LiveWire

The US jobs report for the month of September, the JOLTs Job Opening, came in above expectations, a sign the demand for workers remains solid. Although the news is positive for the economy, it is less so for the Fed, which is facing the risk of wage inflation pressures that deteriorate the overall inflation outlook for the country.  

This week will be a test of whether stocks can continue to withstand negative results news as earnings season approaches its midpoint. So far, 263 of the companies in the S&P 500 have already reported.

A surge in UK inflation still at a 40-year high is adding pressure on Gilts yields, last seen just above 4% up by 8 bp, as traders bet the Bank of England will continue its aggressive rate hikes to battle inflation. In the US, yields on the 10-year jumped 7.5bp to 4.07%, pressuring stock futures lower. Inflation continues to be the most watched as higher sovereign yields are pressuring down valuations of financial assets. Investors are also worried about the draining liquidity in sovereign bonds markets. Today, earnings will be adding to volatility as names such as Abbott, P&G, IBM, Lam, and Tesla report.  

Stocks are moving higher on speculation that we might have seen the bottom. S&P500 futures broke above a descending channel overnight. In absence of surprising negative news, bulls could be seeing 3800 as their next target.  

After a week of enormous volatility, stocks could show signs of stabilising. There are increasing signs that markets are reaching extreme selling pressure and negative sentiment. For instance, for the first time in history, traders bought many more puts (options betting on stocks going down), than call options, last week. Puts were 3 x calls. In addition, a lot of it was driven by small traders, buying just 10 options contracts or less. The fear trade could be too crowded now. Today we will have earnings of Bank of America, Charles Schwab, and BNY Mellon.