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Rise and shine everyone.
Big news this morning from the oil industry - Exxon is closing the deal to buy Pioneer Energy for $59.5B. This will be the biggest merger of the year and for the oil companies since Exxon bought Mobil in 1999. It will also make Exxon the largest player in the Permian basin.
The big data point to look out for this morning is the PPI report at 8:30am, which is expected to come in lower at 0.3% vs. last month’s spike to 0.7% at the headline level. Core PPI change is expected to remain at 0.2%. A decline in PPI is good lead indicator for the CPI which comes out Wednesday but, we still need to remain cognizant of the fact that lower PPI also translates into lower earnings at the corporate level.
After closing higher on the day yesterday, US equity futures are still trading higher this morning. The US Dollar remains subdued and oil has pulled back from it’s spike earlier in the weak. Gold however, is getting a bid, heading past 1872. Yields have pulled back and with the Yield Curve inverting further to -0.397%.
Asia and Australia
Asian equities ended mostly higher Wednesday. MSCI Asia-Pac ex Japan at two-week high led by South Korea on tech results, Hang Seng also higher as growth sectors surged. Mainland China stocks also caught a bid. Gains in Taiwan more subdued as it caught up post holidays, Australia closed higher. Southeast Asia mostly higher ex Singapore. India extended early gains to reach three-week highs. Japan closed mixed with Nikkei higher but Topix a little lower.
Japan - Discussion brewing that the Bank of Japan may revise their inflation forecasts once again during the next BoJ meeting which also includes their Quarterly Outlook, on 31 October 2023. During their July forecasts, they had already revised up the Headline CPI forecast from 1.8% to 2.5% and the Core CPI from 2.5% to 3.2%. Now, the discussion is that the headline forecast may be increased from 2.5% to 3%. The major implication of this is that the BoJ is now accepting that inflation is becoming entrenched and therefore, may be moving closer to the idea that easing should end.
Solid quarterly results from Samsung Electronics and LG Energy Solution propelling Kospi to outperform Asia peers Wednesday. Samsung saw Q3 operating income drop to KRW2.4T ($1.8B) on a 13% slide in sales, roughly in line with analyst estimates, but strong relative improvement from Q2's 95% income slide.
China September vehicle sales rose 4.7% y/y to 2.04M units, second consecutive month of growth, helped by tax incentives for EVs, other environmentally friendly cars, and increased discounts. This is definitely more positive news from China in terms of jump starting consumption.
Europe, Middle East, Africa
European equity markets mixed after moving off lows. French CAC underperforms amid weakness in luxury goods sector following update from LVMH.
LVMH reported results yesterday and the signals were not comforting for the European luxury industry. We’ve been expecting a drop in sales because of China, which accounts for almost 20% of revenues. They also discussed a decline in spending due to higher inflation and economic turbulence. Q3 sales were 9% vs 11.5% expected and 21% in Q2. This isn’t a great sign for the economy because there was an idea that luxury buyers are still doing well. That is clearly not the case anymore.
The ECB's Consumer Expectations Survey showed marginal increase in consumer inflation expectations over the next 12 months to 3.5% from prior 3.4%, while three years ahead edged up for second month to 2.5% from 2.4% in July.
Maersk reported cutting capacity on Far East Asia to Europe routes amid lower demand. Company previously noted muted global macroeconomic growth given continued pressure from higher interest rates and potential recessionary risk in Europe and US
The Americas
Birkenstock launches their IPO today on the NYSE. The German premium footwear company priced their shares at $46/share giving them a valuation of about $8.64B. The shares were priced slightly lower than the midpoint of the range they were consider which was $44-to-$49-per-share. The company was looking for $9.2B, higher than what’s coming in suggesting the IPO market still remains challenging. At this level, Birkenstock will still have a market cap larger than Crocs and On Footwear and will trade under the ticker “BIRK”.
NFIB Small Business Optimism Index came in lower at 90.8 down from 91.3. Small business owners are still concerned about inflation. 43% still reported it was harder to fill positions indicating tightness in the labor market and 23% plan to raise compensation in the next 3 months. The net percent of owners raising average selling prices increased two points to a net 29% seasonally adjusted, still a very inflationary level.
Chart of the Day -The NFIB Small Business Price plans tend to lead the CPI by 4 months. As we’ve noted above, there was a 2% increase in owners raising prices and the grey line below suggests, inflation could very well see a resurgence.
Calendars
(news taken from Reuters, FT, Bloomberg; Calendar from Trading Economics)
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