State of The Markets | Stocks Extend Rally as Dollar and Yields Fall


Stocks extend rally as Dollar and Yields fall . US stocks rose further on Thursday despite the US economy showing contraction for the second straight quarter as leveraged traders speculate that the Fed might ease on rate hikes to tame inflation. The small cap Russell (+1.34%) extends the most, followed by S&P (+1.21%), Nasdaq (+1.08%) and Dow (+1.03%) as the Dollar dived to test near the 105.50 minor handle on early Friday trading.

Flight to safety remains the order of the day as yields fell further on treasuries demand. As at writing yields inversions remain with only the 30Y (3.05%) yields above 3% while the rest – 1Y (2.91%), 2Y (2.84%), 3Y (2.79%), 5Y (2.69%), 7Y (2.71%) and 10Y (2.69%) – were below 3%.

In the commodity markets, crude jumped to $99/bl on Dollar weakness but demand concerns pushed the black gold to settle lower circa $96.55/bl as New York closed. Gold surged past $1,755.50/oz on haven demand as talks of Euro collapse returned while Fed’s might not hike as aggressively as it has planned given US economic contraction. Similarly, iron ore jumped above $106.80/tn on Dollar weakness.

In the FX space, safe haven demand continued to escalate as Yen reigned in the medium term accounts and seized the helm of demand in the short while advancing further in the long term accounts. Medium term traders seemed to follow suit as Swiss overbid Sterling and Aussie in demand. Long term remains bearish.

On Friday, traders may look to cash some profits ahead of the weekend while waiting for earnings results from Exxon Mobil (XOM), Procter & Gamble (PG), Chevron (CVX), Abbvie (ABBV), AstraZeneca (AZN), Colgate Palmolive (CL) and Phillips 66 (PSX). Personal consumption expenditures, Chicago PMI and consumer sentiments will be in the spotlight for investors to assess the health of the US economy.

OUR PICK – No New Picks

No new picks going into the weekend. Funds flow continued to be negative for the US equities (-$2.5b) and bonds (-$500m) market, despite recent rally in stocks while short term money markets (+$6.0 b) continue to grow to take advantage of the higher short term yields. Furthermore, talks of Euro collapse have returned and this might elevate demand for gold as investors speculate that the Feds might not be as aggressive as it has planned especially if the coming inflation figure seemed to peak.

Trades updates:

Equities: VIPS (34% undervalued with 4.73 z-score), CRON (20% undervalued with 27.82 z-score) and M (47% undervalued, 3.61% yields) were firm as markets seemed to have bottomed at least for the short term. We still see T (20% undervalued, 5.97% yields) and WBA (31% undervalued, 4.87% yields) offer better opportunities for long term investors.

FX & Commodities: EUR/JPY has reached long term TP2, AUD/JPY is on the way to long term TP1 and we remain bullish GBP/CHF

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This article is for general information purpose only. It is not an investment advice or a solicitation to buy or sell any securities. Opinions expressed are of the authors and not necessarily of MFM Securities Limited or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.