Tuesday October 31, 2023 Stock Market Daily Update
FOMC Meeting and BOJ's Influence Market Sentiment
As we approach Wednesday, the financial world is abuzz with anticipation as it marks the culmination of the Federal Open Market Committee's (FOMC) two-day meeting. While no changes in interest rates are expected, the market's keen attention is focused on the guidance and insights that the Federal Reserve may provide. This event holds particular significance given recent developments in the global financial landscape.
FOMC Meeting: A Shift in Seasonality
In contrast to the last FOMC meeting held in September, which witnessed a significant market drop, the current seasonality factors present a more favorable outlook. The trend is pointing towards bullishness, aligning with the expectations of market bulls. This shift in seasonality could potentially mold the market's trajectory in the coming days.
Market Rebound and Price Oscillators
The recent market rebound, initiated on Monday and extending into Tuesday, has not gone unnoticed. This resurgence has prompted an upturn in the Price Oscillators of some major stock market indices. However, it's essential to keep in mind that this rebound has not yet reached the crucial 4220 level, which served as a critical support level in early October. The pivotal question now revolves around the sustainability of this bullish momentum and whether it can surmount potential resistance at that price level.
Bank of Japan's Policy Quandary
Shifting gears to international developments, the Bank of Japan (BOJ) has once again made headlines with a decision that appears counterproductive to its own objectives. The BOJ has indicated its willingness to tolerate long-term interest rates rising to approximately 1%, all while maintaining their unconventional policy of negative interest rates. Over the past year, the BOJ has incrementally allowed the intervention rate for yield curve control to climb from 25 to 100 basis points. However, this strategy has resulted in an unintended consequence—the significant weakening of the Japanese yen.
BOJ's Inevitable Course Correction
It seems increasingly likely that the BOJ will be compelled to address this policy anomaly. A trajectory akin to that observed in other global regions, where interest rates have risen, is becoming apparent for Japan. Although rates have already experienced an upward trend, further normalization is expected. The ongoing depreciation of the yen may hasten the BOJ's response. The central question that looms is the pivotal level at which the yen must trade—whether it's around 155 or possibly even 160—to prompt a decisive action from BOJ Governor Kuroda and his team to address this currency market issue.
Domestic Market Recap
In domestic markets, the S&P 500 displayed notable strength with a 0.63% increase, building upon the prior day's robust rally. Conversely, short-term Treasuries exhibited weakness, as two-year yields climbed by four basis points, reaching 5.07%. The U.S. government bond market experienced a relatively subdued trading day.
Commodities demonstrated mixed performance. WTI crude oil prices dipped to nearly $81 per barrel, while gold mirrored the decline with a drop to $1,984 per ounce. The market volatility index, known as the VIX, retraced towards 18, indicating a decrease in market uncertainty.