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Daily Wrap Up 06 October 2022

6 Oct 2022 04:14 PM

Rising yields sends stocks lower

Once again, the rise in government bond yields is acting as the catalyst for the sell off in stocks. The US 10-year yield cleared 3.8% and that led to an increase in selling pressure. Stock markets in Europe are set to close lower and US indices in the red. Federal Reserve Neel Kashkari said a “high bar” needs to be cleared to justify a change in policy, and that sends out a message the central bank will continue down the path of aggressive monetary tightening for the foreseeable future. The rise in US yields is weighing on equities and it is driving up the US dollar too. In recent weeks, the greenback has been a popular safe haven play and considering the fall in equities, it is also receiving a lift in that regard.

The US jobless claims report was 219,000, above the 205,000 that economists were expecting. It was also an increase on the 190,000 reading seen in the previous report. A few days ago, there was chatter the Fed might look to “pivot” – slowdown the pace of their interest rate hikes, but in light of Kashkari’s comments, that does not seem likely.

The euro is holding up well today despite the disappointing economic reports. German factory orders dropped by 2.4%, and that was a far bigger fall than expected, as the forecast was -0.8%. Germany is the powerhouse of Europe, so it does not bode well for the continent when the country is going downhill economically. Eurozone retail sales fell by 0.3% in August, it is possible that consumers are tightening their belts for fear that economic conditions will deteriorate.

Yesterday, OPEC+ announced it would be cutting output by 2 million barrels per day, it was a larger cut than anticipated. The oil producing nations want to support the oil market, but a high oil price hurts most nations, so in a roundabout way, the move will probably add to global inflation. WTI and Brent crude are building on the large gains that were posted earlier this week. Gold was up earlier because of bargain hunting, but the gains in the US dollar and bond yields are hurting the commodity.

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