Market recap: Week of 9-13 Oct 2023

US interest rates

Yahoo: Marko Kolanovic of JPMorgan foresees a potential 20% sell-off in S&P 500 amid rising interest rates. 

Amid growing concerns, cash investments in money markets and short-term Treasuries are emerging as key protective strategies.

Bank of America's Michael Hartnett suggests a potential 20% downside but acknowledges near-term equity upside.

Bonds may become the top-performing asset class as recession risks become more apparent.

Bank of Japan

Reuters: Bank of Japan data dispels notion of mysterious Yen spike as intervention.

Friday's money market projection shows a 1.09 trillion yen net receipt, aligning closely with brokerages' estimates, suggesting minimal intervention.

Experts remain cautious but lean towards no significant intervention.

Central banks

Gold Council: Central banks continue to show strong interest in gold, with their gold reserves rising for the third consecutive month. In August alone, they added 77t to global official reserves, a 38% increase from July.

Over the past three months, their net buying totalled 219t, surpassing net sales from earlier in the year (96t).

European inflation

CNBC: European Central Bank VP de Guindos: Inflation to continue downward, watchful eye on oil prices.

OPEC raises long-term oil demand projections, diverging from IEA. OPEC predicts 116 million barrels per day by 2045, while IEA sees 'beginning of the end' for fossil fuels.

Rate hiking cycle

The Wall Street Journal: The sustained rise in long-term Treasury yields could bring the Federal Reserve's rate hiking cycle to an anticlimactic end. If long-term rates stay high and inflation cools, top central bank officials may halt short-term interest rate hikes. Dallas Fed President Lorie Logan noted that elevated long-term rates may reduce the need for raising the Fed funds rate.

Meanwhile, the Bank of England expressed concerns about overvalued financial assets, particularly in U.S. tech stocks and dollar-denominated corporate bonds. 

Property markets

Business Times: The Bank of England highlights concerns over potentially overvalued risky assets. Some of the landlords are able to pass on costs to tenants because there have not been significant signs of landlords selling up so far. The BOE is closely monitoring the property market in Hong Kong and mainland China, examining potential spillovers to UK financial stability.

In China, monthly new floor space sales have dropped by nearly half compared to 2021 levels, and real estate investment fell almost a fifth in August compared to the same month in the previous year.

Inflation and growth

Yahoo Finance: Pimco sees a potential era of 'extremely attractive' fixed-income returns due to soaring yields and recession risk, says Pacific Investment Management Co. Bright outlook for high-quality bonds over the next 6-12 months with cooling inflation and growth concerns.

Japan's central bank, however, may raise rates as others cut them, potentially boosting Japanese yields - Pimco report.

Germany economy

The Associated Press: Germany's government and the IMF have both lowered their economic growth expectations, citing challenges in various sectors and structural issues.

The country's strong manufacturing sector faces energy challenges and a reduced demand from trade partners.

Yen volatility

Reuters: A senior Japanese finance ministry official said that the Group of Seven (G7) statement reaffirmed the group’s shared understanding that excess currency volatility is problematic. 

In August, when questioned by reporters regarding the yen's recent decline approaching the significant 150 level on 12 Oct 2023, an ex-Bank of Japan official predicted no yen intervention until the breach of 150 threshold.

US Consumer Price Index

Reuters & CNBC: The latest US Consumer Price Index report reveals a 0.4% monthly increase and a 3.7% year-on-year rise, exceeding Dow Jones estimates of 0.3% and 3.6%.

Headline inflation surged by 0.6% in August. The core CPI also showed a 0.3% monthly increase and a 4.1% 12-month rise.

These unexpected numbers are driving up Eurozone government bond yields, fueling speculation that the Federal Reserve may consider interest rate hikes by year-end.