Markets Wrap (26 October – 7 November)

Stocks
After 80% of S&P 500 companies have released their Q3 results, the conclusion is the following: far better than was feared given the complicated economic climate; 58% of companies beat sales forecasts and 70% earned more profit than expected with the size of an average positive surprise at 2.4% and 3.1% respectively. 
Stock bulls poured USD 58 billion into equity ETFs in October (the most since March) only to see another selloff weeks later after J. Powell dashed hopes of a more moderate FED policy (see below); Bloomberg estimates show that historically, relative to bond yields, stocks can be framed as overvalued anywhere from 10% to 30%.

Central banks
Slower, but to a higher level – this was basically the message delivered by the FED after its November meeting; the key rate was raised by 75 bps (to 3.75-4.0%) for the fourth time in a row, whereas J. Powell noted that the central bank will switch to smaller hikes, but bring the rate to a higher level than implied by interest rate futures (the market currently expects a peak of 5.1% to be reached in mid-2023). 
EUR/NOK inched higher after the Norges Bank delivered a 25 bps hike raising the key rate to 2.50% – the probability of a 50 bps increase right before the meeting stood at ~60%, but the monetary authority decided to ease the pace of tightening due a rising risk of an economic slowdown. 
EUR/GBP jumped by 1.38% despite the Bank of England raising the key rate by 75 bps – the most in 33 years (to 3.0%) after Governor A. Bailey noted that the market had been wrong by the rate to peak out at 5%, as such a level would cause a two-year-long recession in the country. 

Macro
US October job market report sparked the biggest USD selloff since March 2020 – EUR/USD rose 2.13% on 4 November (to 0.996) and approached parity afterwards, whereas the Bloomberg dollar index slumped 1.72%, as the unemployment rate unexpectedly increased from 3.5% to 3.7%; although hiring beat expectations (change in nonfarm payrolls at 261k versus Bloomberg median forecast of 193k), investors took higher unemployment as a sign that the restrictive monetary policy is starting to have a cooling effect on the economy. 

Commodities
The price of wheat on the Euronext exchange dropped for four straight sessions as traders are striving to answer the key question – what volume of grain will Ukraine be able to deliver abroad; Russia's U-turn on the country’s participation in the UN-brokered grain deal has had a soothing effect, but the situation remains precarious and higher than normal price volatility is to be expected. 
China has reaffirmed its Zero-Covid policy stance, which, along with the country's ailing property sector, is likely to further weigh on the demand for raw materials, including industrial metals (the price of Aluminium and Copper is down by 51.4% and 16.7% respectively YTD).