VOT Research Desk
Market Analytics and Considerations
After three major US benchmark indices posted their hardest hitting weekly gains in nearly five months on Friday, as market participants rotated back into risk-sensitive asset classes in response to a softer U.S. inflation bulletin, December S&P 500 futures (ESZ22) are trending down -0.40% this morning. Gains in the Oil & Gas, Consumer Services, and Technology sectors were principally responsible for the acceleration of three major U.S. stock indices.
Three significant US indices ended Friday’s trading day in the green, supported by energy and technology companies amid wagers on a less aggressive Federal Reserve in light of recent tepid inflation readings.
According to Bruce Kasman, head of economic analysis at JPMorgan, “the CPI negative surprise coincides with a broad variety of indications pointing to a downshift in global inflation that should promote a slowing in the pace of monetary policy tightening at the Fed and elsewhere.”
Governor of the Federal Reserve Christopher Waller issued a warning, noting that despite the central bank’s consideration of modest rate increases, it has no intention of changing its approach to inflation given that the number remained significantly above than the Fed’s 2% target set.
U.S. rate futures have priced in a 80.6% chance of a 50 basis point rate increase and a 19.4% chance of a 75 basis point rate increase at the monetary policy meeting in December following the inflation data from last week.
Investors will be keeping an eye on a slew of economic data over the next week, including the new producer price index, retail sales data, exports, imports, building permits, housing starts, and sales of existing homes.
On Monday, the list of U.S. economic data is mostly empty.
Rates on 10-year bonds in the United States are currently at 3.899%, an increase of +1.82%.
The Euro Stoxx 50 futures are up +0.21% this morning, continuing the positive trend from the previous week. However, those gains are likely to be limited due to growing concerns regarding the strength of the region’s economy.
While inflation in the Eurozone is still rising, the European Central Bank still has a long way to go before it can match the extent of the Fed’s tightening. The Eurozone CPI data due later this week are expected to show an increase of 10.7% year-over-year in October, up from 9.9% in September.
In addition, a note from Morgan Stanley estimated that the global economy would only expand by 2.2% in the coming year, and that the economies of Britain and the Eurozone might enter recession.
Today’s data on the Eurozone Industrial Production and the Producer Price Index (PPI) in Switzerland were released.
The October PPI in Switzerland was reported at 0.0% m/m, below expectations of +0.2% m/m.
In contrast to expectations of +0.3% m/m and +2.8% y/y, September’s Eurozone Industrial Production reached +0.9% m/m and +4.9% y/y.
Today, Asian stock markets ended in the red. The Shanghai Composite Index (SHCOMP) in China and the Nikkei 225 Stock Index (NIK) in Japan both closed lower by -1.06%.
Today, as the country battles its worst outbreak in six months, the Shanghai Composite lost its early gains and ended lower. The optimism regarding new stimulus measures for the country’s hard-hit property sector was primarily offset by this news. However, the possibility of additional government assistance led to a rise in troubled property stocks.
At the same time, losses in the Transport, Railway & Bus, and Shipbuilding sectors caused the Nikkei 225 Stock Index in Japan to close lower today. The implied volatility of Nikkei 225 options is taken into account in the Nikkei Volatility, which closed at a new one-month low of 20.31.
