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NOVEMBER 3, 2023


Employment in the U.S. encountered a slowdown in October, as indicated by the latest Labor Department data. This development, which was expected, may provide some relief for the Federal Reserve in its ongoing battle against inflation. The number of nonfarm payrolls increased by 150,000, slightly below the anticipated 170,000. Concurrently, the unemployment rate rose from 3.8% to 3.9%, defying earlier predictions of stability. The household survey revealed a decline of 348,000 individuals in employment, while the number of unemployed individuals increased by 146,000. Moreover, the overall jobless rate, which encompasses discouraged workers and those in part-time positions due to economic reasons, climbed to 7.2%, marking a 0.2 percentage point rise. Nonetheless, there was some positive news as average hourly earnings, a key inflation indicator, grew by 0.2% for the month, slightly lower than the projected 0.3%. However, on a year-on-year basis, the growth of 4.1% surpassed expectations by 0.1 percentage point.


Sam Bankman-Fried, the former crypto king and founder of FTX exchange, has been found guilty of seven counts of fraud and conspiracy. This landmark trial, which ended in a swift verdict, marks a significant downfall for Bankman-Fried. Once valued at $32 billion and endorsed by celebrities like Tom Brady and Steph Curry, FTX faced a collapse due to his actions. Bankman-Fried could face up to 20 years in prison for each serious charge. The verdict is seen as a victory for Manhattan U.S. Attorney Damian Williams and highlights the need for regulation in the cryptocurrency industry. Moreover, despite a dip in crypto markets following the news, industry proponents believe this conviction signals the end of illicit practices and the beginning of a more secure future for digital assets. However, critics argue that the verdict reinforces the vulnerabilities in the crypto sector that attract criminals.


Apple (AAPL) stock experienced a significant decline following the release of its latest earnings report as although the company managed to beat Wall Street estimates with earnings per share of $1.46 on revenue of $89.5 billion for the fiscal fourth quarter, a cautious outlook for the current quarter dampened investor sentiment. Apple’s guidance indicated that revenue for the upcoming period is expected to be in line with the previous year, signaling a potential deceleration in growth. This concern, coupled with a moderation in the Mac, iPad, and Wearables categories, weighed on investor confidence and contributed to the decline in stock price. Moreover, although Apple reported record iPhone sales and a strong performance in the Americas region, these achievements were overshadowed by the cautious guidance and overall market uncertainty. Investors are increasingly questioning whether Apple can maintain its growth trajectory, especially as the global supply chain disruptions and chip shortages persist. Additionally, concerns regarding potential regulatory challenges and increased competition in the tech industry are also contributing to the downward pressure on the stock. Nevertheless, despite the decline, many analysts remain optimistic about Apple’s long-term prospects, given its strong brand, loyal customer base, and continued innovation in areas such as augmented reality and services, however, in the short term, the stock may face further headwinds.


If there ia something we can conclude from this week’s developments is that investing in the long run is heavily influenced by three key factors: the economy, government spending, and the Federal Reserve. On Wednesday, treasury yields experienced a significant drop due to improved sentiment regarding economic growth, reduced concerns over government bond issuance, and expectations of the Federal Reserve’s approach to interest rates. Market reactions were largely influenced by the Treasury’s announcement of issuing fewer long-dated bonds and curtailing issuance earlier than anticipated. The prospect of reduced bond supply eased yields by lowering the term premium, which is the additional return investors demand to hold bonds compared to expected interest rate movements. The recent rise in yields was mainly driven by an increase in the term premium and the market’s belief in the Federal Reserve’s commitment to maintaining higher rates. Additionaly, In the short term, the term premium plays a crucial role for investors, as evidenced by the significant increase in the 10-year term premium since July, which contributed to the Treasury yield surge and subsequent stock market correction. However, in the long run, changes in interest rates have a greater impact on Treasury yields. The U.S. has witnessed historical patterns where declining indebtedness led to rising bond yields from 1945 to the 1970s, while increasing indebtedness from 1980 to 2020 coincided with falling bond yields, highlighting the correlation. While the U.S. is not in a debt crisis, the 2020 U.K. bond market crisis serves as a reminder of the risks associated with unsustainable tax-cutting plans. Additionally, the Federal Reserve’s focus on inflation and full employment is critical. Although it has successfully managed both aspects during previous rate increases, future economic challenges may force difficult decisions regarding the trade-off between inflation and employment. Nonetheless, while all three factors have their significance, it is the economy that holds the greatest sway over bond yields and indirectly impacts government borrowing and the actions of the Federal Reserve.


Government bond yields in the euro zone have reached multi-week lows following the decisions by the Federal Reserve and the Bank of England to keep policy rates unchanged. The Bank of England’s decision to maintain interest rates was aimed at battling high inflation, while the Federal Reserve acknowledged the impact of tighter financial conditions. This indicates that central banks may be nearing the end of their monetary tightening efforts. Moreover, the Treasury Department’s announcement of slower growth in longer-dated bond auctions also relieved some investors who had anticipated a larger increase in supply. Consequently, Germany’s 10-year yield fell to its lowest level since September, while Italy’s yields also dropped. In addition, U.S. Treasury yields also declined to multi-week lows. Furthermore, the narrowing spread between German and Italian yields indicates a more positive market sentiment.

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