WEEKLY MARKET RECAP: October 09 – October 13, 2023

Happy Friday, traders.

Welcome to our weekly market wrap, where we look back at these last five trading days with a focus on the market news, economic data and headlines that had the most impact on the financial market – and may continue to into the future for the US Dollar and other key correlated assets.

Inventory levels are a key driver of economic momentum as businesses decide to cut or add to stock piles to keep them at an optimal level, but what is an optimal level? The monthly ISM reports ask service providers and manufacturers how they feel about current inventory levels. Manufacturers are asked if their customers’ inventories are “too low,” “too high” or “just right,” while service providers are asked the same question about their own inventories. This week’s chart combines the two responses and shows that the past few readings, including the one for September, have been close to the long-run average of 52.5.

Unsurprisingly, manufacturers typically report their customers’ inventories are “too low” because they want to believe their customers are going to buy more. On the other hand, service providers often see their inventories as “too high” because they want to turn over more inventory. Interestingly, the services report showed that 82.1% of service providers now see inventories as “just right,” the highest level in the report’s history. While the monthly figures are volatile, especially for manufacturing, the sum of this data suggests inventory levels might be near equilibrium.

Balanced inventory levels can prevent large swings in production, potentially leading to more stable GDP growth. 3Q23 could be the high watermark for GDP growth in the near term with consensus expectations hovering near 3.0% saar. However, given the uncertainty of future growth, investors should continue to navigate cautiously and not take all risk off the table in case the economy remains resilient for longer. Maintaining appropriate exposure to equities and fixed income, which both tend to outperform cash after peak rates, is key.

Thanks for reading! Have a great weekend.        

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