Solid earnings from the financial sector over the past few sessions with Bank of America , Morgan Stanley , and also Goldman Sachs beating expectations has helped the markets to stabilise after the weakness and volatility last week. Trends on stock indices in Asia , Europe and the US have all been negative , but what we have seen is that the volatility has occured , but new lows have been rare , and now the selling pressure seems to be waning , the markets are now beginning to push higher. Markets are still fragile , but if we do not have any obvious unexpected events , then we should see the stock indices begin to push higher.
Volatility in most markets remains high as increasing tension is now coming from Saudi Arabia after the potential murder of a US journalist in the Saudi embassy in Turkey. An inquiry started by the Saudi king will try and investigate what actually happened amid threats of sanctions and a reduction in oil supply which has made the energy markets nervous.
Volatility has spiked sharply in yesterday session which saw stock indices collapse across the globe . Analysts have said that the markets became concerned about the pace of interest rate rises by the Fed , while also being uneasy with the potential for trouble with the US/China trade dispute if retaliation gets out of council. The major problem with the trade dispute so far is that it has weakened China , and there economy was already weakening , and this may lower global demand for commodities and Chinese investment.
Investors continue to trade in a defensive manner with stock indices trading lower , the US dollar holding on to recent gains , and bond yields pushing higher. European markets are struggling with the Retail , Technology , Auto , and Luxury Goods sectors all in the red due to concerns that the Chinese economy will slow down and reduce demand.
Investors continue to maintain defensive positions with stock indices continuing to fall across the globe and bond yields continuing to rise and the US Dollar maintaining strength. So far most markets have been orderly with limited panic and the vix index rising but not sharply. There has been no real catalyst to this defensive behaviour , but a general fear of the trade dispute with the US and China and where it may lead along with a sharp rise in US bond yields over the past week has spooked investors generally bullish on equities.
Public holiday in US for Columbus Day and Canada for Thanksgiving Day so expect subdued trading.
US investors have just seen the latest September jobs report which had a lower than expected headline number showing an increase of 134k new jobs , well below the 180k that was expected. The unemployment rate was better than expected at 3.7% , the lowest since 1969 - 49 years , and the average hourly earnings increased by 0.3% for the month as expected. Positive revisions to the July and August numbers has improved the sentiment in the market.
The strong US data and comments from Fed Chair Powell that interest rates are a long way from a neutral level and that in the future rates may need to be used to slow the economy , has resulted in sharply rising bond yields in the US. This week we have seen the US10 yield move from levels of 3.07% to now be up at 3.21% which is a 7 year high. This has flowed in to the FX market with the US dollar strong for the past 7 sessions across the major currency pairs.
US stock indices have been mixed over past sessions with Dow Jones index rallying strongly and making record highs last night , whilst the S&P500 and Nasdaq indices consolidate below record levels. US bond yields have backed of from the range highs of last month as US Fed chair talks of inflation dropping over time. The retail sector had a poor session after Amazon raised the minimum hourly wage which may increase the overall wage cost for retailers struggling to attract workers.
Stock indices look strong after a deal was finally agreed between the US and Canada on trade to replace the NAFTA and both will now join Mexico in a new agreement. Markets have strengthened as it shows that the trade disputes between countries may not be so damaging and that compromise can happen. Also news out that the UK government is willing to compromise with the EU on checking of goods into Northern Ireland which will help the Brexit deal get over the line.