Podcast: An unusual stock mark rally

Created: 6th March 2023

So, what do we know?

(A forex, index and commodity market review)

An interesting move in markets last week, with equities rising and bond yields falling in what looks like a risk-on rally. The US Dollar also fell, prompting a decent rally in Gold. However, all is not what it seems. 

Weekly change

FTSE                       +40        +0.5%
DOW                     +609      +1.85% 
S&P                        +78        +1.96   
NASDQ                 +329      +2.6%
DAX                       +393      +2.58%  
NIKKEI                  +829      +3.02% 
Hang Seng          +919      +4.66% 

US indices posted their biggest gains in a month last Friday with the NASDAQ rallying 2% to post a weekly gain of 2.6%. The S&P500 followed suit with a gain of 1.5%, and a weekly rally of 1.9%. What was surprising was the economic data continued to paint a robust economy with ISM Services data coming in hotter than expected. Earlier on in the week core durable goods, which exclude transportation items because of the volatility in sales, also came in stronger. Not surprisingly CB Consumer confidence to a hit, missing expectations as consumers react to the likelihood of more interest rates rises from the FED. The measure of expectations which reflects consumers view over the next 6 months, fell to 69.7, the lowest reading since last July. 

So this is all very well but why the rally in equities if the economy is more robust than expected. Surely the threat of an extension to the Fed’s tightening cycle is bad for equities. 

The answer lies in the bond markets and the yield on the US 10 Year Treasury Bond. As we discussed last week, bond yields have been climbing through February, ever since the release of the February Non Farm Payroll data at the start of the month. Since then inflation data has come in stronger than consensus, pointing to the fact that core inflation appears stickier that the Fed would like. Yields had risen to reflect both the recent observation of the persistent nature of inflation and the fact that the Fed will be braising rates by more than the market was expecting in January, with little chance of any cuts before the year end.  

What happened at the end of last week was a good old correction in the recent sell-off in the bond markets. The new month may have had an influence as well, so with a corrective rebound in Bonds, yields fell with the important 10-year Treasure yield falling back to 3.94%, having been touch 4% mid week. The yield on the US 2-Year Note also fell to 4.86% having hit 4.94% on Thursday, its highest level in 16 years. This corrective fall in yields spurred investors to push equities higher with gains across the board. Of course, the all important Non Farm Payroll data could well change all this.  

Non-farm payroll, which is due out this week but usually is released in the first week of the new month, which would have been last Friday, but was scheduled for this Friday because of Presidents Day the previous Monday. 

EURUSD               +0.89     +0.85%  
GBPUSD               +1.04     +0.89% 
USDJPY                 -0.66      -0.48% 

The US Dollar reacted as expected in a risk-on move. The fall in Bond yields was latched on to by traders but the move on Friday was half-hearted at best as the Euro failed to recover the lost ground from the previous day.  

Sterling held its own versus the US Dollar and the Euro despite Andrew Bailey confusing the market in the previous week by saying that the market should not assume the bank will raise rates to the extent that the market is expecting.  
He then said that the Bank would raise rates if core inflation stickiness warranted it. So the bank may raise rates on the March 23rd or it may not. Not helpful.  

Gold                      +46        +2.54% 
UK OIL                  +2.63     +3.15% 
US OIL                   +3.29     +4.3% 

Gold followed the US Dollar higher but with more enthusiasm. Oil also bucked up with 
modest gains although Brent crude remains trapped in a range between $78 and $88.  

What don’t we know….yet?

(What traders need to look out for in the week ahead)

A key week for the markets again with the release of the non-Farm employment report. The previous month’s data was exceptionally strong so some analysts expect some revisions to that data with a more modest increase in Jobs for February. We also have three central bank’s monetary policy meetings to update monetary policy. 


No key data  


Australia              RBA policy meeting. Another hike in rates to 3.6%, from 3.35% is expected following the release of the previous meeting minutes. This will be the eleventh hike in a row. There are some that expect the RBA to hold rates steady so another hike could add further strength to the AUD. 

US          Jay Powell testifying at the Semi-Annual Monetary Policy Report before the Senate Banking Committee in Congress. USD sensitive. 


Eurozone             ECB president Lagarde to speak at the Australian Financial Review Business Summit, in Sydney 

US          ADP Nonfarm employment change. More erratic that the official data from the bureau of Labour Statistics. 195K new jobs versus 106K last month. Quite a difference with the official data.  

Canada BOC interest rate decision. Rates expected to be kept on hold this time. CAD sensitive. 

US          Second day of Jay Powell testifying at the Semi-Annual Monetary Policy Report before the Senate Banking Committee in Congress. Markets sensitive to any clue about future rate rises. 


No data  


Japan    Bank of Japan rate decision. The third major central bank policy meeting. This is the last meeting for Kuroda, who will be relaced by the Governor designate, Kazuo Ueda, on the 8th April. Expectations are for monetary policy to remain as is ahead of Kazuo Ueda’s tenure. Analysts expect the new governor to maintain the current governor’s policies, which has weakened the Yen since late January. Yen very sensitive to any change in policy. 

US          Non-farm employment. 3.4% unemployment rate. 206K new jobs. Watch out for revision of last months whopping reading of 517K jobs. Average hourly earnings +0.3%. USd, Global equities and bonds  all sensitive to this release.  

What should we be trading? & What’s the problem?

(Analysis of the popular markets and what we like)
(Examining a problem many traders face and what to do about it)

In today’s Vodcast we combine the market review with this week’s trader problem – how to trade correlated markets.

Risk management is key for traders, and understanding market correlation can be a problem. Loading up too many positions in markets that are likely to move in a similar direction, loads your risk into one move. In today’s Vodcast, Adrian reviews this common problem and what to do about it.