🎯It’s like a playground🧩

Equity market see-saw on Monday as investors waited eagerly for the Fed. Gain accumulated during the late trading session with market participants eyeing clues on the rate hike path beyond Wednesday’s FOMC meeting. 

Uncertainty is building up as to whether the Fed will increase the rate by a full percentage point or the 0.75% level that has been communicated. The weak growth narrative, stubborn inflation, and a swinging market contributed to the search for direction to support the macro volatility. 

There is little doubt that traders are positioned well on Fed’s intention to raise rates aggressively. The question begs when the pace will moderate. Any forward-looking indication by Uncle Powell can be a market catalyst. 

🚘Ford: Keep calm and relaxed🗽

A warning struck investors on Monday as Ford Motor expects fewer deliveries and a higher cost base when the third Quarter is reported. This is sufficient to hit the stocks hard in after-hours trading. 

The critical issue is still the supply chain, where there is a lack of progress made in collating all the parts required to finish the car production. Adding to the woes is that those unfinished vehicles tend to draw higher demand and margin for the business. It is a double blow. 

Ford expects its operating earnings to be between $1.4 billion and $1.7 billion. Compare this to the $2.9 billion generated in the 2nd Quarter; this does look awful. 

Pika World maintains exposure to Ford with confidence in the management, given that its full-year operating profit guidance is $12 billion despite its third-quarter cost being about $1 billion higher than projected. 

Nonetheless, we are mindful of falling discretionary spending as the macro environment softens, which could impact the auto industry. 

💰The outlook on Treasury Yield🔭

Discussion on bond yield has intensified given the sudden lucrativeness of holding cash (in the form of bonds). Indeed, we have seen the two-year yield hitting a high of over 3.9% and the 10 -year catching up to 3.49% from 1.51%. 

The main culprit is inflation. After all, it causes future payment on interests to be less valuable and push down bond prices while raising their yields. As the Fed was forced to lift short-term rates, the longer-term fixed income securities yield rose too. 

There are signs that the 2-year yield might be peaking. The 10-year yield is holding at the resistance level of 3.48%, a level it touched in June and declining swiftly. Yet, odds are piling up for it to rise further, but being rejected at this level could be possible. 

For one, we are looking at Fed’s firm intention to tame economic demand to reduce inflation. The bond market is now reflecting the idea that the average inflation expectation for the next 10 years to drop to 2.38%, a significant fall from a slight below 3% mark in August. 

The “real yield” component of the 10-year bond appeared peakish at 1.11% , which to some analysts is also a resistance that was once hit in 2018 before falling sharply. 

There is the far-reaching implication of lower rates for the stock market, as it can drag down fundamental securities ranging from corporate and mortgage bonds to car loans and personal credits. 

Pika World will be weary of the yield’s further upside as the market tends to suffer in such a time.