Market Musings 12/02/22:
Rising risk premia in bonds, gold, oil, and US growth stocks.
Short video that might interest you:
Investment Strategy Focus: February 2022: Hold on amid market turbulence
Podcasts that might interest you:
Why we believe in an industrial metals supercycle
Also available in Apple Podcasts, Podcast Addict, Spotify podcast platforms
(search for “BNP Paribas Wealth”)
Weekly Summary:
- US interest rate concerns: as January inflation hits new highs, markets expect even faster interest rate hikes from the US Federal Reserve, UK Bank of England, even European Central Bank. US Fed short-term interest rate expected at 2.4% by December, UK BoE base rate at 2%.
- US 10-year bond yield hovers close to key 2% level: after spiking post the 7.5% January US inflation report, the key 10-year US bond yield finished the week at 1.96%. The gap between the short-term 2-tear US yield and 10-year yield has come down to 0.46% - the bond market expects growth to slow sharply in the medium-term, and is now factoring in a higher risk of the US Fed going too far with interest rate hikes, risking an economic recession.
- Russia/Ukraine risks spike: despite ongoing talks, US warns that Russia could invade Ukraine within the next week, driving crude oil prices up - Brent crude oil hits $95/barrel. Surprisingly, not much reaction in the Russian RTS stock index or the Ruble exchange rate.
- Are bonds finally becoming more interesting? US 10-year government bond yield almost at 2%, UK 10-year gilt yield now 1.55%, combined with wider spreads (extra yield over and above the government bond yield) for corporate bonds, increases the attractions of corporate and government bonds.
- Precious metals break out? To be confirmed, but gold is very close to breaking out of the near-term $1870/ounce resistance level thanks to inflation and Russia, which would point to a positive trend. I still love commodity exposure, especially to industrial and precious metals.
- No respite for Tech stocks: the Nasdaq index still looks poorly oriented, no break of the downtrend. Leading companies like Netflix, Tesla and Amazon look weak. Similar story for major cryptocurrencies, which remain highly correlated to the Nasdaq.
- UK FTSE 100 looks the best of the stock market bunch: up 2% over last week boosted by Oil & Gas, Mining and Banks, far better than the modest negative performance of the US S&P 500 and Nasdaq indices
- Pick of the Week: MLPX L&G US…
