MHMarkets：November 02, 2023--Fundamental Reminder

16:50  EUR FranceManufacturing PMI Final (OCT)

16:55  EUR Germany Manufacturing PMI Final (OCT) & EUR Germany Unemployed Persons s.a(OCT) & EUR Germany Unemployment Rate s.a (OCT)

17:00  EUR Manufacturing PMI Final (OCT)

17:10  Japanese Prime Minister Fumio Kishida holds a press conference.

19:30  Challenger Job Cuts (OCT)

20:00  BOE publishes interest rate decision and Monetary Policy Report.

20:30  USD Initial Jobless Claims (OCT/28)

20:30  BOE Governor Bailey holds a press conference.

22:00  USD Factory Orders MoM (SEP)

22:30 USD EIA Natural Gas Stocks Change (OCT/27)

MHMarkets Market Overview

Review of Global Market Trend

Treasury yields fell on Wednesday after the FOMC decision, with declines accelerating during Powell's remarks, a sign investors don't expect the Fed to raise rates further. The 10-year yield closed at 4.73%; Two-year Treasury yields fell below the 5% mark to close at 4.95%;. The yield inversion between the 2-year and 10-year Treasury narrowed to 18 basis points. A smaller-than-expected U.S. bond issuance plan and an accelerated decline in ISM manufacturing PMI sent Treasury yields plunging from session highs across the board.

The dollar index fell back from gains, briefly topping 107 after the FOMC decision, falling as low as 106.63 during Powell's remarks, and ending down 0.04% at 106.67. Bitcoin broke through its previous high, rising above $35,600 at one point, its highest since May 2022.

Spot gold fell below $1,970 an ounce earlier in the session for the first time since October 25. Between the release of the FOMC resolution statement and the end of Powell's speech, gold mostly recovered its losses and ended down 0.08% at $1,982.36 an ounce. Spot silver settled up 0.41% at $22.95 an ounce.

Oil prices extended a three-day losing streak amid signs that markets are becoming more supplied and that U.S. and foreign citizens will be able to leave Gaza for the first time since Israel began its ground invasion. This news helps to eliminate the war risk premium. WTI crude fell as low as $80.1 a barrel and ended down 0.57% at $80.85 a barrel; Brent crude eased back below $85 a barrel and settled down 0.78% at $84.82 a barrel.

The three major U.S. stock indexes closed up, with the Dow up 0.67%;, the S&P 500 up 1.06%;and the Nasdaq up 1.64%; Star tech stocks were mostly in the red, with Apple (AAPL.O) up 1.84%, Amazon (AMZN.O) up 2.94% and Microsoft (MSFT.O) up 2.35%.

European stocks closed higher on Wednesday as investors remained optimistic that the Federal Reserve would keep interest rates unchanged. Germany's DAX30 closed up 0.75%, Britain's FTSE 100 up 0.29%, France's CAC40 up 0.65%, Europe's Stoxx 50 up 0.73%, Spain's IBEX35 up 0.61% and Italy's FTSE MIB up 0.87%.

Market Focus

1. The Federal Reserve kept interest rates unchanged, increased its focus on tightening “financial conditions” in its statement, and emphasized two-way risks to inflation. Us economic activity expanded at a strong pace in Q3. Mr. Powell said the Fed was nearing the end of raising rates and was moving cautiously, considering whether it would have to raise them more, not cutting them.

2. The Treasury increased the amount of bonds issued under its refinancing operations by $9 billion to $112 billion. It is intended to gradually increase the auction size during the November 2023 to January 2024 quarters. The pace of new issuance of 10-year and 30-year Treasuries was slowed, while the pace of new issuance of 20-year Treasuries was left unchanged.

3. Us ADP employment growth recorded 113,000 in October, below expectations of 150,000, and wage growth slowed to its slowest pace in two years. U.S. job openings rose more than expected in September and climbed for the second straight month, underscoring continued strength in demand for labor across the economy. The ISM manufacturing PMI fell the most in more than a year in October.

4. The Israeli army says it has breached Hamas's front line in the northern Gaza Strip. Israel: Missile boats have been deployed in the Red Sea as part of regional reinforcements. White House: No future or current plans to deploy troops to Gaza. Foreign nationals allowed to leave Gaza. Us media: Israel is willing to discuss a “humanitarian pause” lasting several hours, but will not consider a “ceasefire” Hamas SPOKESMAN: Some foreign hostages will be released IN THE COMING days.

5. According to a draft document obtained by foreign media, the overall size of Japan's economic stimulus plan will reach 37.4 trillion yen, including 21.8 trillion yen of spending. The extra budget will fund the program with ¥13.1 trillion.

6. Iranian Supreme Leader Ayatollah Ali Khamenei: Oil and commodity exports to Israel should be cut. Muslim countries should stop economic cooperation with Israel. According to Fars News, Iran's oil minister said that Iran's oil production is 3.4 million barrels per day.

7. Us EIA crude oil inventories rose 0.773 million barrels in the week ended October 27th, less than expected 1.261 million barrels, and Cushing crude oil inventories rose 272 million barrels. Domestic crude oil production was unchanged at 13.20 million barrels a day during the week.

Institutional Perspective

01

BarclaysBank

【“The dollar is going to fall sharply,” said the head of foreign exchange research at Barclays in London. This is where the big Dollar theory can come into play.】

“The dollar is going to fall sharply,” said Themistoklis Fiotakis, head of foreign-exchange research at Barclays in London. This is where the big dollar theory can come into play. This is not the first time Wall Street has declared that the dollar is dead, but the greenback has kept going up. The July drop was seen by some as marking the end of the dollar's rally, but it soon turned into a strong rally. More recently, sporadic demand for the dollar has been spurred by safe-haven demand from geopolitical turmoil in the Middle East. The yen rose on Tuesday despite the BOJ's decision to ease restrictions on domestic bond yields. A recent survey by MLIV Pulse suggested enthusiasm for the dollar may have peaked in September, and other analysts have echoed Fiotakis. Combined long positions by leveraged funds-the most speculative type of investors-on the ICE Dollar Index increased to nearly 4,600 contracts in the week ended Oct. 10, the highest level since July, CFTC data show.

02

Morgan Stanley

【Morgan Stanley：The Fed may have hit a floor on reserve balances】

Reserve balances at the Fed stood at $3.264 trillion for the week ended Oct. 25, according to Fed data. Use of the term financing program by banks has been steady at around $109bn.

“Reserve balances have been resilient around current levels,” said Matthew Hornbach, a strategist at Morgan Stanley. “In a way, that tells us the Fed may have reached the minimum level of reserves that banks need to continue doing business.” Mr. Hornbach said they will be watching how the Fed's term funding program for banks plays out in the early months of 2024, which he believes will be renewed before it expires in March. It is evident from the weekly use of this instrument that certain institutions in the market consider it in their best interest to continue to use it.

03

CICC

【CICC：The benefits of another Fed rate increase in December may outweigh the risks】

CICCResearch pointed out that after the Fed's rate hike added to this position, the Fed's strategy is: if the market “spontaneous” rate hike achieves a tightening of financial conditions, then the Fed will not raise interest rates again in order to prevent risk exposure; But if markets think too much of this, such as a quick rate cut in the second half of next year, the Fed may also be tempted to beat back its tightening efforts.

From the current degree of tightening, the incremental demand in the United States has been generally suppressed, but the squeeze on the stock consumption power of residents is limited. In this case, the Fed has two strategies: one is to keep interest rates high for longer, slowly squeezing out existing demand; The second is to go even higher, raising rates by another 25bp in December to reach that target relatively quickly. The former is an ideal balance path, but the problem is that it is prone to be broken by various surprises and there is a paradox that it cannot be achieved the longer it stays at a high level. CICCbelieves that if the market is fully priced in, the benefits of the latter outweigh the risks.