Even though the war in Israel continues to gain attention from markets, the global stock markets are regaining losses. This is partly due to the fall in market interest rates and the fact that earnings season started off strong with PepiCo. smashing expectations.
The global stock market is gaining ground
The conflict in Israel continues to draw attention from markets. However, as is usually the case in these kinds of situations, it seems markets are getting used to the tension. As a result, and while waiting for more events to unfold, a certain degree of calm has returned to the global stock markets. European and North American indices are recovering strongly, largely due to the fall in market interest rates (bond yields) motivated by the purchase of treasury bonds as safe haven assets. Relatively moderate comments by Federal Reserve (Fed) officials, who seem to be in favour of being less aggressive when it comes to interest rates, also contributed to a more positive outlook.
Markets are more confident that the Fed’s rate hike has ended
Fed Vice Chairman, Philip Jefferson, said the central bank could "proceed carefully" in deciding whether further increases are warranted. Dallas Fed President, Lorie Logan, also commented on how the Fed could proceed by indicating that rising yields of treasury bonds could make further interest rate increases less necessary.
The market is increasingly leaning towards the idea that the peak in the Fed funds hike has already been reached and is beginning to contemplate the possibility of rate cuts.
Fed funds futures are pricing in an 84-basis points chance of a rate cut
Fed funds futures that are due in December are pricing in 84 basis points of cuts, which is a big step up from 59 basis points two weeks ago.
Yesterday marked the third day in a row of significant gains despite the severe geopolitical tension. A movement that began after the nonfarm payroll figure with a figure much higher than expected.
Tomorrow markets expect the US Consumer Price Index (CPI) data to be published. This could further boost the stock markets if the figure is low or lower than expected.
Earnings season has begun with PepsiCo exceeding expectations
Another factor which could help stock markets continue their upward climb is the start of the new earnings season which kicked off yesterday with PepsiCo. The company beat analysts' expectations and raised its full-year earnings outlook. The company reported earnings per share of $2.25 versus the expected $2.15. Revenue came to $23.45 billion versus the expected $23.39 billion. Shares rose about 1.5% during the session.
PepsiCo monthly chart, October 11, 2023. Source: CAPEX.com WebTrader.
Key Takeaways
- Global stock markets are regaining losses.
- Market interest rates are falling after the purchase of treasury bonds.
- Comments by Fed officials that suggest a less aggressive approach to interest rates is helping to calm markets.
- Fed funds futures are pricing in a chance of a rate cut at 84 basis points.
- Markets are expecting more economic information tomorrow when the CPI data will be released.
- Earnings season began with PepsiCo. smashing expectations.
- PepsiCo. shares rose about 1.5% during the session.
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Sources: Bloomberg, Reuters
