ear Reader
Chinese markets were slightly firmer overnight.
That’s helping European markets start the week slightly higher.
For US stocks, that builds on what was a decent week last week… with the Dow Jones up some 382 points or 1.29%.
That brings the Dow’s performance for October to 4.82% or +1,640 points.
This positive performance from the Dow is great news for our Momentum Stocks strategy which identifies stocks exhibiting strong momentum.
We then buy into those stocks and ride them while the momentum lasts.
And as our Head Trader, Adrian Buthee explains in this 2-minute video, the strategy has significantly outperformed the Dow over the past 5 years.
If you’re available for an hour on Thursday, come to Adrian’s free online session to see the strategy in action.
Meanwhile, the US Dollar continues to slip versus other major currencies as risk-on theme continues.
Review of last week’s key action
FTSE -29 -0.41% DOW +382 +1.29% S&P +76 +1.64% NASDQ +193 +1.29% DAX -44 -0.28% NIKKEI -264 -0.91% Hang Seng +795 +3.14%
Despite the below consensus Chinese GDP data at the start of last week, overall, the data last week was positive.
Meanwhile, the PMI data from most western economies was better than the consensus with stand-out data from both the UK and US.
However, the Eurozone services sector suffered an unexpected fall which is likely due to the spike in energy and general commodity prices brought about by these global supply bottlenecks that all economies are experiencing.
News last Friday from Evergrande, the massively indebted Chinese property development group, helped markets to recover losses from the start of last week.
Evergrande managed to pay at the eleventh hour the missed interest payment on foreign US Dollar bonds which has given some very short-term relief to the Hong Kong market although the debt remains and so does the risk that the company could default without offloading some assets.
However, equity markets continue to believe what central bankers are telling us about the prospects for inflation.
Here in the UK, analysts are now pricing in a near 80% probability of a rate rise before Christmas.
There has been some criticism of the Bank of England’s aggressive market speak with the Economist calling for the bank to pause with any rate rise.
An interesting article in the FT highlights how investors view what Central Banks are up to.
The yield on the two-year UK gilt and 2-year treasury (US sovereign debt) have risen sharply in the last two months reflecting the likelihood of a start in the tightening cycle in both the UK and US.
In the UK, 2-year gilts are now yielding 0.7% - not much to write home about – but just two months ago they were 0.1%.
It’s a similar picture in the US, where 2-year bond yields are at 0.49% having risen from 0.25%.
However, if we look further along the yield curve or duration, we see that the yield on long term bonds in both markets have not moved much at all which suggests that the market suspects that inflation will be tamed quickly.
Remember that long term bond yields are very sensitive to the corrosive effects of inflation.
So, put it another way – investors are currently implying that that both the BoE and Federal Reserve could be making a policy error in raising rates and tapering QE.
This means, these central banks could end up choking off some of the post pandemic recovery risking stagflation in the medium term and the likelihood that these rate rises would have to be reversed.
Of course, these moves in the bond markets could change again should inflation really take hold.
EURUSD +0.49 +0.42 GBPUSD Unch USDJPY -0.23 -0.2%
Little action in the forex market last week, with the US Dollar losing more of its gains since early September in anticipating of the start to QE tapering.
Gold +24 +1.35% UK OIL +1.04 +1.23% US OIL +1.7 +2.06%
Oil continued its relentless rise, adding another $1 from the previous week.
The Yen experienced some profit taking halting the slide from the previous week although the energy squeeze will have a direct impact on Japan which has to import significant quantities of oil and gas.
Last Tuesday’s successful launch of the Proshares Bitcoin Strategy ETF, to give it its full name, gave another boost to Bitcoin and other Cryptos.
The Bitcoin ETF, or BITO as it’s called, attracted more than $1 Bln from investors making it one of the fastest growing ETFs.
Data / events for the week ahead
ECB, BoC & BoJ policy meetings, the UK budget, and US GDP data to look forward to.
Monday
Germany German IFO business climate. Large survey of manufacturers and retailers. Gradually slipping from levels four months ago.
Tuesday
Wednesday
Japan Bank of Japan policy meeting. Following upgrade in outlook the bank is expected to make no change to official rates.
UK UK’s Autumn Statement presented by Chancellor Rishi Sunak. Almost all the policy announcements seem to have been trailed ahead of the announcements in parliament so markets will probably have little in the way of any meaningful surprises.
Canada Bank of Canada – no change ahead of FED’s FOMC policy meeting in early November.
US Core Durable Goods orders. Still on the rise but slowing.
Thursday
Eurozone ECB policy meeting. Whilst investors have started to price in a slight rise in Eurozone rates by end of 2022, the likelihood of anything happening in the short to medium term is very low. Markets are predicting the Eurozone rates will increase by 0.1% by the end of 2022.
Hardly noteworthy – actually, noteworthy for how dovish investors are about prospects for a rate rise.
Most analysts expect the ECB to maintain a more dovish approach, contrary to what the BoE have been saying. They can’t both be right, or can they??
US GDP data.
Friday
US Revised University of Michigan Consumer sentiment. Stabilising??
US Chicago PMI – Still falling.
So, that’s about it for the week ahead.
I’ll be back in touch with more news and views on trading the markets…
In the meantime, remember to tune into our stock market trading session on Thursday at 12.30pm.
It’s free to attend, but places are limited. So, if you fancy coming along, don’t delay – get your free pass here.
If we continue to get strength in the US stock market in the weeks ahead, the small group of well-known stocks we focus on look well placed to benefit.
And with our specially designed indicators, you’ll know the best time to enter for potential profits.
Check out the strategy in our Momentum Stocks session.
Click here to get your FREE place in the webinar.
Regards,
Jerry Miller
Managing Director
Trendsignal
