Fortescue Metals, and Pilbara Minerals.

On the economic front, Australia’s monthly CPI re-accelerated to 5.2% year-over-year, up from 4.9% in the prior month, which increased the probability for the RBA to keep its rate hiking cycle. The data certainly offered support to the Australian dollar, with the AUD/USD consolidating above 0.63 for the past 7 months, showing signs of a potential bottom reversal in October.

Apart from the global impact, RBA’s rate decision and upcoming third-quarter CPI remain the focus of investors and traders. A hawkish stance and sticky inflation may send the stock markets lower but may lift the Aussie dollar higher, and vice versa.

Chinese property woes sank its stocks, but there might be a stream of light at the end of the dark tunnel

The selloff in the Chinese stock markets slowed but still finished the month in the red, with the Hang Seng Index down 3% and the CSI 300 slipping 2%. The Chinese property woes continued to weigh on sentiment. However, recent economic data showed that China’s economy may have hit a bottom, as the September manufacturing PMI expanded for the first time since March. Alibaba’s logistic arm, Cainiao, filed for IPO, which can be a sign to heat up the capital markets in the region, given the accommodative monetary policy by the PBOC compared with the US Fed. According to a report by Deloitte, “Shanghai Stock Exchange is expected to have retained first place in the global IPO ranking.”

In the new month, China’s property sector’s development, such as Country Garden and Evergrande, will continue to weigh on sentiment. The appealing sectors can still be on the lucrative EV stocks, like BYD, Nio, and XPeng, while China’s big techs, particularly Alibaba and Baidu, may gain attention in the run-up to their third-quarter earnings season. China is due to release its third-quarter GDP in October, which will be crucial data for investors to gauge the country’s economic health. The other influential economic data, such as CPI, PPI, and the trade balance, should also be on investors’ radar.

The New Zealand dollar showed signs of bottoming ahead of the RBNZ rate decision and the 2023 election

The New Zealand dollar strengthened against most of its major trade partners’ currencies in September, with NZD/USD up 0.51%, NZD/AUD up 1.24%, NZD/EUR up 3.08%, and NZD/GBP up 4.42%. New Zealand moved out of technical economic recession as its economic growth rebounded swiftly in the second quarter, rising by a surprising 0.9% from the prior quarter and was up 3.2% from a year ago. The Global Dairy Trade Index rose for two consecutive auctions, with Whole Milk Power’s price, up 4.6% to US$2,799 at the auction on 19 September, the highest since 1 August. In the meantime, New Zealand’s Business Outlook Index turned positive to 1.5 in September for the first time since May 2021, signalling a rebound in economic conditions as its housing markets also showed signs of hitting bottom earlier this year.

New Zealand’s election day falls on 14 October, and voting starts on 2 October. The latest poll shows that the potential right coalition has a better chance to win, with National leading ahead, which could add to the Kiwi dollar’s strength, given the implied results. In addition, the RBNZ’s OCR decision has a major impact on the dollar. The central bank is expected to hold onto the interest rate for the fourth consecutive time at 5.5% this month, given its stance from the last meeting as economic concerns became the priority. However, the bank also emphasized that the interest rate would need to stay at a restricted level to help cool down the inflation, which declined to 6% in the second quarter from 6.7% in the March quarter. The third-quarter CPI data will be released in the second half of the month after the rate decision and the election. A further decline in inflation may cap the Kiwi dollar’s rebounding momentum; otherwise, higher-than-expected data may add to the NZD’s rally.

Globally, China’s economic improvement and a potential overbought USD potentially provide further support to the local currency. Hence, the New Zealand dollar could head for a positive month in October.

Crude oil extended gains after a volatile month

The crude oil markets rose for the third consecutive month after briefly hitting the highest level since August 2022 on improved demand outlooks and expectations for OPEC + to keep supply tight by cutting production further. The WTI futures jumped 7.8%, and the Brent futures rose 6.9% in September. According to the US crude inventory data, commercial crude oil stockpiles decreased by 2.2 million barrels by the week ending 22 September from the previous week. The crude imports increased by 8.2% on average over the past four weeks from the same period last year. China’s improvement in its economic data fuelled the oil market’s rally at the same time. On the supply side, OPEC+’s output reduction took the cartel’s oil production to 40.40 million barrels per day in July, the lowest since August 2021, according to a Platts survey by S&P Global Commodity Insights. The leader of the organization, Saudi Arabia, voluntarily cut production by an extra 1 million barrels per day for July. The OPEC + meeting on 4 October can be a price mover in the short term, but the crude market may continue to rally till it hits the US$100 per barrel mark.

Gold slumped to a 7-month low due to surging US bond yields and a strong USD

Gold futures tumbled US$76 per ounce or 4.7% amid the US dollar’s rally and surging US bond yields. Precious metal prices were particularly hit by the Fed’s hawkish comments on the rate hike outlooks, as more than decade-high bond yields made it more expensive to hold onto physical gold, and a strong USD made it costly to purchase the precious metal in other currencies. The triple-top pattern in the gold chart suggests that the selling pressure may be mounting before it hits pivotal support of 1,700. However, a near-term rebound may be expected as gold was oversold last week, and a potential pullback in the king dollar could also lift the metal prices. 

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