STATE OF THE MARKETS
Dollar rally continues . While US stocks were dumped on Thursday as investors’ flight to safety increased with the rising yields, the Dollar index rallied further to break the 112 handle. The small cap Russell (-2.26%) fell the most, followed by the tech-laden Nasdaq (-1.37%), S&P (-0.84%) and Dow (-0.35%) as the 1Y, 2Y and the 3Y yields break above 4%. The 10Y benchmark strikes 3.7% while the 30Y yields 3.6% as the 30Y mortgage fixed around 6.5% – the highest since 2006.
In the commodity markets, Dollar strength continues to pull major commodities lower, with crude breaking the $81/bl handle and gold struggling to find bids at $1,650/oz. Elsewhere, iron ore stalled at $98.80/tn waiting for the next catalysts.
In the FX space, flight to safety remains the order of the day as Yen and Dollar reign in the short and medium term accounts while Dollar and Swiss in the long term. Sterling was sold off across the board as the new chancellor Kwarteng unveiled a £45 billion tax cut.
On Friday, markets expect some cautious buying in value names amid oversold equities while waiting for earnings releases from Carnival Cruise (CCL) as well as the latest PMI composite figures.
OUR PICK – No New Picks
No new picks going into the weekend. It’s tempting to get back in equities now as they are oversold but we are still in a seasonally weak period. With Q3 earnings still a few weeks away, there is still plenty of time for earnings revisions that could pull stocks even lower. Equities (-$1.1 billion) and bond funds (-$6.8 billion) still report a net outflow while higher short term rates bring more than $30 billion into the short-term money markets. We saw heavy flows into commodities despite Dollar strength as the world prepares for global recession.
Equities: T (6% undervalued, 6.83% yields), M (47% undervalued, 3.99% yields), CRON (24% undervalued with 27.82 z-score), WBA (37% undervalued, 5.76% yields) all tumbled amid the Fed’s rates hike but gold miner AUY (22% undervalued, 2.78% yields) and China based VIPS (37% undervalued with 4.73 z-score) managed to stay above the water.
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