SignalPlus Macro Research Report (20230928): The U.S. government will enter a state of shutdown
Yesterday, the fixed income market experienced another sharp decline. U.S. Treasuries had a particularly volatile trading day. Yields rebounded slightly in early trading. British and German government bond auctions also performed very well. However, after the release of durable goods order data, U.S. Treasuries gave up all their gains in one fell swoop, with yields soaring nearly 15 basis points from their lows.
Although the durable goods order data was slightly better than expected, the risk-off trend came more from changes in positions. Brokerage reports pointed out that hot money in the market began to sell bond futures before the 5-year U.S. bond auction. At the same time, the spot price of gold fell. 1.5%, hitting a 7-month low of around $1,880. The U.S. dollar maintained its strength, rising to new cycle highs against most major currencies, while stocks fell again shortly after the New York opening (SPX fell from the opening to yesterdays low points fell 1.3%).
Despite widespread weakness in other asset classes, reports of falling crude oil inventories still sent crude oil futures prices above $94, a massive gain of 7.3% in 48 hours; over the past month, we have witnessed multiple issues for the stock market, including Higher real yields, a stronger dollar, wider credit spreads, and lower growth expectations. Although rising interest rates are undoubtedly the most important factors, all of these factors are collectively moving in an unfavorable direction for risk sentiment, and the market is unilateral. (Bull) sentiment will only further exacerbate the downward trend.
Looking ahead, we may see a relief rally at the end of the month like the one we saw yesterday on the SPX. After all, short-term technical indicators across a variety of stocks and bonds are showing oversold signals. However, based on current market conditions, we feel the only appropriate action is Either keep the position closed or go short, trying to buy the bottom may be futile. In addition, Republicans seem unable to reach a consensus and the U.S. government may enter a partial shutdown as early as this weekend, adding more uncertainty to a market already hit by macro factors.
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