Market Quote: Fed Policy, Gold, Europe’s Earnings Season
Author: The editor's desk
November 10, 2023
Members of AGF’s Investment Management Team weigh in on the week that was in global financial markets.
Not So Fast
After a strong rally over the past week driven by anemic economic data, smaller than feared U.S. Treasury bond issuance and a benign U.S. Federal Reserve (Fed) policy statement, the bond market sold off sharply on Thursday due to two key factors.
First, Fed Chair Jerome Powell stated in a speech that the Fed wasn’t confident their efforts to bring inflation down to the 2% target were yet complete, and second, the 30-year U.S. Treasury bond auction was the second worst in the last 15 years, with yields rising a significant five basis points in the aftermath.
By the end of the day, long bond yields had risen 15 basis points, stopping the S&P 500 Index rally at eight days, one day short of a 19-year winning streak high. Next week’s inflation report will be critical in determining the capital markets’ next move.
Patience is a Virtue
“We are coming towards the end of another gruelling quarterly earnings season in Europe. Overall, the results were slightly better than expectations, but the market left little margin for error and took no prisoners with those that disappointed. The downside volatility in some names was substantial.
Conversely, for those that surprised on the upside, the market often shrugged its shoulders. Ongoing concerns about inflation, interest rates and the economic environment continue to dominate sentiment and could mean the recent rally in European stocks is on shaky ground despite large amounts of cash still sitting on the sidelines.
That said, we believe there continues to be valuation opportunities in Europe that do bode well for potential returns over the medium term, especially among more patient investors who are focused on research and identifying companies with management capable of operating successfully in today’s challenging climate.”
Safe No More
“The price of gold continued to hover around US$2,000 per ounce this week, but the safe haven trade that has contributed to its recent strength may be wearing thin as the Israel/Hamas war enters its second month and counting. In fact, based on historical data, gold’s upward momentum usually wanes, on average, just 10 days after the beginning of a new geopolitical crisis.
Barring a significant escalation in the current Middle East conflict – or another serious event emerging somewhere else in the world – it’s hard to envision gold trading above US$2,000 per ounce for any meaningful period in the near term. We believe it’s more likely that the price begins trending lower from here.”
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The views expressed in this blog are those of the author and do not necessarily represent the opinions of AGF, its subsidiaries or any of its affiliated companies, funds, or investment strategies.
Commentary and data sourced from Bloomberg, Reuters and company reports unless otherwise noted. The commentaries contained herein are provided as a general source of information based on information available as of November 9, 2023 and are not intended to be comprehensive investment advice applicable to the circumstances of the individual. Every effort has been made to ensure accuracy in these commentaries at the time of publication, however, accuracy cannot be guaranteed. Market conditions may change and AGF Investments accepts no responsibility for individual investment decisions arising from the use or reliance on the information contained here.
This document may contain forward-looking information that reflects our current expectations or forecasts of future events. Forward-looking information is inherently subject to, among other things, risks, uncertainties and assumptions that could cause actual results to differ materially from those expressed herein.
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Founded in 1957, AGF Management Limited (AGF) is an independent and globally diverse asset management firm. Our companies deliver excellence in investing in the public and private markets through three business lines: AGF Investments, AGF Capital Partners and AGF Private Wealth.
AGF brings a disciplined approach, focused on incorporating sound, responsible and sustainable corporate practices. The firm’s collective investment expertise, driven by its fundamental, quantitative and private investing capabilities, extends globally to a wide range of clients, from financial advisors and their clients to high-net worth and institutional investors including pension plans, corporate plans, sovereign wealth funds, endowments and foundations.
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