Weekly Review: Crazy! The Federal Reserve and non-farm farmers have completely detonated the market, and the dollar has plummeted to a new low of nearly one and a half months

The central bank's super week is well-deserved! This week, the Fed's dovish suspension of interest rate hikes has caused a frenzy in global stocks and bonds. Coupled with the weak non-farm employment data, the market's expectations for the Fed to raise interest rates have cooled, US stocks have recorded the largest weekly growth this year, and the dollar has continued to decline. At the same time, the Bank of Japan's decision has caused the yen to experience a roller coaster.

October 30-November 3 Market Roundup: Central Bank Super Week is well-deserved! Last week, the Fed's dovish suspension of interest rate hikes caused global stocks and bonds to go crazy, coupled with weak non-farm employment data, the market's expectations for the Fed to raise interest rates cooled, US stocks recorded the largest weekly growth this year, and the US dollar continued to decline. At the same time, the Bank of Japan's decision made the yen a roller coaster.

In terms of market performance, the global risk assets have exploded, the US dollar and US bond yields have both fallen, gold has lost the 2000 mark to end the three-week upward trend, and crude oil has fallen by as much as 6%.

Currency market:Last week, the dollar rallied sharply, and the dollar index rebounded from the start of the week to break through the 107 mark, reaching a maximum of 107.11. With the Federal Reserve's dovish pause, suggesting that the radical tightening cycle may end, the US index fell sharply from its high level on Wednesday, and then fell to the 106 and 105 mark in succession. On Friday, it plunged more than 100 points under the influence of the sudden cold non-farm, reaching the lowest level of 104.94, a new low since September 20. The week barely closed above the 105 mark, falling more than 150 points, or 1.42%, the largest weekly decline since mid-July.

(Dollar index daily chart)

When the dollar hit a high and fell back, the euro moved in the opposite direction. Since the beginning of the week, it has fallen to the 1.06 mark, and on Wednesday it fell sharply to the 1.0516 level, approaching the 1.05 mark. Soon, it quickly counterattacked under the influence of the dovish Federal Reserve. It rose by more than 200 points in the two trading days on Thursday and Friday, reaching the highest level of 1.0747, and finally closed at 1.0730, with a weekly increase of 170 points, or 1.61%, the largest weekly increase since mid-July. The trend of the pound this week is similar to that of the euro, showing a late-stage explosive pattern. At the beginning of the week, it fluctuated around 1.2150 for three consecutive trading days. On Thursday and Friday, it broke through the 1.22 and 1.23 marks in succession, reaching the highest level of 1.2389. It rose more than 250 points in the week, and the weekly increase reached 2.1%, setting a record for the best single week since mid-November last year. The US dollar/Japanese yen saw a roller coaster this week. On Tuesday, the Bank of Japan fine-tuned its YCC policy, which was not as hawkish as the market expected. The Japanese yen saw a big plunge, plummeting 258 points, hitting the lowest level against the US dollar at 151.73, a decline of 1.73%. Under the influence of the verbal intervention of Japanese officials and the fall of the US dollar, the Japanese yen barely recovered part of its decline, falling 0.18% to close at 149.33.

Commodities:Gold maintained a high consolidation stance as a whole last week. After three consecutive weeks of sharp gains, it began to consolidate. The price of gold gradually fell below the 2,000 mark, reaching a minimum of $1969. It closed at $1992 that week, a weekly decline of 0.24%. At the same time, spot silver fluctuated last week, fluctuating around $23 as a whole, reaching a minimum of $22.52, reaching a maximum of 23.59, and rising 1.1% that week.

(Daily chart of spot gold)

The crude oil market suffered a major setback last weekWTI December crude oil futures closed down $1.95, or 2.36%, at $80.51/barrel, down 5.88% for the weekBrent January crude oil closed down $1.96, or 2.26%, at $84.89/barrel, down 6.18% for the week

(US crude oil daily chart)

Global stock market:Last week, the global stock market recorded the largest weekly gain in nearly a year, and the MSCI global index recorded the largest five-day gain in ten months last week. The three major US stock indexes rose across the board, and the Nasdaq rose for five consecutive days, rising more than 6% in a week and reversing three consecutive weeks of decline; the index refreshed its high since October 17 for two consecutive days, rising 5.9% this week, the largest weekly increase this year; the Dow index refreshed its high since September 21, rebounding 5.1% this week. European stocks recorded the largest weekly gain since March, and the European STOXX 600 index rose 3.41% for the whole week. This week, the three major indices of class A shares closed higher across the board, the Shanghai index rose 0.43%, the Shenzhen Composite Index rose 0.85%, and the growth enterprises market rose 1.98%.

In the bond market, the price of US bonds rose last week, the ten-year yield hit a new low in one month, and the intraday decline exceeded 10 basis points for three consecutive days.

Highlights of the week:

Last week, the central bank's super week really detonated a big market! The Bank of Japan fine-tuned the YCC, the yen fell by more than 250 points in one day, and then on Wednesday, the Federal Reserve suspended its dovishness as expected, suggesting that the tightening cycle may end, the global market rose wildly, and the dollar rose and fell.

At 2 am Beijing time on Thursday (November 2), the Federal Reserve announced the November interest rate results at its two-day monetary policy meeting, and Federal Reserve Chairperson Powell will hold a press conference after the meeting at 2:30 am as usual.

The Federal Reserve kept its short-term key interest rate unchanged for the second time in a row on Wednesday (November 1), but could raise rates further if inflationary pressures intensify in the coming months.

The Fed issued a statement after its most recent meeting saying it would keep its base rate at about 5.4 percent, the highest level in 22 years. Since launching its most aggressive series of rate hikes in four decades in March 2022 to fight inflation, the Fed has toned down, raising rates only once since May.

The latest statement noted that the recent turmoil in the financial marekt had pushed long-term interest rates to near 16-year highs and led to higher borrowing rates across the economy. "Tighter financial and credit conditions for households and businesses could weigh on economic activity," the report said.

The statement echoes recent comments by Fed officials that rising 10-year Treasury yields - or interest rates - could have a depressing effect on the economy, dampening inflation in lieu of further Fed rate hikes.

Jerome Powell told a news conference that if higher interest rates remain high for a long time, a spike in long-term rates will lead to an economic slowdown. But he cautioned that the Fed is not yet confident that its base rate is high enough to slow growth over time.

Importantly for the Fed, the 10-year Treasury yield continues to move higher even if the central bank does not raise interest rates. This suggests that even if the Fed keeps its base rate unchanged, Treasury yields are likely to remain high, helping to restrain economic growth and inflation.

Other major central banks have also been slowing rate hikes as their inflation measures appear to have improved. The European Central Bank left its base rate unchanged last week, and inflation in the 20 countries that use the euro fell to 2.9% last month, its lowest level in more than two years.

Affected by the Fed's dovish suspension, US stocks and bonds rose together, and the market set off a carnival.

On Wednesday local time, the three major U.S. stock indexes maintained gains throughout the day, with the S & P 500 and Nasdaq both closing up more than 1% and the Dow closing up 0.7%.

US bond yields fell collectively, 2-year US bond yields fell more than 14 basis points and fell 5% mark, 10-year US bond yields fell 12 basis points to 4.75% to a new low in two weeks, 30-year US bond yields fell 8 basis points to 4.94%.

Bill Dudley, a media writer and former president of the New York Fed, said the Fed was basically saying: "We don't think we need to do more from now on. Mr. Powell feels very confident that the Fed has done a lot."

Capital Group, a large fund house, believes that the Federal Reserve's recent hint that it may end its aggressive tightening cycle is a good opportunity to enter the market, advising clients to buy global stocks aggressively, because stocks will outperform bonds and cash when interest rates peak.

"The really important message for investors is that this moment when central bank rates peak is likely to open a window that will be a very good time to invest," said Andy Budden, head of equity investing at the $2.30 trillion asset manager.

According to Capital Group analysis of the past four rounds of interest rate hikes, the average return on global equities in dollar terms was more than 12 per cent in the 12 months following the Fed's last rate rise, compared with yields on global bonds of about 6 per cent and cash returns of about 4 per cent.

Former "bond king" Bill Gross said on social platform X that US regional bank stocks have bottomed out and are currently absorbing some related shares.

Separately, the Bank of England left its key interest rate unchanged in September, while the Bank of Japan eased its grip on long-term interest rates and is gradually raising borrowing costs.

The yen suffered its biggest one-day fall against the dollar since April on Tuesday as the Bank of Japan made a minor adjustment to its policy of holding down government bond yields.

On October 31, at the latest interest rate meeting, the Bank of Japan continued to hold its ground, maintaining the policy interest rate unchanged at -0.100% and the 10-year government bond yield target unchanged at 0.00%.

Regarding JGB yields, Kazuo Ueda, the Bank of Japan, said that using the long-term yield cap at 1% as a reference would increase the policy flexibility of the Yield Curve Control Program (YCC). Improving the flexibility of YCC policy is appropriate, he said, "Implementing a 1% cap on fixed rate operations could have significant side effects. If the yield cap remains rigid, the side effects will become even greater."

Before the meeting, there had been various rumours about the adjustment of the YCC curve, but the final results showed that while the Bank of Japan did change the "hard cap" on interest rates of 1% to a reference and said it would be more flexible, it did not explicitly relax the cap to 1.5% as expected by the market.

In addition, the overall statement of the Bank of Japan on the 31st was also "dovish", saying that it will continue to implement loose monetary policy patiently and will not hesitate to increase easing measures if necessary. The bank also reiterated that it will implement the YCC policy mainly through large-scale JGB purchases.

The news sent the yen down 1.7 per cent to Y151.60 against the dollar, its lowest level since October and close to where it was when the Bank of Japan last intervened with a record 6.35 trillion yen ($43 billion) to boost the currency.

Then on Wednesday, the yen strengthened from near its lowest level this year after foreign exchange officials said they stood ready to intervene.

"The market sees the adjustment to the flexible exchange rate mechanism as a clear dovish move,"Pepperstone"Once again, market participants have been disappointed by the lack of urgency shown by the BoJ, either in a position squaring yen bulls or outright switching to yen bears," said Chris Weston, head of research at the Bank of Japan.

The sharp fall in the yen prompted Masato Kanda, Japan's top foreign exchange diplomat, to issue a new and more severe warning that the authorities were ready to deal with recent "unilateral and violent" movements in the yen.

After his comments, the yen rose 0.24 per cent to Y151.31 against the dollar, but remained close to a one-year low of Y151.74 hit on Tuesday and a 30-year low of Y151.94 hit last year.

With global stocks on track for their biggest weekly gain in a year, Friday's non-farm "explosive" interest rate hike ended expectations and US stocks and bonds went on a binge.

Due to the impact of the auto industry strike, the number of non-farm payrolls in the United States slowed more than expected in October, while the unemployment rate rose to the highest level since January 2022, indicating that the labor market has begun to cool.

On Friday, November 3rd, the US Bureau of Labor Statistics released data showing that the US non-farm payrolls increased by 150,000 in October, which is expected to be 180,000; the number of new jobs in September was revised down from 336,000 to 297,000, and the new jobs in October were only half of the new jobs in September, the second lowest employment growth since 2022.

The unemployment rate in October was 3.9%, higher than the expected 3.8%, and rebounded from 3.8% in September to a new high in nearly two years. The total number of unemployed was 6.50 million. The report pointed out that although the unemployment rate indicator changed little month-on-month, it rose by more than 0.5% from the low point in April, and the number of unemployed people increased by 849,000. The analysis believes that the rise in the unemployment rate marks the beginning of this summer's hot recruitment.

Meanwhile, wage growth edged ahead of expectations in October, slowing to 4.1% year-on-year from 4.2% the previous month, beating expectations of 4% and the smallest annual increase since mid-2021. Average hourly earnings rose 0.2% month-on-month in October, below expectations of 0.3% and unchanged from September.

After the employment report, U.S. bond yields plunged, and the ten-year yield hit a new low in one month. For three consecutive days, the intraday decline exceeded 10 basis points, and the cumulative decline this week was about 26 basis points.

The sharp fluctuations in the "anchor of global asset pricing" pushed up US stocks, the Nasdaq rose for five consecutive days, rising more than 6% in a week, reversing the three-week decline, the S & P refreshed its high since October 17 for two consecutive days, and the Dow refreshed its high since September 21.

Global stock markets also posted their biggest weekly gain in nearly a year, with the MSCI World Index posting its biggest five-day gain in ten months this week.

After the jobs data was released, the swap market showed that there was only a 20% chance that the Federal Reserve would raise interest rates in January next year, and it estimated that it would start cutting rates in June. Previously, it had predicted that interest rates would be lowered as soon as July.

Kathy Jones, chief fixed-rate income strategist at Charles Schwab, believes that the Federal Reserve will keep interest rates unchanged in December and that the rate hike may be over.

Gregory Faranello, head of U.S. rates trading and strategy at AmeriVet Securities, said the jobs report is in line with the perception of the U.S. economy that it is slowing.

Will Compernoll, macro strategist at FHN Financial in New York, said the market was now very confident that the Fed had finished raising interest rates, and that the October non-farm payroll report was the last step in the market's pricing: "I wouldn't say that this one data report really shows a slowdown going into the fourth quarter, I think there's still a lot of economic data that shows strength, but it certainly shows weakness in the labour market, and I think the Fed has been looking forward to it for a while."