Trade overview: current reports, trends, indices, stock prices, bonds, foreign exchange and commodities and analyst recommendations
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Asian stock markets are trading in a mixed trend today, with gains in China following the publication of the Caixin/Markit Purchasing Managers’ Index for the industrial sector, which stood at 50.4 points in July compared to economists’ expectations of 51.5 points. In Hong Kong, the index of the leading shares registers a slight decrease, while the Nikkei index in Tokyo climbs by about 0.5%.
Trading in contracts on US stock market indices shows slight declines, ahead of another week full of financial reports.
The yield on the 10-year US government bond rose by 2 basis points to 2.67% and the dollar weakened by about 0.1% against the euro and the pound and about 0.5% against the Japanese yen.
In the commodity trading arena, the oil contracts are registering decreases of 1%-1.3% and gold is registering a slight decrease.
In the crypto market, Bitcoin weakened by about 2% and traded around $23,400 and Ethereum fell by 1.5% to a level of about $1,700.
Ori Greenfeld, the chief strategist of Psagot, points out in his weekly review that the Fed’s announcement last week put the gap between the stock market and the bond market in the spotlight. In the American bond market, it seems that investors expect a change in the direction of the Fed’s policy and a reduction in interest rates already during the first quarter of 2023.
“In order for this to happen, two conditions must be fulfilled: the first is that inflation in the US will drop significantly and be lower than 5% (currently 9.1%). The second is that the labor market will be much less tight than it is today so that the pressures for wage increases will disappear. In order for these two conditions to be realized by the first quarter of next year, the American economy must go through a process of deep recession, including in the real estate market which alone currently contributes almost 4% to inflation. The thing is that such a process is not exactly in line with the stock market which is priced though A process of slowing down but not of a deep recession when the estimates among investors are that the companies’ profits will continue to grow during the coming year as well.”
“The disconnection between the stock market and the bond market is not that rare and it usually happens at points in time when the policy of the central bank is expected to change. However, after last week’s interest rate decision and Powell’s words after it, it seems that the expected change in Fed policy is closer to what the stock market is pricing in. Powell emphasized that the Fed is determined to fight inflation and that the risk of doing too little (meaning not raising interest rates enough) and leaving the economy with a permanently high inflation environment is too great a risk. In doing so, Powell is actually admitting that the Fed realizes that it has no choice but to actively and continuously cause the unemployment rate to rise, a process that usually takes a long time. Therefore, it is likely that interest rates in the US will continue to rise and, more importantly, will remain high for a relatively long period of time, contrary to what the bond market currently embodies,” writes Greenfeld.