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Breakfast Bites - Risk Sentiment remains subdued

Rise and shine everyone.

Risk sentiment remains subdued across markets. After Friday’s sell-off in the US, Asia continued with the sell of this morning. The escalation of war in the Middle East still weighs as the key concern across markets, with possible involvement from the US.

US Equity futures are taking a breather from the sell-off though and are marginally higher. Gold is pulling back after it’s surge on Friday, while Oil is holding on to gains. Yields are higher this morning with the Yield Curve steepening to -0.37%. The US Dollar is also holding above 106, but pulling back from Friday’s highs. Bitcoin saw a 2.2% increase overnight to 27,725.

Charles Schwab is the major earnings for today.

Asia and Australia

  • Asia equities ended lower across the region Monday. China tech shares worst off and dragged Shenzhen and Hang Seng lower. Seoul and Taipei also saw sharp losses. Australia down, New Zealand underperformed. Japan closed near its lows of the day. Southeast Asia finished lower, India a few points down.

  • The PBOC said in a statement it conducted medium-term lending facility (MLF) operations worth 789 billion yuan ($107.96 billion) to keep liquidity in the banking system adequate. With 500 billion yuan worth of MLF loans maturing, the PBOC is pumping 289 billion yuan of fresh liquidity into the banking system, the biggest such net injection in nearly three years. Meanwhile, it held the rate on the one-year policy loans unchanged at 2.50%, in line with a Reuters poll last week. - While these seemed like positive developments in terms of stimulus, the market has shrugged it off and rightfully so. The PBOC is simply replacing liquidity in the system.

  • Japan Finance Minister Suzuki who told G20 peers Friday that Tokyo may need to take "appropriate action" in the exchange-rate market as global monetary tightening could heighten volatility in currency moves. An intervention could see temporary relief for the JPY but, rates are driving the market.

  • South Korea to extend tax cut on fuel consumption through year-end amid growing inflationary pressure

  • New Zealand elects center-right government to manage economic challenges in aftermath of pandemic

Europe, Middle East, Africa

  • European equity markets higher. Basic resources, banks and oil/gas leading gains. Healthcare, technology and industrial/goods and services lag. Banks are stronger with upside underpinned by some bargain hunting ahead of the Q3 reporting season. Also ongoing commentary about sector benefiting from higher for longer rate regimes.

  • Miners leading the way in EU trade on the back of higher metals prices as PBOC injected CNY789B in new MLF funding (biggest since 2020) while keeping the rate unchanged at 2.50%

  • A Bloomberg poll of economists showed the majority expect the ECB to leave rates on hold until September 2024. Dovish comments from ECB members last week was key to pushing rates down and fostering some relief in equities early last week. But, that turned around as new of war escalated. Rates are higher across the curve in Europe and Germany this morning.

  • This week brings UK employment and inflation data, ahead of 2-Nov BoE meeting. Ahead of the data,UK rate expectations continued to retreat as most recent inflation figures came in well below expectations. Analysts see no further BoE hikes, especially if this week's data continues to show progress on disinflation.

The Americas

  • Bank of Canada governor says interest rate hikes still possible with geopolitical tensions and core inflation remaining sticky. They don’t expect higher for longer to cause a recession.

  • Major U.S. pharmacy chain Rite Aid said Sunday that it has filed for bankruptcy and obtained $3.45 billion in fresh financing as it carries out a restructuring plan while coping with falling sales and opioid-related lawsuits.

  • We have yet another round of Fed speakers this week adding to the geopolitical uncertainty and earnings in full flow. Market remains on watch for yet another choppy week ahead.

Chart of the Day

Earnings forecasts suggests Q2 earnings were the bottom of the earnings recession and we’ll see an uplift in earnings in Q3, with the companies coming out of the earnings recession by Q4.


(news taken from Reuters, FT, Bloomberg; Calendar from Trading Economics)


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