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Wall Street pulls back as rates climb, with the RBA decision in focus

Bull and bear markets

Wall Street finished lower to kick off the week but posted a monthly gain, with Dow having its best month since 1976, up 14% in October, while the S&P 500 rose 8% and Nasdaq advanced 4% for the month. The bond yields climbed higher, with the US 10-year Treasury yield rising to 4.06% from 4.01% on Friday, ahead of the crucial FOMC meeting later this week. The US dollar has also regained strength against the other currencies, sending both gold and oil prices down. Traders were betting on soften tone by the Fed to dial back on rate hikes from December, possibly a 50 bps after the widely expected 75 bps hike this week, amid weakened economic data. A peak hawkishness may continue to support the ongoing rebounding optimism in equities, but any hawkish surprise could end the upside momentum.  

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  • Cyclical stocks outperformed in October, with Dow up 14%, while the energy sector soared 24% for the month, outperforming all the other sectors in the S&P 500. On Monday, 10 out of 11 sectors finished lower in the S&P 500, with Technology and Communication Services leading losses, down 1.4% and 1.7%, respectively.  Energy is the only sector that closed in green, with Devon Energy's shares up 1.8%, while Mega cap techs all declined. Meta Platforms slid 6%, to 93.19, the lowest seen in 2016. 
  • Tesla is reportedly discussing buying 10-20% of the Switzerland mining company, Glencore, to source the lithium supply, which boosted the Australian mining company, Rio Tino’s stocks rebounding 1% at both US and UK markets. The company’s shares are set to open higher at ASX.
  • The Eurozone inflation hits a record high of 10.7% due to the war-induced spikes in energy prices, which rose to 42% year on year in October from 41% the prior month. The Eurodollar fell 0.76% against the USD, to 0.9883 at AEST 7:30 am.
  • Chinese stocks continued to slide, as the commercial hub, Shanghai, faces renewed Covid lockdown, with its Disney Park suspending operation due to mass testing of visitors. Hang Seng index fell 1.18% on Monday, to a fresh low seen in May 2009.
  • Asian markets are set to open higher despite Wall Street’s slip, with all eyes on the RBA rate decision today. ASX futures were up 0.15%. Nikkei 225 futures were unchanged and Hang Seng Index futures rose 1.02%. The Reserve Bank of Australia is expected to continue raising interest rates by 25 basis points, to 2.85%, despite hotter-than-expected CPI data in the third quarter.  
  • WTI futures slumped 2% amid Chinese weak PMI data and a jump in the US dollar, ahead of the OPEC output cut this month. With China sticking to the Covid-zero policy, the oil demand outlook overshadowed a record of US export data from last week.  
  • Dogecoin surged 47% in the last 24 hours amid Elon’s takeover of Twitter. The meme digital token is in favour of Tesla CEO Elon Musk, who is now Twitter’s boss. Both Bitcoin and Ethereum were slightly down during the same time frame but stabilized above their recent support of 20,000 and 1,500, respectively. 

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