Goldwasser Exchange brings you up to date on everything you absolutely need to know as the new week begins.
Interest rate markets: will Fed rate hikes lead to a change?
Does the status quo announced by the US Federal Reserve (Fed) on November 1 represent a turning point in the cycle of interest rate increases? An idea that is now clearly alive among market players. Traders suspect that the fact that the Fed is now leaving the interest rate on fed funds unchanged between a range of 5.25% and 5.50% for the second consecutive time increases the chance that the status quo will also be maintained in December. enforced by the US central bank. If that were to be the case, market players believe it could mark the end of the rate hike cycle that started in March 2022. A scenario that gained support just before the weekend when the American employment figures for October showed that the labor market was cooling down. This was also felt in the yield on US treasury bills. The ten-year interest rate fell to 4.519%, while it briefly exceeded the 5% limit on October 23. The decline of 50 basis points after the October peak can therefore be considered spectacular.
The decline was further reinforced by an announcement about the US Treasury’s quarterly financing plan. The total amount of bonds to be issued was adjusted downwards (contrary to expectations).
In Europe, Isabel Schnabel reminded that the ECB is not there yet. Schnabel, an influential ECB board member, emphasized that another rate hike may be needed to finally end the fight against inflation. However, in contrast to the US, when published economic indicators point to declining inflation in the eurozone, they also point to a sluggish economy, which is also reflected in the clear contraction in growth in the third quarter.
Investors will therefore once again closely monitor the statistics, such as the retail sales figures in the euro zone on Wednesday 8 November and the inflation figures for October in Europe. On the same day, markets could also be affected by Jerome Powell’s speech. Christine Lagarde’s will have to wait until Friday, November 10, when the British growth figures and the University of Michigan’s consumer confidence index will also be announced.
|Return on government bonds over 10 years|
Primary market: gloomy balance sheet for the month of October
The primary market has been rather calm in recent days, reflecting a lackluster month of October in terms of new issuance. The stress factors are well known: the volatility of interest rates, an American ten-year interest rate that (briefly) squeaked over the 5% mark, instability in the Middle East and the negative results of large companies. Enough reasons to make corporate issuers decide to postpone their bond issues. Nevertheless, there were some companies that ventured into the market. Just think of Glencore, H&M and Valeo.
|Some recently issued bonds|
|Glencore Funding LLC||6,500%||06/10/2033||2,000||1 billion||USD|
|H&M Finance BV||4.875%||25/10/2031||100,000||500 million||EUR|
Currency markets: dip for dollar…
The dollar clearly lost ground (-1.45% for the dollar index over five trading days) against major global currencies, including the euro, following the Fed’s monetary status quo. But there was more. The US employment figures (published just before the weekend) fell below expectations, thus reducing the room for maneuver for possible Fed rate hikes. This reinforced the scenario of a Fed that has peaked in rate hikes, which in turn made the green note less attractive. The euro in turn benefited from the statements of ECB board member Isabel Schnabel. According to her, a new interest rate increase will be necessary in Europe to finally put an end to inflation.
|Look at the currency|
Stock markets: the month of November starts under good stars
After a red October for shares, the stock markets started the month of November on a good note. This was helped by the decline in bond yields and the expected end of interest rate hikes in the US. Values sensitive to interest rate movements (real estate, technology, etc.) were the first to benefit.
|Stock market index performance on 11/03/2023|
|Index||The past week||Year to date||On an annual basis|
|Euro Stoxx 50||+3.99%||+10.04%||+13.19%|
|Nasdaq Composite Index||+6.61%||+28.78%||+28.67%|
There were also some individual values that stood out. One of these is Adecco, which joined the winners of the week with a climb of 14% after the announcement of its quarterly results. In a difficult macroeconomic situation, Adecco has gained market share in all regions with improved profit margins thanks to pricing discipline, increased productivity and good cost control, according to CEO Denis Machuel of the interim work specialist.
However, shareholders of the Danish renewable energy specialist Orsted were hit. Their shares were punished on the Copenhagen stock exchange after Orsted announced that a huge offshore wind farm project in the United States had been canceled. In a press release on Wednesday, November 1, the global number one in offshore wind energy announced that the cancellation of the deal will be accompanied by a write-down of 28.4 billion Danish krone or approximately 3.8 billion euros. The next day, S&P gave Orsted’s BBB+ credit rating a negative outlook.