MHMarkets：October 30, 2023--Fundamental Reminder

17:00 EUR Germany GDP Growth Rate YoY Flash n.s.a (Q3)

18:00 EUR Industrial Sentiment (OCT) & EUR Consumer Confidence Final (OCT) & EUR Economic Sentiment (OCT)

Investors are pessimistic about the economic outlook for the Eurozone, and a survey by the European Central Bank showed that respondents have downgraded their expectations for economic growth in the Eurozone this year and next year.

21:00 EUR Germany Inflation Rate MoM Flash (OCT)

22:30 USD Dallas Fed Manufacturing Index (OCT)

Winter time has begun to be implemented in many European countries. Trading hours in European financial markets will be delayed by one hour from daylight saving time.

Market Overview

Review of Global Market Trend

Last Friday, after the release of U.S. September PCE inflation data, ten-year U.S. bond yields refreshed the daily high to 4.89%, turned down during the session and closed at 4.83%; two-year yields turned up briefly before hitting a two-week low, narrowly missing the 5% mark. U.S. bond yields generally retreated last week. The U.S. dollar index stopped three consecutive positive, once pulled up to 106.81, and then retreated, falling nearly three-week highs. Commentary suggests that the market has not changed its expectations that the Fed will continue to pause on rate hikes this week, but that the Fed should recognize the underlying strength of the economy, suggesting that the financial environment hasn't tightened enough to curb consumer spending.

News of Israel's expansion of ground operations in the Gaza Strip was reported by US stocks during midday trading. Due to concerns about the Middle East conflict outweighing the impact of high bond yields, spot gold has rallied around 1977, rising to $2000 per ounce for the first time since May, closing 1.09% higher at $2006.38 per ounce. It has been rising for three consecutive weeks since the conflict between Israel and Palestine. Spot silver closed up 1.3% at $23.10 per ounce.

Crude oil rose more than 3% during the session, moving off two-week lows, with WTI crude closing up nearly 2% at $85.11 per barrel and Brent crude closing up 1.78% at $88.77 per barrel, but oil prices failed to erase the losses of the previous days, recording its first weekly decline since the Israeli-Palestinian conflict.

U.   S. stocks continued to move lower after turning lower in the midday session, with the Dow closing down 1.12%, the S&P 500 down 0.44%, and the Nasdaq closing up 0.38%. All three major stock indexes posted weekly declines, the S&P 500 dropping more than 10% from its closing highs of July 31, dropping into correction territory. The Nasdaq China Golden Dragon Index closed up 0.08%, with IQ.O up 2.35%, NTES.O up 1.62% and LI.O up 1.27%. NTC.O closed up more than 9% and F.N fell more than 12%, which was the biggest one-day drop in a year.

European stocks closed collectively lower, with Germany's DAX30 closing down 0.27%. Britain's FTSE 100 closed down 0.87%, France's CAC40 closed down 1.28% and Europe's Stoxx 50 closed down 0.86%. Spain's IBEX35 closed down 0.51% and Italy's FTSE MIB closed down 0.76%.

Market Focus

1. The U.S. core PCE price index in September recorded an annual rate of 3.7%, which was a new low since May 2021. The PCE indicator strengthens the case for the Federal Reserve to stay put. “New Fed News Service”: the Fed is expected to continue to pause rate hikes.

2. Atlanta Fed GDPNow model expects U.S. GDP growth in the fourth quarter of 2.3%.

3. The Palestinian-Israeli conflict has led to more than 9,500 deaths on both sides. Israeli PM: the second phase of combat against Hamas has begun. Iran warns: if the Gaza conflict continues, it will open a new front against the United States. Biden: U.S. ready to take further action after Iran-linked group launches attacks on U.S. troops in Iraq and Syria. The White House says it will not “draw red lines” for Israeli military action. Qatar accelerates push to mediate Gaza ceasefire. Israel refuses to respond to Hamas' request for a long-term ceasefire, sources say. U.S. Treasury imposes second round of sanctions on Hamas. Israel's ambassador to Russia says Israel does not intend to withdraw from the U.N. at this time, but will reconsider its approach to cooperation. U.S. House Speaker Johnson: The House is expected to pass an aid bill for Israel this week. Iran's foreign minister says his country does not want the conflict to expand.

4. The United States, Saudi Arabia and other parties restarted humanitarian and ceasefire negotiations between the Sudanese Armed Forces and the Sudanese Rapid Support Forces.

5. According to Politico, president Joe Biden will issue an executive order on artificial intelligence as soon as Monday.

6. According to foreign media reports, Stellantis and auto unions reached a preliminary agreement to raise wages by 25% and provide living allowances. At present only the general and the UAW has not reached a labor agreement, the number of strikers over 4000.

7. Sources: India and the United Kingdom may reach a trade agreement in December.

8.Russia's central bank raised its benchmark interest rate to 15% from 13%, with the market expecting a hike to 14%. Russia's central bank said it will maintain tight monetary policy for a long time. Russia's Ministry of Agriculture: since November 1, Russia's wheat export tariffs will be cut by 14.1%. According to Interfax, Russia's agriculture minister said that the grain market intervention may start at the end of November.

9. Ukraine's state oil and gas company: Ukraine will stop the transit of Russian gas at the end of 2024.

Institutional Perspective

01

China International Capital Corporation (CICC)

【CICC research report pointed out that the Fed is not expected to raise interest rates this week, Powell may release a neutral attitude, both to emphasize that the anti-inflation is not over, but also implied that there is no rush to raise interest rates again.】

CICC research report pointed out that the Fed is not expected to raise interest rates this week, Powell may release a neutral attitude, both emphasize the anti-inflation is not over, but also implied that there is no rush to raise interest rates again. History shows that the fourth quarter is often a period of high financial risk. In the fourth quarter of last year, market financial conditions were once tightened because of the UK treasury fiasco, and the Fed reduced its rate hike step from 50bp to 25bp. In the fourth quarter of 2019, there was a liquidity fiasco in the U.S. treasury market, and the Fed halted QE and reexpanded its table. In the fourth quarter of 2018, the Fed insisted on raising interest rates to trigger a panic in the market, and the U.S. stock market plummeted, and after that, Powell released a dovish policy that could be turned at any time. Signal (Fed pivot), the market sentiment can only be eased. In retrospect, the last rate hike in December of that year or unnecessary, the Fed made the mistake of excessive tightening. In the current context of still high inflation, intensifying geopolitical conflicts, and tightening financial conditions, the Fed may choose to balance the risks of all parties, emphasizing patience, so as not to repeat the mistakes of excessive tightening in 2018.

02

Banc of America Securities (BofA Securities)

【BofA Securities: JPYUSD below 150 increases the risk of Japanese intervention, but the exchange rate needs to fluctuate by more than 1% within a day for action to be reasonable.】

A drop below 150 in JPYUSD increases the risk of Japanese intervention, though the exchange rate would need to fluctuate by more than 1% in a day for action to make sense, said Shusuke Yamada, head of Japan FX and rates strategy at BofA Securities. “Unlike some other Asian central banks that have acted to smooth the local currency's exchange rate movement, the bar is quite high for Japan to get an understanding of action from other countries such as the United States this year”. The firm expects the BOJ to raise the effective limit of yield curve control to 1.5% from the current 1% at this week's monetary policy meeting, but the yen's gains driven by this action will be short-lived as the exchange rate is still subject to potential factors such as wider spreads and outflows related to large-scale foreign direct investment. The 10-year JGB yield is expected to touch 0.9% by the end of the year and be at 1.2% by the end of next year, with the BOJ expected to remove its negative interest rate policy and restructure its yield curve control policy.

03

TD Bank

【TD Bank: As Israel enters Gaza, we see the price of gold spike.】

Bart Melek, managing director and global head of commodities strategy at TD Bank, said on Friday, “We've seen the price of gold spike as Israel has moved into Gaza, and now there's a growing risk that this could devolve into a broader conflict.”