Weekly review: Absolutely crazy! The Federal Reserve and its non-farm payrolls have completely detonated the market. The US dollar has experienced a sharp reversal, and the Japanese yen has plummeted. Provider FX168

FX168 Financial News (Hong Kong) News Market overview from October 30th to November 3rd:The central bank’s super week is indeed well-deserved! This week, the Federal Reserve’s dovish pause in raising interest rates caused global stocks and bonds to rally wildly. Coupled with weak non-farm employment data, the market’s expectations for the Federal Reserve to raise interest rates have cooled. U.S. stocks have recorded their largest weekly growth this year, and the U.S. dollar continues to decline. At the same time, The Bank of Japan’s decision sent the yen on a roller-coaster ride.

In terms of market performance, global risk assets exploded, the U.S. dollar and U.S. bond yields both fell, gold lost the 2,000 mark, ending its three-week rising trend, and crude oil fell as much as 6%.

Forex market:The U.S. dollar experienced a sharp reversal this week. The U.S. dollar index rebounded sharply from the beginning of the week and once broke through the 107 mark, reaching a maximum of 107.11. As the Federal Reserve’s dovish tone was suspended, suggesting that the radical tightening cycle may end, the U.S. dollar index fell sharply from its high on Wednesday, and then successively It fell below the 106 and 105 marks. On Friday, it plummeted by more than 100 points under the influence of the upset non-agricultural goods, hitting the lowest level of 104.94. It barely closed above the 105 mark that week. The weekly decline exceeded 150 points, or 1.42%, which was the highest level in July. The biggest weekly drop since mid-March.

(USD Index daily chart source: FX168)

While the U.S. dollar hit highs and fell back, the euro trended in the opposite direction. It fluctuated and fell below the 1.06 mark since the beginning of the week. On Wednesday, it fell sharply to the 1.0516 level, approaching the 1.05 mark. It quickly counterattacked under the influence of the dovish Federal Reserve, and on Thursday It soared by more than 200 points in five trading days, reaching the highest level of 1.0747, and finally closed at 1.0730. The weekly increase reached 170 points, or 1.61%, which was the largest weekly increase since mid-July. The trend of the pound this week is similar to that of the euro, showing a late-stage outbreak pattern. It fluctuated around 1.2150 for three consecutive trading days at the beginning of the week. On Thursday and Friday, the bulls exploded, breaking through the 1.22 and 1.23 levels in succession, reaching the highest level of 1.2389, and rising that week. It exceeded 250 points, with a weekly increase of 2.1%, marking the best weekly performance since mid-November last year. The US dollar/yen experienced a rollercoaster ride this week. On Tuesday, the Bank of Japan fine-tuned its YCC policy, which was not as hawkish as the market expected. The Japanese yen experienced a sharp plunge, plummeting 258 points, hitting the lowest level of 151.73 against the US dollar, a drop of 1.73%. In the following three trading days, under the influence of verbal intervention by Japanese officials and the fall of the US dollar, the yen barely recovered part of its losses and still fell slightly by 0.18% that week, closing at 149.33.

(EUR/USD daily chart source: FX168)

Commodity:Gold maintained a high consolidation posture this week. It began to consolidate after three consecutive weeks of sharp gains. The price of gold gradually fell below the 2000 mark, hitting a minimum of $1,969. It closed at $1,992 that week, with a weekly decline of 0.24%. At the same time, the trend of spot silver was volatile this week, fluctuating around US$23 as a whole, with the lowest hitting US$22.52 and the highest reaching the 23.59 level, rising slightly by 1.1% that week.

(Spot gold daily chart source: FX168)

Crude oil markets have taken a beating this week. WTI December crude oil futures closed down US$1.95, or 2.36%, at US$80.51/barrel, down 5.88% for the whole week. Brent crude oil for January closed down $1.96, or 2.26%, to $84.89/barrel, down 6.18% for the week.

(Brent crude oil daily chart source: FX168)

Global stock markets:This week, global stock markets posted their largest weekly gains in nearly a year, and the MSCI World Index posted its largest five-day gain in ten months. The three major U.S. stock indexes rose across the board. The Nasdaq rose for five consecutive days, rising more than 6% in a week, reversing three consecutive weeks of losses; the S&P 500 hit its highest level since October 17 for two consecutive days, rising 5.9% this week, the largest weekly increase this year. ; The Dow hit its highest level since September 21, rebounding 5.1% this week. European stocks had their biggest weekly gain since March, with the European STOXX 600 Index rising 3.41% for the week. The three major A-share indexes all closed higher this week, with the Shanghai Composite Index rising 0.43%, the Shenzhen Component Index rising 0.85%, and the GEM rising 1.98%.

In the bond market, U.S. bond prices generally rose this week, with the 10-year yield hitting a one-month low and falling by more than 10 basis points for three consecutive days. The two-year yield once dropped nearly 20 basis points to a two-month low.

A summary of the week’s headlines:

The central bank’s Super Week is well-deserved!Global markets are going crazy

This week’s central bank super week really set off a big market! The Bank of Japan fine-tuned YCC, and the yen plummeted by more than 250 points in one day. Then on Wednesday, the Federal Reserve paused its dovish stance as expected, suggesting that the tightening cycle may be over. Global markets rose wildly, and the US dollar fell after rising.

Dovish Fed pauses global market counterattack

At 2 a.m. Hong Kong time on Thursday, the Federal Reserve announced the November interest rate results at its two-day monetary policy meeting. Fed Chairman Powell will hold a post-meeting press conference at 2:30 a.m. as usual.

On Wednesday (November 1) local time, the Federal Reserve kept its short-term key interest rate unchanged for the second consecutive time, but may further raise interest rates if inflationary pressures intensify in the coming months.

The Federal Reserve issued a statement after its latest meeting that it would maintain its benchmark interest rate at around 5.4%, the highest level in 22 years. Since launching the most aggressive series of rate hikes in four decades to combat inflation in March 2022, the Fed has scaled back its efforts, raising rates only once since May.

The latest statement noted that recent turmoil in financial markets has caused long-term interest rates to rise near 16-year highs and led to higher borrowing rates across the economy. “Tighter financial and credit conditions for households and businesses are likely to weigh on economic activity,” the report said.

That statement echoes recent comments from Fed officials that rising 10-year Treasury yields — or interest rates — could have a dampening effect on the economy and curb inflation as a substitute for further interest rate hikes by the Fed.

Jerome Powell said at a press conference that if higher interest rates remain high for a long time, a surge in long-term interest rates will cause the economy to slow down. But he warned that the Fed is not yet convinced that its benchmark interest rate is high enough to slow economic growth over time.

What matters to the Fed is that the 10-year Treasury yield continues to move higher even without the central bank raising rates. This suggests that even if the Fed keeps its benchmark interest rate unchanged, Treasury yields are likely to remain high, helping to curb economic growth and inflation.

Other major central banks have also been slowing rate hikes as their inflation measures appear to be improving. The European Central Bank kept its benchmark interest rate unchanged last week and inflation in the 20 countries that use the euro fell to 2.9% last month, the lowest level in more than two years.

Affected by the Fed’s dovish pause, U.S. stocks and bonds rose together, setting off a carnival in the market.

On Wednesday local time, the three major U.S. stock indexes maintained their gains throughout the day, with the S&P 500 and Nasdaq ultimately closing up more than 1%, and the Dow Jones Industrial Average closing up 0.7%.

U.S. bond yields fell collectively. The 2-year U.S. bond yield once fell by more than 14 basis points and fell below the 5% mark. The 10-year U.S. bond yield once fell by 12 basis points to 4.75%, a two-week low. U.S. bond yields fell as much as 8 basis points to 4.94%.

Bill Dudley, a media contributor and former president of the New York Fed, said that the Fed is basically saying: “We don’t think we need to take more action from now on. Powell feels very confident that the Fed has done a lot.”

Capital Group, a large fund company, believes that the Federal Reserve’s recent hint that it may end its aggressive tightening cycle has become a good opportunity to enter the market. It recommends that clients actively absorb global stocks because after interest rates peak, stocks will perform better than bonds and cash.

“The really important message for investors is that the moment when central bank interest rates peak may very well open a window, which will be a very good time to invest,” said the asset manager, which has assets of $2.3 trillion. said Andy Budden, the company’s head of equity investments.

In the 12 months since the last round of interest rate hikes by the Fed, global stock markets have returned an average of more than 12% in U.S. dollar terms, according to a Capital Group analysis of the past four rounds of interest rate hikes. By comparison, global bonds yield about 6% and cash returns about 4%.

Former “Bond King” Bill Gross said on the social platform X that U.S. regional bank stocks have bottomed out and are currently absorbing some related shares.

In addition, the Bank of England also kept key interest rates unchanged in September. At the same time, the Bank of Japan has loosened its grip on long-term interest rates and is gradually raising borrowing costs.

The Bank of Japan is so stubborn that it refuses to acknowledge the yen’s fall

On Tuesday, the yen suffered its biggest one-day drop against the U.S. dollar since April as the Bank of Japan made small adjustments to its policy of keeping government bond yields down.

On October 31, at the latest interest rate meeting, the Bank of Japan continued to hold on unchanged, keeping the policy interest rate unchanged at -0.100% and the 10-year government bond yield target unchanged at 0.00%.

Regarding Japanese government bond yields, the Bank of Japan Kazuo Ueda said that using the upper limit of long-term yields at 1% as a reference will increase the policy flexibility of the Yield Curve Control Plan (YCC). He said that it is appropriate to improve the flexibility of YCC policy. “Implementing a 1% cap on fixed-rate operations may have significant side effects. If the yield cap remains rigid, the side effects will become even greater.”

Before this meeting, there were various rumors about the adjustment of the YCC curve, but the final results showed that although the Bank of Japan did change the “hard cap” of 1% interest rate as a reference and said it would be more flexible, it was not as clear as before. It is expected that the upper limit will be clearly relaxed to 1.5%.

In addition, the Bank of Japan’s overall stance on the 31st was also “dovish”, saying it would continue to patiently implement loose monetary policy and would not hesitate to increase easing measures if necessary. The bank also reiterated that it will implement the YCC policy mainly through large-scale Japanese government bond purchase operations.

Affected by the above news, the Japanese yen fell 1.7% against the US dollar to 151.60 yen per US dollar, the lowest level since October last year and close to the Bank of Japan’s last record-breaking investment of 6.35 trillion yen ($43 billion). ) intervened to push up the yen’s lows.

The yen then strengthened on Wednesday from near its lowest level this year after Japan Foreign Exchange Bureau officials said they stood ready to intervene in currency markets.

“The market views the adjustment to the flexible exchange rate mechanism as a clearly dovish move,” said Chris Weston, director of research at Pepperstone. “Market participants are once again disappointed with the lack of urgency shown by the Bank of Japan and either liquidate their yen positions. Long, or simply turn short the yen.”

The yen’s sharp fall prompted Masato Kanda, Japan’s top foreign exchange diplomat, to issue a new, more serious warning, saying authorities were prepared to deal with recent “unilateral and violent” moves in the yen.

The yen rose 0.24% to 151.31 yen per dollar after his comments, but remained close to Tuesday’s one-year low of 151.74 and last year’s 30-year low of 151.94 yen.

Non-Agricultural Congress upset!Stocks and bonds are losing money

At a time when global stock markets are expected to record their biggest weekly gains in a year, Friday’s “explosive” non-agricultural interest rate hike ended expectations, and US stocks and bonds set off a carnival.

Affected by the strike in the automobile industry, the number of new non-farm jobs in the United States slowed more than expected in October, and the unemployment rate rose to the highest level since January 2022, which means that the labor market has begun to cool down.

On Friday, November 3, the U.S. Bureau of Labor Statistics released data showing that the U.S. non-farm payrolls increased by 150,000 in October, compared to expectations of 180,000; the number of new jobs in September was revised down from 336,000 to 297,000. The number of new jobs created in October was only half of the number of new jobs created in September, marking the second-lowest job growth since 2022.

The unemployment rate in October was 3.9%, exceeding the expected 3.8%. It also rebounded from 3.8% in September and rose to a new high in the past two years. The total number of unemployed people was 6.5 million. The report pointed out that although the unemployment rate index changed little month-on-month, It rose by more than 0.5% from the low in April, and the number of unemployed people increased by 849,000. Analysts believe that the rise in the unemployment rate marks the beginning of a cooling off of this summer’s hot hiring season.

At the same time, wage growth in October slightly exceeded expectations, with year-on-year growth slowing to 4.1% from 4.2% last month, exceeding expectations by 4%, setting the smallest annual increase since mid-2021. Average hourly earnings increased by 0.2% month-on-month in October, lower than expectations of 0.3% and unchanged from September.

U.S. Treasury yields plunged after the jobs report, with the 10-year yield hitting a one-month low. It fell by more than 10 basis points for three consecutive days, and has fallen by about 26 basis points this week.

Violent fluctuations in the “anchor of global asset pricing” pushed up U.S. stocks. The Nasdaq rose for five consecutive days, rising more than 6% in a week, reversing three consecutive weeks of losses. The S&P set a new high since October 17 for two consecutive days, and the Dow hit a new high since September 21. since high position.

Global stock markets also posted their biggest weekly gains in the past year, with the MSCI World Index posting its biggest five-day gain in ten months this week.

After the employment data came out, the swap market showed that there was only a 20% chance that the Federal Reserve would raise interest rates in January next year, and it estimated that it would start cutting interest rates in June. It was previously predicted that interest rates would be lowered as early as July.

Kathy Jones, chief fixed income strategist at Charles Schwab, believes the Federal Reserve will keep interest rates unchanged in December and that the move to raise interest rates may be over.

Gregory Faranello, head of U.S. rates trading and strategy at AmeriVet Securities, said the jobs report was consistent with the view on the U.S. economy that it is slowing.

Will Compernoll, financial macro strategist at FHN in New York, said that the market is now very confident that the Federal Reserve has completed raising interest rates, and the October non-farm report is the final step in market pricing: “I wouldn’t say that this data report really shows that The economy is slowing as we enter the fourth quarter, and I think there’s still a lot of economic data that points to a strong economy, but it certainly points to some slack in the labor market that I think the Fed has been expecting for some time.”

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