Today saw wage inflation rising faster than hoped (hawkish for Fed) and consumer confidence worsened (with inflation expectations jumping).
Not exactly a great way to end the month.
But, as Financial Conditions tightened for the 3rd straight month in October, they failed to spook the economy...
Source: Bloomberg
Alongside a growing realization that the US was not in imminent danger of slipping into recession (and was in fact achieving one of its strongest growth quarters in the past 20 years), came another leg up in rates.
And, as Goldman's Chris Hussey notes, as investor consensus around sustained US growth rises, the expectation that the Fed will soon need to CUT rates falls. And if the Fed is not going to cut rates in 2024 as much as many had previously anticipated, then rates may need to rise further towards the ultra-short term yield of the Fed Funds rate -- currently 5.25%-5.50%.
Source: Bloomberg
Higher long-term rates are a headwind to valuations typically. And while the growth trajectory of the US economy has proven to be more robust than many anticipated, the forward outlook for growth is not as strong as what we have just experienced...
Source: Bloomberg
Small Caps tumbled over 7% in October, down for the 3rd month in a row and the worst monthly loss since Sept 2022. Nasdaq fell over 2% on the month, also its 3rd straight monthly loss in a row.
Notice stocks were initially bid on the Israel-Hamas war...
Source: Bloomberg
Utilities were the only sector to end October in the green with Energy and Consumer Discretionary the biggest losers...
Source: Bloomberg
The Long Bond rose over 30bps on the month - its 7th straight month of yield increases - but the short-end (2Y) was basically unchanged...
Source: Bloomberg
The yield curve (2s30s) steepened for the 4th month in a row to its highest since July 2022 (dis-inverting numerous times intra-month)...
Source: Bloomberg
Real yields (10Y) rose for the 6th month of the last 7 to their highest 'since Lehman' (Oct 2008)...
Source: Bloomberg
The dollar rallied for the 3rd straight month to its highest monthly close since Nov 2022...
Source: Bloomberg
Today's price action in FX land was quite shocking...
USDJPY soared by more than 3 big figures from the overnight lows (weaker JPY vs USD) after the BoJ sent somewhat mixed messages with its YCC adjustment...
Source: Bloomberg
JPY is at its weakest since its spike in Oct 2022...
Source: Bloomberg
...although on a closing basis, this is the weakest yen relative to the dollar since June 1990...
Source: Bloomberg
EURUSD rallied early (despite weak GDP and lower inflation) but then humans looked at the reports and the euro dumped against the dollar...
Source: Bloomberg
Cryptos all soared in October with Solana outperforming....
Source: Bloomberg
This was Bitcoin's best month since January 2023, surging above $35,000 for the first time since May 2022...
Source: Bloomberg
But Ethereum notably underperformed (its biggest monthly underperformance of bitcoin since Feb 2021)...
Source: Bloomberg
Spot Gold's best month since March but futures saw their biggest month since July 2020, starting the ramp as Hamas attacked Israel from $1820 to $2020...
Oil (WTI futs) suffered its worst month since May (very close to its worst month since Nov 2021), but NatGas soared over 23% on the month - its biggest monthly gain since July 2022...
Source: Bloomberg
WTI erased all of the post-Israel attack gains and some...
Finally, some bigger picture malarkey. The US equity market continues to fight to maintain its extreme richness relative to GDP (Buffett's favorite indicator), bouncing off its DotCom peak highs, and now back down to it - still massively over-valued...
Source: Bloomberg
Did Biden break the AI bubble?
Source: Bloomberg
Where to from here?
Happy Halloween!
