Premium Learn weekly review: Inflation Remains Persistent, will Interest Rate Hikes be Paused?

During the second week of October, after the surge in US bond yields, Federal Reserve officials made speeches emphasizing that "higher bond yields tighten financial conditions, and inflation has improved significantly. The necessity of raising interest rates is debatable." As a result, the three major US stock indexes rose for three consecutive days.

However, the release of September PPI and CPI data this week showed that inflation remains stubborn and not optimistic: PPI increased 2.2% year-on-year for three consecutive months, surpassing August's 2%. CPI rose 3.7% year-on-year, remaining unchanged from August without any signs of slowing down. At the same time, the 30-year Treasury bond auction on Thursday had a record high yield of 4.837% since 2007, further pushing up bond yields and putting pressure on the stock market. Finally, the US stock market fell on Thursday.

The current market contradiction lies in the fact that high interest rates persist, but inflation remains stubborn. If interest rates continue to rise, it will further push up borrowing rates, while ending interest rate hikes will still be far away from the 2% inflation target.

Looking at the interest rate hike schedule for 2023, there are still two interest rate decisions scheduled for November 23rd and December 23rd respectively after the pause in September. According to CME FedWatch, the market currently estimates a probability of more than 90% of a rate hike pause in November, and the probability of a 25BP rate hike in December has increased from 26% before the release of CPI data to 30%.

Last Saturday, October 7th, the radical Palestinian military organization Hamas launched attacks on Israel, followed by a war between the two sides. The energy market reacted strongly to this conflict, as it may cause potential disruptions in oil supply due to chain reactions in the Middle East region. International oil prices surged by 4% on Monday.

However, analysts pointed out that the surge in oil prices may be temporary unless the Israeli-Palestinian conflict actually leads to a decrease in crude oil production or transportation.

BIAS is a commonly used momentum indicator for judging stock price growth. Its core idea is mean reversion: when the stock price deviates from the average price over a period of time (i.e., the moving average), there is a possibility of returning to the moving average level, whether it is deviating upwards or downwards. This can be used to determine whether stocks are overbought or oversold, and to grasp entry timing. Here are two application points:

Overbought: When the BIAS indicator gets close to or reaches previous high levels, it suggests the price could be at an overbought level, increasing the likelihood of future price declines. This could be a sell signal.

Oversold: When the BIAS indicator gets close to or reaches previous low levels, it indicates the price might be oversold, increasing the likelihood of future price increases. This could be a buy signal.

Especially Eli Lilly , in May this year, its market capitalization has replaced Johnson & Johnson, become the world’s highest market capitalization of pharmaceutical companies. And still climbing, has exceeded 500 billion dollars in market value. Sitting on the throne of the “King of Drugs”. This week we analyzed why Eli Lilly's could grow rapidly in recent years. Mainly the following:

1) Eli Lilly has a diversified strategy with products designed for multiple areas: diabetes, oncology, immunology, and neurological diseases.

2) Eli Lilly has outstanding R&D capabilities and is betting on a number of key areas.

3) Eli Lilly has a strong drug pipeline and holds Weight loss +Alzheimer’s drugs in the future, revenue is expected to continue to grow.

4) Eli Lilly’s earnings report is bright and grow rapidly, but valuation is much higher than peers.