The recent rally in the stock market has shown signs of faltering, largely attributed to profit-taking in the context of overbought conditions. This shift in market sentiment followed a period of excessive optimism by bond bulls, who prematurely anticipated Federal Reserve rate cuts as early as spring and aggressively projected an easing of 50 basis points by mid-year. However, mixed economic data, including reports on retail sales, the Producer Price Index (PPI), and the Empire State Manufacturing Survey, have failed to provide clear directional cues for the market.
In the bond market, Treasuries retreated, relinquishing about half of the gains spurred by Tuesday's CPI data. This pullback was accompanied by a rise in yields across the curve, approximately 7 basis points, reflecting a recalibration of market expectations.
On the international front, the recent summit between President Biden and Chinese leader Xi Jinping marked a shift to a less contentious tone, although deep-rooted disagreements between the US and China persist. These geopolitical dynamics continue to exert influence on global markets. In Asia, Japanese exports saw growth for the second consecutive month in October, albeit at a slower pace. This deceleration is primarily attributed to reduced shipments of chips and steel to China. Concurrently, Chinese economic data revealed ongoing weakness in the property sector, dampening some of the optimism surrounding the potential recovery of the world's second-largest economy. Notably, Chinese home prices experienced their most significant drop in eight years during October.
In currency markets, the USDindex remained stable above 104 on Thursday, showing resilience amidst recent fluctuations. The Australian and New Zealand dollars, typically sensitive to risk sentiment, declined to 0.6474 and 0.5978 respectively. This movement was in response to falling regional equities and an unexpected rise in Australia's jobless rate, despite an improvement in employment numbers for October.
Asian stock markets reflected this cautious sentiment, with notable declines interrupting the week's earlier gains. The JPN225 index ended 0.28% lower at 33,424.41, halting a three-day winning streak. This downturn was influenced by profit-taking and a rebound in US Treasury yields.
In the United States, however, stocks closed marginally higher. The US30 rose by 0.47%, the US500 gained 0.16%, and the US100 ended flat. Noteworthy corporate developments included a more than 15% increase in Target's stock following strong Q3 results, and Microsoft's introduction of its first AI chip, Maia 100, along with a new cloud computing chip. The energy sector saw oil prices extend their decline following a US government report indicating an increase in crude inventories. USOIL dipped 0.9% to $75.97 a barrel, while UKOIL crude fell to $80.44 per barrel.
In the metals market, XAUUSD (spot gold) traded slightly higher at $1967 per ounce. The crypto market also witnessed some movement, with BTCUSD recovering from a two-day dip to return above $37,300. This rebound is possibly linked to profit-taking by sellers in anticipation of another delay in the SEC's approval of a spot ETF, with lower inflation and bond yields expected to further support cryptocurrency prices.
An interesting mover in the currency market is the NZDUSD, which experienced a 0.74% decrease yet managed to hold ground above a four-month descending channel. Key levels to watch for this pair include support at 0.5940 and resistance at 0.6000.
