Written by Wayne Cole
(Reuters) – Wayne Cole discusses the future outlook for European and global markets.
Asia was in a speculative mood so far Friday after another week of wild swings in bond, stock and commodity prices. The oil market has recently experienced volatility, with prices falling nearly 5% overnight, due in part to concerns about oversupply and falling demand.
Speculation also played a role, as Argo, CTA and trend-following funds turned short after Brent crude topped $80 a barrel, dropping from $80.70 to $78.40 in one hour of trading. After finding support at $76.60, it was trading around $77.60.
This is a far cry from September’s all-time high of $97.69, and was achieved despite wars in Ukraine and the Middle East. OPEC+ will likely say something on this before its next meeting on November 26th.
This decline bodes well for further declines in headline inflation around the world, and should bode well for U.S. consumers, whose confidence is closely correlated with gas prices.
Speaking of disinflation, Walmart executives said Thursday that prices for general merchandise such as apparel and home goods are down 3% to 6%, and they plan to lower prices further for the holiday season. However, the stock price fell 8% due to margin compression concerns.
All of this, plus a rise in weekly jobless claims, was a painkiller for bonds, with the two-year Treasury yield dropping 21 basis points on the week to 4.85%, its best weekly performance since March.
Federal funds futures have largely priced in the risk of further interest rate hikes by the Federal Reserve, with a 34% probability that interest rate hikes will be eased as early as March. The market is currently suggesting a rate cut of 98 basis points next year (up from 73 basis points a week ago).
Interestingly, Westpac analysts note that U.S. economic data is showing a pattern that remains post-pandemic seasonality, with news reporting strong from mid-year through the third quarter, but only weakening toward the end of the year. It is pointed out that it shows. If that’s the case, the rally in bonds is likely to continue.
Key developments that may impact the market on Friday:
– Data on current account EU final CPI inflation for October and September. UK retail sales for October
– Appearances by ECB President Christine Lagarde, senior Dekos ECB officials, Mr. Holtzmann, and Mr. Cipollone
– BoE’s Green and Ramsden speak
– Fed speakers include Barr, Daly, Collins, and Goolsby. U.S. housing starts data for October
(Written by Wayne Cole; Edited by Muralikumar Anantharaman)