Appetite for US bonds received a boost as the Federal Reserve (Fed) decided to keep interest rates unchanged at its recent meeting. The decision came as no surprise, and Fed President Jerome Powell acknowledged that the tightening of the US yield curve had contributed to the tightening of financial conditions in the country. Powell emphasized that the Fed is proceeding with caution and expressed uncertainty regarding inflation reaching its target of 2%.
Despite the optimistic outlook for the US economy, with policymakers now defining it as strong rather than just solid, the latest Fed decision did not have a dovish impact. Instead, it was expectedly hawkish. However, the bond market received a lift from the US Treasury’s announcement of a slightly lower-than-expected auction size for upcoming bond maturities.
Following the Fed’s decision and the Treasury’s issuance calendar reveal, the US 10-year yield dropped to 4.70%, while the 30-year yield fell to 4.90%. Although borrowing expectations have been revised slightly downward, it does not imply an improvement in the fiscal outlook. The US Treasury still plans to borrow a record $776 billion this quarter, and the interest payments on the federal debt are rising rapidly.
The decline in the October ISM manufacturing PMI and the softer-than-expected ADP report contributed to a positive sentiment in the US Treasuries market. However, the upcoming official US jobs data, which is due on Friday, could reverse the optimism if the nonfarm payrolls (NFP) or wages show strength. In the stock market, the S&P 500 rebounded more than 1% and closed near the important 200-day moving average, while the rate-sensitive Nasdaq jumped nearly 1.80%.
On an individual level, Advanced Micro Devices (AMD) saw a significant jump of almost 10% after announcing its expectation of selling over $2 billion worth of AI chips next year, which is more than a third of its current revenue. Qualcomm also experienced a positive after-hours trading session, with a nearly 4% increase, as it predicted better-than-expected results for this quarter due to a possible reduction in the inventory glut in the mobile phone industry.
Apple is set to release its Q3 earnings today after the market closes. However, concerns arise as iPhone 15 sales are not living up to investors’ expectations, and Huawei appears to be gaining market share in China, resulting in an anticipated 3% decline in Apple’s overall revenue. The morose expectations could be easily surpassed, but failure to do so might lead to Apple’s stock price falling below $170 per share and entering a bearish consolidation zone.
The Bank of England (BoE) is expected to announce its rate decision today, with no plans to raise interest rates. Instead, the BoE could increase its tolerance for above 2% inflation. This approach might negatively impact central bank credibility, especially considering the BoE’s credibility has been questioned since the start of its tightening cycle. If investors perceive that the BoE will allow inflation to run hot due to a lack of choices, the British pound could suffer a substantial hit.
The appetite for gold has eased as the ongoing Israeli attacks are considered less aggressive than anticipated. As the risks in the Middle East appear to be de-escalating, the price of gold could drop to or even below the 200-day moving average, reaching around the $1933 level. Although there are still upside risks, any fresh news might gradually lose its impact, and the $2000 per ounce level could attract more sellers than buyers.
US crude rebounded near the $80 per barrel mark as buyers entered the market following the decline towards the psychological level. Geopolitical tensions and the vulnerable state of supply could push US crude prices towards $85 per barrel.
As the news develops, it is essential to stay updated on market trends and their potential impacts on various sectors of the economy.