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Busy earnings week

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Miguel A. Rodriguez
Miguel A. Rodriguez
05 November 2022
Global stock indices started higher on Monday, though mid-session prices fell, closing in the red amid Apple hiring rumors

The US Dollar fell as investors lowered their expectations that the Federal Reserve will take a more aggressive approach to raising interest rates next week.

 

A 75bps rate hike is taken for granted, but more and more analysts are setting the Fed Funds target at lower levels than touted just a couple of weeks ago. The reason is that inflation expectations have decreased considerably after most commodities' collapse, and the economy's slowdown will presumably cause a drop in demand.

 

Meanwhile, the US earnings season is picking up steam. The results align with the forecasts, without any company yet with significant setbacks in their earnings. Yesterday, Charles Schwab Inc and Goldman Sachs earnings were published with higher-than-expected figures. And today, the earnings of major companies such as J&J and Lockheed Martin will be announced.

 

The market seems to be stabilizing, although still with some volatility, after the wave of doomsday forecasts in which the word ‘recession’ was predominant. It can be said that the Fed is doing well so far, with a good communication policy that is preventing a collapse of the markets without leaving behind the necessary normalization of monetary policy. The Treasury bond market is less volatile now, and bond yields largely reflect the interest rate hikes the Fed will make in the coming months.

 

A very different situation is the one facing the European Central Bank. At this Thursday's meeting, a 25-bps rate hike is expected, but it remains to be seen if this modest rise will be enough to deal with high European inflation. The problem facing the ECB is that more aggressive increases could destabilize peripheral bonds, especially those of Italy, which in addition to high debt, is immersed in political instability.

  

Despite the latest rally in the EUR/USD, they are motivated above all by the weakness of the US Dollar due to the improvement in market risk sentiment. The single currency may still be subject to downward pressure, even more so if the Russian threats to cut off the gas supply to Europe are fulfilled.

Interfaz de usuario gráfica, Gráfico, Gráfico de líneasDescripción generada automáticamente

 

Sources: Bloomberg, Reuters

This information/research prepared by Miguel A. Rodriguez does not take into account the specific investment objectives, financial situation, or particular needs of any particular person. The research analyst primarily responsible for the content of this research report, in part or in whole, certifies that the views about the companies and their securities expressed in this report accurately reflect his/her personal views and consequently any person acting on it does so entirely at their own risk.The research provided does not constitute the views of KW Investments Ltd nor is it an invitation to invest with KW Investments Ltd. The research analyst also certifies that no part of his/her compensation was, is, or will be, directly, or indirectly, related to specific recommendations or views expressed in this report.The research analyst in not employed by KW Investments Ltd. You are encouraged to seek advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit that conforms to your specific investment objectives, financial situation, or particular financial needs before making a commitment to invest. The laws of the Republic of Seychelles shall govern any claim relating to or arising from the contents of the information/ research provided. 

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Miguel A. Rodriguez
Miguel A. Rodriguez
Financial Writer

Miguel worked for major financial institutions such as Banco Santander, and Banco Central-Hispano. He is a published author of currency trading books.