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Headlines
- Market volatility persists following recent fluctuations, with traders seeking stability and reassurance about the real economy.
- A recent weak performance in the 10-year Treasury auction and the upcoming $25 billion 30-year bond sale add to market uncertainty.
- Focus shifts to upcoming labor market reports, including jobless claims and payroll data, which could influence expectations for Federal Reserve policy adjustments.
Following a turbulent week, financial markets are still grappling with instability, with traders hoping for signs of stability in the real economy. The previous week's volatility spike has not fully subsided, and while the VIX 'fear gauge' has eased from its peak, it remains above historical norms, indicating ongoing market unease.
The recent performance of Wall Street financial stocks highlighted persistent nervousness. After an initial rally, the market’s momentum faded by the end of the day, impacted by disappointing results from Super Micro and an underwhelming 10-year Treasury auction. The 10-year note was sold at 3 basis points above pre-auction levels, with demand at 2.32 times the offered amount marking the lowest in nearly two years. However, this situation primarily reflects the week's sudden drop in yields and the $42 billion sale was still funded at a rate that was relatively favorable compared to the previous week
Later in the week, the focus will shift to a new $25 billion 30-year bond auction. The yield curve between 2-year and 30-year Treasuries has recently steepened to 27 basis points, its highest in two years, while the 2-to-10-year curve remains slightly inverted. This auction will serve as another gauge of market sentiment.
Attention now turns to labor market data, with the upcoming payroll report and Thursday’s weekly jobless claims report expected to provide crucial insights. Recent jobless claims have increased, reaching their highest level since August of the previous year, adding to market speculation about potential adjustments in Federal Reserve policy. Despite these concerns, stock futures remained steady, and the VIX remained below 30.
European and Asian markets experienced slight declines, though less dramatic than earlier in the week. In Japan, where significant market turbulence occurred due to the unwinding of yen 'carry trades', the Nikkei index saw a more subdued loss of less than 1% on Thursday. The Bank of Japan’s recent meeting minutes revealed concerns about continuing rate hikes, but recent market turbulence has led to a more cautious stance from BOJ officials.
The yen has stabilized around 146 against the dollar, and the dollar index has decreased as Treasury yields subsided in early trading. In corporate news, Eli Lilly's earnings will be closely monitored following Novo Nordisk’s disappointing results for its weight-loss drug Wegovy. Novo’s shares fell by 8% amid fears of intensified competition, as the company invests heavily in increasing Wegovy production to counter Eli Lilly’s rival therapy, Zepbound.
