Goolsbee’s ‘gold track’ is still visible

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Austan Goolsbee, president and chief executive officer of the Federal Reserve Bank of Chicago, during a Bloomberg Television interview at the Jackson Hole economic conference in Moran, Wyoming, USA, on Friday, August 25, 2023.

David Paul Morris | Bloomberg | Getty Images

This report is from today’s CNBC Daily Open, our new international markets newsletter. CNBC Daily Open gives investors access to everything they need to know, wherever they are. Like what you see? You can subscribe here.

What you need to know today

Strong winning streak
US stocks rose on Tuesday to hit new winning streaks, the longest in three years. Europe’s Stoxx 600 closed 0.16% lower. The oil and gas sector fell 2.5%, weighed down by oil giant Saudi Aramco’s 23% drop in third-quarter net profit and a decline in oil prices. UBS shares rose 1.83% after the bank reported its first full quarterly results since taking over Credit Suisse.

Microsoft is closing on a high
Microsoft shares climbed 1.12% to hit $360.53, a record high. It’s the eighth straight day in which the tech giant’s shares have risen, a streak not seen since January 2021. Investors rejoiced Microsoft CEO Satya Nadella’s stunning appearance at the OpenAI event, where he encouraged developers to build with Microsoft’s Azure cloud infrastructure.

Peak, will not stop?
The US Federal Reserve, the European Central Bank and the Bank of England stopped raising interest rates in recent weeks. This breather comes after a sharp rise in the past 18 months as central banks grapple with unmanageable inflation. Some market watchers, in fact, believe that this move is not a pause in hikes but a peak in rates – and they are turning their attention to when central banks will start cutting

Uber is missing out
Uber’s third-quarter results missed analysts’ expectations. The company’s earnings per share came in at 10 cents, compared to the 12 cents expected. Revenue was $9.29 billion, less than the $9.52 billion estimated. Still, on a year-over-year basis, Uber net income of $221 million, compared to a net loss of $1.2 billion, and income is up 11% from the same period last year. Dividends came in at 3.7%.

[PRO] Japan’s banks to benefit
The Bank of Japan announced last week that it would allow more flexibility in its yield curve control policy, setting the upper limit of the 1% yield for the 10-year Japanese Government Bond “as a reference.” That’s good news for the banking sector, Goldman Sachs said. The investment bank announced its top picks among Japanese banks, suggesting they would offer up to 20% upside to their stock prices.

The bottom line

Last month’s sudden surge in Treasury yields and oil prices – both of which tend to dampen investor appetite for stocks – appears to be coming to an end. No, scratch that – the booms don’t just end, they ebb.

Watch oil: West Texas Intermediate and Brent futures contracts fell around $3. WTI is now at $77.13 a barrel and Brent at $81.41, their lowest level since July. That’s nearly $10 a barrel less than a month ago, when prices jumped on fears fueled by the Israel-Hamas conflict.

Meanwhile, the 10-year Treasury yield fell about 10 basis points to 4.569% and the 2-year yield slipped 3 basis points to 4.915%. Since the Treasury yield is a benchmark for interest rates on loans and cash deposits, a sinking yield usually benefits rate-sensitive companies. In other words: the Magnificent Seven Big Tech. Amazon led the pack, up 2.13% yesterday.

That explains why the Nasdaq Composite It jumped 0.9%, more than the S&P 500s 0.28% growing and the Dow Jones industrial average 0.17% compared to yesterday. However, that does not reduce the trends. The S&P and Dow are enjoying their seventh consecutive session of gains, while the Nasdaq is struggling in its eighth.

If the US Federal Reserve guides the economy to a soft landing, in which inflation is below 2% without the economy contracting, there could be another rally in stocks, HSBC said. Within periods of soft landings, the S&P has jumped, on average, 22% in the space between the pause and six months after rate cuts began, noted HSBC global equity strategist Alastair Pinder .

And that protective deflation is not just a dream. Chicago Federal Reserve President Austan Goolsbee told CNBC, “Because of some of the strangeness of this moment, there is a possibility that the golden path … we got inflation down without a recession . “

Both the economy and the markets have been acting in strange ways, which have never been seen since the pandemic. From one of the worst years for stocks and bonds in 2022, to a widely heralded bull rally in the S&P – and then a correction – in 2023. And I haven’t even started on the US job market and inflation numbers . Strange can be new and difficult, but it’s not necessarily bad.

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