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Breakfast Bites - Thu Oct 5, 2023

Rise and shine everyone.

We had a respite in the markets yesterday brought on by lower crude oil prices, lower USD and lower yields. Despite these lower yields overall, the Yield Curve continued to steepen, now at -0.32%

US Equity futures are lower this morning with bond yields at the higher end inching up again. Global yields at the long end are also higher and likely pulling up US yields. While most are expecting that this 100bp move in bond yields have gone too far, and it’s time for bond yields to stop rising (i.e., bond prices to stop falling), we continue to wonder what is too far?

We are in a situation where the Federal Funds Rate has risen drastically and the Treasury continues to issue bonds (which pushes the prices down, pushing up rates). And the Yield Curve continues to remain inverted, which is not normal.

I realize at these prices, there’s probably demand brewing for bonds and the fact that the US interest burden is going up, is a factor. But, we continue to remain cautious about taking large positions in long bonds here. Something to consider.

In other market news, Crude Oil continue to fall now below $83/bbl. It would seem there’s some relief from no additional cuts from OPEC, and lower demand for gasoline. Gold, the US Dollar and Bitcoin are all largely flat.

Asia and Australia

  • Asian equities largely rebounded Thursday. Japan outperformed and Topix posted best day since Nov-22. Hong Kong pared most of its early gains to close flat. while mainland China remains offline. ASX higher. South Korea flat. Taiwan higher by a rebound in semi stocks. Southeast Asia mixed. India trading higher.

  • Early data suggests no Japan FX intervention, BOJ buys more JGBs and ETFs. BOJ was active in other markets Wednesday with five tranches of JGB purchases across the curve totaling JPY1.9T ($12.7B) with about a third targeting 5~10y zone, as the unscheduled portion greatly exceeded market expectations. Noted benchmark 10y yield still rose to 0.783% as markets continue to speculate on the end of negative rates.

  • BOJ also purchased JPY70.1B in ETFs, confirming market expectations yesterday as Topix was down more than 2%. Marks the first operation since 14-Mar, thought to be aimed at countering headwinds from higher US yields.

  • South Korea September CPI came in hotter than expected rising 3.7% YoY, vs +3.4% in prior month, accelerating for a second month and marking fastest annual rise since May. Core CPI rose 3.3% YoY, same as prior month.

  • India saw its composite PMI rise to 61 from 60.9. This is one of the stronger PMI readings across global markets.

Europe, Middle East, Africa

  • European equity markets mostly firmer. FTSE 100 underperforms amid weakness in oil names and miners.

  • German trade balance for August improved to €16.6B vs €15B expected. However, exports were down 1.2% MoM vs 0.6% decline expected, while imports were down 0.4% vs expectations for +0.5% gain. German export industry was markedly worse in September, as exports to all key regions are currently in decline.

  • German property developers at most immediate danger of insolvency. Gerch Group, which has €4B of projects under construction, has filed for insolvency. Developers struggled with increased costs, higher interest rates and lower valuations.

The Americas

  • Speaker ouster raises risk of US government shutdown; House can't move forward on spending until speaker is chosen. But, Fitch says potential government shutdown following McCarthy's ouster will not affect US credit rating.

  • Kaiser Permanente workers at hospitals and medical office buildings around the country began a strike on Wednesday morning. The work stoppage covers an estimated 75,000 employees at the nation's biggest nonprofit health care system. It is expected to be the largest health care strike in U.S. history, according to a coalition of unions leading it.

  • UAW, automakers signal progress in talks while GM secures $6B credit line to hedge against rising UAW strikes.

  • Yesterday, ADP Employment numbers came in at +89K, far below the estimated +140K. This isn’t a sign of what is to come during the NFP payroll data release tomorrow. We’ve been seeing divergences in the data for the last few months. So something to bear in mind.

  • Challenger Job Cuts data just came in. U.S.-based employers announced 47,457 cuts in September, down 37% from the 75,151 cuts announced in August. However, cuts are up 58% YoY. Employers announced 146,305 cuts in the third quarter, a 92% YoY but, 22% QoQ. Technology still leads at +716% YoY,

Retail companies announced the second-most job cuts this year with 70,713, a 288% increase YoY.


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


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