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General Market Analysis 25 October 2023

Stocks Bounce on Earnings and Data – Nasdaq Jumps 1%

Investors looked on the positive side of data and earnings numbers yesterday as the major US stock indices all rallied despite mixed signals for the market. The Dow Jones gained 0.62%, the S&P 500 rose 0.73% and the Nasdaq jumped 0.93% on the back of some strong earnings numbers from Microsoft, despite a drop for Alphabet. US PMI data came out better than expected and the dollar reacted well, gaining 0.6% on the day although US treasury yields experienced a mixed day as well as they once again took a breather from their recent strong run, the 10-year dropping at 4.82% and the 2-year at 5.099%. Gold had another whippy day but finished up lower, now trading around the $1,970 level.

Dollar Remains in Demand Despite Fluctuations

We saw a decent rally for the greenback last night after it had taken the back seat to some of the other majors for the last couple of days after US treasury yields dropped off record highs. However, the underlying interest rate differentials are still pointing to more dollar strength in the medium term and data out last night only reinforced that view. Flash PMI numbers for both Manufacturing and Services came out stronger than expected and Fed members will be taking those into consideration as we approach the next rate decision in a weeks’ time. We have had some members who have moved to a more dovish leaning recently, however data releases are showing that they may be a bit premature in this outlook and, if we get a strong print from the Fed’s favoured inflation data the PCE Price Index later this week then traders are expecting to see the dollar move higher and probably much quicker.

Big Data and Central Banks Ahead Today

The trading week is speeding up nicely and if today’s economic calendar is anything to go by then we have more volatility ahead. The APAC session will have investors focus firmly on Australia at the start of the day with the key CPI inflation data due out – a crucial number with the RBA set to give us its next rate decision next Tuesday. The European session has the latest German Ifo Business Climate data due out just as Germany looks set to move into 3rd position in world rankings for economic size. But, once again the North American session has the most propensity for market moves with the Bank of Canada delivering its rate decision followed by more key central bank updates with both ECB President LaGarde and Fed Chair Jerome Powell scheduled to speak.