Welcome back to our Weekly Market Wrap-up, your go-to source for the latest financial insights and market happenings.

Our Weekly Market Monitor provides topical commentary on the financial markets, highlighting a chart of the week and upcoming key economic events, in addition to a review of performance across asset classes and sectors.

Let’s dive into the nitty-gritty of what’s recently shaken up the financial world.

Fed Rate Rollercoaster

So, the Fed kept the benchmark federal funds rate steady between 5.25% and 5.5%, déjà vu from the last meeting. But this time, the market threw a little party, cheering up from a 3-month slump.

Singapore T-Bill yield also slumped to 3.75% in the latest bidding on Nov 8.

But here’s the twist: the strong reaction might not be all sunshine and rainbows. That’s now what the Fed want to see. Powell had to step in to “clarify” that the Fed isn’t convinced it’s done taming inflation.

Nevertheless, this marks the 7th time in a year that the market has played the “rate-cut-is-coming” game. But not everybody is convinced. In this Bloomberg report, Morgan Stanley calls for deep cuts and Goldman Sachs predicts a more conservative approach.

• Morgan Stanley is predicting rate cuts starting in June 2024, and then more cuts in every meeting from the fourth quarter onwards, each time by 25 basis points.
• Goldman Sachs, on the other hand, is taking it slow, expecting the first 25 basis point cut in the fourth quarter of 2024, followed by one cut every quarter until mid-2026, totalling 175 basis points.

In plain numbers, Morgan Stanley sees rates reaching 2.375% by the end of 2025, while Goldman Sachs thinks they’ll settle between 3.5% and 3.75%.

My take? I am inclined to anticipate a period of stability in short-term rates while anticipating an eventual catch-up in long-term rates. Notably, the 10-year US Treasury yield briefly exceeded 5% before retracting to 4.5%. I think it will eventually have to settle above 5%.

And what does that mean when the rates stay high? It may be hard for Singaporeans to imagine, but the US mortgage rate has surpassed 8%. A brutal setback for the housing market.

What happens when the housing market is on a downtrend? The sluggish China economy is a perfect example. Despite relentless new government initiatives from cutting interest rates to unleashing fresh fiscal stimulus, the market is still on a downward spiral.

Even in the event of future rate cuts by the Fed, the trajectory toward a higher rate zone is conceivable over time. For a deeper dive, check out my past article on Fed Fund Rates.

Additional Reading: Fed Fund Rate: Impact and History That Only the Pros Know.

Oil Price Below $80 and Beyond

WTI oil prices took a nosedive, slipping below $80—a solid 20% off its September high. The market’s explanation? Demand blues and fears of a sluggish economy.

But here’s where it gets interesting. This slump clashes with the interest rate tale which we just talked about. Long-term bonds are singing a different tune, suggesting the economy’s humming along so well that the government’s tapping the brakes with rate hikes.

Throw in the Israel-Hamas war, the oil plunge seems like a plot twist. Despite geopolitical tension, the market shrugged off concerns about Middle East tension, which typically affects oil supply.

Let’s not forget oil topped $100 after the Russia-Ukraine war in 2023. Surely, Saudi Arabia and Russia’s Opec+ want to keep it afloat, while the US flex their muscles to contain the oil price to top up its strategic petroleum reserve and control inflation.

If the oil price indeed slumps even lower, I will be worried as that signals the recession is one step closer to us.

Gold Price’s Puzzling Move

The trajectory of gold prices, particularly in light of recent interest rate movements, presents a puzzle too. Over the past three years, gold has made multiple attempts to breach $2,000 per ounce, only to retrace each time. Following the recent Hamas attack, gold briefly touched $2,000 before reverting to its current level of $1,940.

Here’s the head-scratcher: Gold and treasuries are usually the ultimate power couple in safe-haven land. With no coupons or dividends, gold prices should go down at rising US treasury yields and vice versa.

So in theory, if treasury yields are indeed set to drop and recession is coming, gold bugs should be throwing a party. But we haven’t seen that happen yet. $2,000 is an important psychological level that we should pay attention to.

In a Nutshell…

The financial market is a beast of complexity, with the recession and inflation doing a tango, it is increasingly hard to visualize a clear direction of the market.

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