Rise and shine everyone.
We had a tough day yesterday in the US Markets with the S&P500 down -1.43% and the Nasdaq down -2.47% . US Equity markets are following through and trading lower in the pre-market. Earnings are not particularly helping things along as the market seems to be punishing even the slightest of bad news. Yesterday was Meta’s (Facebook) turn. Despite a double beat, a warning on future ad revenues due to the Middle East conflict sent share prices lower after market almost -3%.
It wasn’t just the US though, global markets also traded lower yesterday.
The Japanese Yen crossed the 150 level against the US Dollar. There is still no discussion of intervention even though this level was seen as largely a line in the sand for where the BoJ would intervene. The US Dollar Index remains green at 106.7.
We saw an interesting double whammy yesterday with long end rates and the US Dollar trading higher. The US Dollar is most affected by shorter-term rates. We continue to think longer term bond rates (10Y - 30Y) will hold at higher levels, at least until the Fed meeting. We prefer the shorter end 1Y to 5Y as the curve steepens at the long end.
Gold and Oil also resumed their climbs, although oil is pulling back again today. Bitcoin is consolidating at 34,500.
Two major economic news to focus on today
ECB Rate Decision at 8:15am ET - Market consensus is for a pause after 10 consecutive hikes, given the easing of inflation in September’s reading and the slowdown in the economy. Two things we will be watching - any changes to balance sheet runoff acceleration (which could be positive for the EUR/USD) and any changes to minimum reserve ratios for banks (there is talk of 1%-2%)
US 3Q GDP Growth Advance Numbers at 8:30am ET consensus estimate 4.3%, prior 2.1% - with the “good news is bad news” phenomenon, we may see the market sell off on an upside surprise in the data.
We have a long list of earnings today so much so, that I can’t seem to fit the calendar in one screenshot. UPS a major one we will be watching before market open and Amazon after market close.
Asia and Australia
Asia equities finished mostly lower Thursday. South Korea's Kospi underperformed as its chip and media-entertainment stocks sold off. Japan benchmarks back at two-week lows. Main benchmarks in Australia, New Zealand, Thailand, Indonesia and Philippines at or near 52W lows.
Hang Seng again neared 52W low before bouncing and holding 17K level, mainland China markets slightly higher. India sharply lower today, Vietnam a notable underperformer down more than 5%.
RBA Governor Bullock commented before the Senate Economics Legislation Committee, saying Q3 CPI was about where policymakers thought it would come, and they were still considering whether it constitutes a "material" change to inflation outlook. We discussed this yesterday in terms of worries around the Australian housing market may cause the RBA to re-think a hike in November.
South Korea Q3 GDP grew 0.6% q/q, above consensus 0.5% and follows 0.6% in the previous quarter. Sharp bounce in exports was the highlight, though external demand contribution curbed by comparable recovery in imports. Private consumption also rebounded moderately after a sharper decline in Q2. Unfortunately, their market is not thrilled with the news, down over -2% this morning.
In an emergency move, the Philippines Central Bank hiked target rate 25 bps to 6.5% effective tomorrow in rare off-cycle decision, warning it would hike again at regular meeting next month if prices don't stabilize. This is not a great sign for global markets.
The Yuan devaluation in China is creating capital outflows, something we discussed two weeks ago on our MacroVisor Podcast with Weston Nakamura. SAFE data shows net $53.9B outflow in September marking the largest since January 2016.
Europe, Middle East, Africa
BTP-Bunds spread in focus as rating agencies evaluate Italy's fiscal plans. Investors heightening their sensitivity to Italy and BTP-Bund spread which is now above the 200bp psychological level. Italy’s spread is also a function of global factors impacted by the shift higher on real rates and global bond rout at the long-end. Level and speed/volatility of BTP spread movements however, is nowhere near 2022 or even 2011/12 levels. Over next few weeks rating agencies will offer updated verdict on Italy., something to keep an eye on.
Siemens is posting all-time lows below €8/shr after confirming press reports which suggested the company was in talks with German government to secure state aid. Banks unwilling to extend guarantees due to the high losses accumulating for years at wind power subsidiary.
Shell cutting 200 clean energy jobs and scaling back hydrogen business
Bank of Canada held rates firm at 5%. Governing council is concerned that progress is slow and inflationary risk have increased. They are prepared to raise the policy rate further if needed. Canadian dollar fell sharply after the BoC rate decision as equities moved off worst levels at Wednesday's open. The next scheduled BoC meeting is on 6-Dec, the next quarterly Monetary Policy will be published 24-Jan
September new home sales up 12.3% to a 759K, well ahead of consensus for a 680K and fastest pace since Feb-22. September print also reversed August 8.2% decline to a 676K pace (revised up 1K). Inventories contracted, down to a 7.3 months' supply at the current pace, though median sales price of ~$419 down from August -US~$433K level.
Chart of the Day
As long as the real yield on the 10Y remains above 225bps, we’re likely to see pressure on the SPX. (chart from Nasdaq)
(news taken from Reuters, FT, Bloomberg; Calendar from Trading Economics)