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Global equities down on weak guidance for Facebook and Amazon, and pandemic worries - Market Overview

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Miguel A. Rodriguez
Miguel A. Rodriguez
05 November 2022
The month's last trading day begins with falls in both European stock indices and North American futures, largely related to weak guidance for Amazon and Facebook.

Also, the strong resurgence of the pandemic and the persistent fears surrounding China and its regulatory pressure impacted global equities.

In this scenario of greater risk aversion, the Treasury Bond Yields continue to fall with Tnote down to 1.24% and Bund dropping to -0.45%.

The U.S. Dollar resumed its decline due to the drop in bond yields and the disappointing GDP data for the 2nd quarter published yesterday -  6.5% vs 8.5% expected.

The EUR/USD pair experienced a strong rebound yesterday, slightly above the resistance zone located around 1.1880-1.1890. From a technical point of view, a weekly close above these levels would pave the way to the next level around 1.1980-1.1990.

It is also true that a large part of the selling dollar flows occurring in the markets might be the result of investment portfolio adjustments usually made at the end of the month. But this time, there could also be other reasons for a downward trend, such as the fall in long-term interest rates, which have a high positive correlation with the U.S. currency.

On the other hand, an increase in risk aversion could lead to buying flows of dollars seeking refuge. Thus, the scenario is not very defined in the currency market, with a significant disparity of opinions among analysts.

The data that will be published soon as the employment figure for next week may shed more light on this scenario, especially regarding the future Federal Reserve's monetary policy decisions. The upturn in inflation in recent months, which has been a source of attention from investors, continues to be ruled out by the Fed as a reason to start withdrawing stimulus.

Today the Core CPI price index is published in the United States, the preferred measure of the Fed to calibrate inflation. According to the forecasts, the index could continue to rise to + 3.7% vs 3.4% the previous month.

However, it seems unlikely that this report will have a relevant impact on the market given the Fed's clear decision of not changing its current monetary policies, at least for now. But as the months come and by, inflation doesn’t seem to decrease, and some members of Fed’s MPC have already begun to show concern in this regard. For this reason, the debate on the withdrawal of stimulus could be an issue that can be discussed at the next meeting in Jackson Hole.

Sources: Bloomberg, reuters.com.

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.