Rise and shine everyone.
It’s not a very happy Monday as we see the geopolitical conflict escalate in the Middle East. This is weighing on markets as well. Global Equity futures gapped down on the open with oil and gold spiking pst $85/bbl and $1849/oz, respectively. The world is in disarray today and we have a busy week coming up as well.
The spike in oil and gold is putting upward pressure on the USD which in turn, is putting pressure on currencies in Asia. Benchmark bond yields are beginning to pull back slightly and the US Yield Curve is now at -0.33%. US Equity Futures are still lower on the day, with a strong US Dollar at 106.45. Bitcoin is lower signalling possible risk off.
Asia and Australia
Asian equities tilting lower Monday. Mainland China markets lower as they mark to market post last week's holiday, Hong Kong to resume trading shortly post a typhoon-induced canceling of the morning session. Australia stocks higher on read through from US on Friday, India opened lower. South Korea, Taiwan, Japan markets closed.
China had strong Golden Week holiday activity with tourism revenue totaling CNY753.4B ($103B), up 130% YoY and surpassed the pre-pandemic level by 1.5% (Bloomberg). Total travelers increased 71% YoY to 826M. The tone however continues to remain cautious as spending per tourist was still 2% below 2019 levels.
There’s emerging speculation that the BoJ might further revise YCC at the October MPM as elevated US Treasury yields pull JGB 10y closer to the current effective cap of 1%. I doubt they will make a tweak at this stage, when they are still effectively easing by buying bonds everytime the JGB yield crossed 0.75%. But, never say never!
Europe, Middle East, Africa
European equity markets lower, with financials still leading on higher rates. Defensives outperforming cyclicals.
The big news dominating the region continues to be war in the Middle East, bringing a fresh set of concerns for global growth.
European earnings season to begin soon. The blended earnings growth for the Stoxx 600 is -8.2%. Some analyst estimates put earnings at -17% YoY for this season with the exception of energy companies who may have a tailwind from the recent rally in oil prices. Industrials, Basic Resources and Utilities are being forecasted to have the worst performance this season, while travel and leisure may do better.
From BoFA’s flow monitor this morning: After this week our model CTA’s position in the S&P 500 is nearly flat and next week the trend strength looks to turn negative in bearish to bullish price paths. This implies that actual CTAs are either already short (but not stretched) or are also flattening and on the verge of turning short. - Something to look out for this week, as we’re also likely to see heightened volatility with global events, the start of earnings season and plenty of macro data in store.
It’s a quiet day with the bond market closed for Columbus day. The market gets ready for earnings season, major bond auctions and the last CPI print ahead of the FOMC meeting in Nov.
Goldman Sachs chart of the Day
(news taken from Reuters, FT, Bloomberg; Calendar from Trading Economics)