Rise and shine everyone.
The big news this morning is oil and gold surging. Iran’s Foreign Minister called for an embargo on oil exports to Israel pushing WTI Oil up 1.93% to cross $89/bbl. Gold is up another 1.15%, crossing $1945/oz. Tensions in the Middle East continue to weigh on global markets, amid better than expected Retail Sales data in the US and GDP growth in China.
US Equity Futures are lower this morning after closing lower yesterday as well amid news of possible escalation. Yields are higher at the long end with the Yield Curve steepening again to -0.35%. Bitcoin is still bid on news of possible ETF launches that will attract significant capital to those funds.
We have Tesla and Netflix reporting after the close today but, there’s plenty of data to digest from the last 24 hours. So read on…
But, before that, here's today’s notable SPX Options levels from our Gir Bot created by Mayhem on our Discord.
Asia - Pacific
Asia equities finished mixed Wednesday with little clear direction apparent. Greater China stocks fell after a bright start with the Hang Seng ending slightly lower again, Shenzhen underperformed on US tech ban. Taipei also sharply down ahead of several heavyweight earnings, Seoul up slightly. India extended early losses, Southeast Asia lower on balance. Japan was flat.
China released a host of macro data this morning - mostly better than expected. However, the Chinese Property Developer, Country Garden’s imminent default on bonds is weighing down on markets with property developer stocks down to their lowest since 2009.
GDP growth came in at 4.9% YoY vs. 4.4% expected. However, this is still lower than the 6.3% from the July reading. QoQ GDP growth came in at 1.3%, much higher than last quarter’s 0.5%. China’s target is 5% for the year and the market is seeing today’s release as a positive step in that direction. However, our view is that as long as China is on track to hit their 5% target, we’re not likely to see strong stimulus measures.
Industrial Production remained unchanged at +4.5%.
Retail sales came in higher at +5.5% vs. +4.6% last month.
There’s possible news of the BoJ doing unscheduled bond purchases tomorrow, 19 Oct with JPY 100B of the 10Y-25Y JGB and JPY 300B of 5Y-10Y JGBs. Neither the currency nor the market reacted much to this news.
Europe, Middle East, Africa
European markets lower now after catching a bid earlier in the day led by Luxury because of China’s positive retail sales data. UK FTSE 100 lower after inflation data still remains steady and higher then consensus.
UK inflation surprised on the upside in September at 6.7% YoY versus consensus 6.6% and prior 6.7% and core recorded 6.1% YoY rise versus consensus 6.0% and prior 6.2%. Closely monitored services inflation also edged up to 6.9% from 6.8%. Firmer-than-expected September update followed the much larger-than-expected drop in the August reading. Consensus still expects a pause in rate hikes for the November meeting.
ASML Q3 results shows that lower demand is weighing on the industry. Q3 net bookings weak, at €2.6B of which €500M for EUV vs Q2 net bookings at €4.5B and EUV at €1.6bn. Worth noting that China represented 46% of total revenues. Company also cut FY 2024 guidance, with revenues now expected to be flat taking into account ongoing end market weakness and new Chinese restrictions.
News of Nvidia being banned from selling chips to China (and possibly other countries) weighed heavily on the stock and the mega cap tech. Shares were down over -7% at one point yesterday and continue to trend lower in the pre-market.
NAHB Housing Market Index came in at 40 vs. the previously downward revised 44. Housing market data is starting to break down again with higher mortgage rates weighing on the industry. We have building permits and housing starts being released today.
US Retail Sales proved to be a big surprise yesterday as the headline number rose 0.7% MoM vs. est. 0.3% and core retail sales (ex autos) came in at 0.6% MoM vs. 0.2%. The control group number came in at +0.61% MoM. This is the number that drives GDP growth and we’ve had positive readings each quarter. It’s quite likely that post this data we see an upward revision to 3Q GDP Growth. That doesn’t bode well for the Fed’s policy which may need continue higher-for-longer with that level of growth in the economy.
Canada’s inflation stats came in better than expected. Headline CPI rose 3.8% YoY in September, below 3.9% consensus and down from the hotter-than-expected 4.0% reading in August. Deceleration was broad-based driven by travel (air transportation down 21.1% YoY), durable goods and groceries. Slowdown offset by bigger y/y jump in gas prices (+7.5% YoY vs 0.8% in August); ex-gas CPI rose 3.7% YoY in September vs 4.1% in August
Chart of the Day
Q4 seasonality from JP Morgan seems to suggest a rally more often than not. However, I doubt that the numbers have figured in coming off an aggressive Fed hiking cycle, global tightening, and ongoing wars. I would take this with a pinch of salt.
(news taken from Reuters, FT, Bloomberg; Calendar from Newsquak; Trading Economics)