Breakfast Bites - Yields higher, Market pulls back from relief

Rise and shine everyone

The market seemed to brush off any negative sentiment yesterday, closing higher even after global risk sentiment was muted. Markets are trending lower this morning. Given positioning, the path of least resistance is higher for equities this week but, sentiment is driving any sell-off we’re seeing.

Yields are notably higher this morning with the Yield Curve at -0.35%. Gold is trending higher again, and Crude Oil is off it’s lows. The US Dollar is also gaining positive momentum this morning. News of further attacks are driving risk off fears again.

A few notable macro data points today coming out later today - US Retail Sales and US Industrial Production; Canada Inflation Data and Housing Starts; China GDP, Retail Sales and Industrial Production.

Notable Earnings - J&J, Bank of America, Lockheed Martin, Goldman Sachs, JB Hunt.

Asia and Australia

Asia equities ended mostly higher Tuesday. Japan led gainers to reverse around half of what was lost Monday. Hang Seng and Kospi the other notable gainers. Mainland China benchmarks mixed, Taipei flat, Southeast Asia mostly higher and India hovered just below month-long highs. Australia closed higher.
China GDP data to be released later tonight (US) / early tomorrow (Asia). Bloomberg consensus forecast looks for Q3 GDP growth of 4.5% YoY, following 6.3% in the previous quarter and returning to its Q1 pace. General sentiment remains cautious despite some annual forecast upgrades in light of recent improvements.
China Beige Book survey reporting a slump in Q3 corporate borrowing to the second-lowest levels on record going back to 2012. CBB remarked on the weakness at least compared to pre-pandemic, noting limited impact from PBOC easing.
Country Garden's entire offshore debt pile may face default Tuesday unless $15.4M coupon payment is made. Payment deadline at end of 30-day grace period triggered last month, non-payment will likely trigger cross defaults in other bonds which would lead to one of China's biggest corporate debt restructurings.
Japan’s 20Y JGB didn’t garner as much interest as expected, pushing rates up higher. Banks and Life Insurance companies are the usual buyer at the longer tenors, as well as, “income-oriented” people. It would seem that the prospect of tightening in Q1, 2024, is chasing away demand for government bonds.
New Zealand Headline CPI rose 5.6% YoY in Q3 (lowest in two years), below consensus 5.9% and 6.0% in previous quarter. NZ raised rates aggressively to 5.5% and has held steady since June. The higher for longer policy seems to be working.

Europe, Middle East, Africa

European equity markets higher in choppy trade. Follows higher levels in Asia.
UK Wage data released today. Important data point as this is what has been driving core inflation higher. The numbers came in marginally softer than expected and prior readings. Average weekly earnings up 8.1% YoY versus consensus 8.3% and prior 8.5%. Average weekly earnings excluding bonus came in at 7.8% down from 7.9% last month. While not a drastic change, a trend lower could mean better inflation reading on the horizon and a pause by the Bank of England.
German ZEW economic sentiment jumped in October to -1.1 versus consensus -9.3 and prior -11.4. Current situation index deeply negative at -79.9 but above consensus -80.8 and prior -79.4. ZEW highlighted that data pointed to a bottoming out of sentiment amid a notable uptick in economic expectations of financial market experts.
Eurozone ZEW economic sentiment data turned positive for the first time in 5 months, rising from -8.9 to 2.3. This data point is pre-war and we shouldn’t be surprised if this turned negative again next month. Still the jump is hopeful that the economy is set to improve with inflation coming down and the ECB likely pausing rate hikes.

The Americas

Latest BofA Global Fund Manager Survey said investors have turned bearish again, citing 0.4% increase in cash level to 5.3% and increase in expectations for hard landing expectations, up 9% MoM to 30%.
Deloitte survey sees holiday spending up 14% this year. Holiday season spending is expected to rise this year versus last year, though the increase among middle-income shoppers is forecast to be far smaller due to the impact of student loans and lower wage growth. We will note what the truckers say during earnings about volumes to see how inventory is being built up for the holiday season.
J&J delivered upbeat earnings beating EPS and Revenues. EPS $2.66 vs FactSet $2.52; Revenue $21.35B vs FactSet $21.04B. Increased guidance marginally - Adjusted EPS $10.07 - $10.13 vs prior guidance $10.00 - $10.10. Worldwide sales came out +6.8% YoY. Pharma (now called Innovative Medicine) was up +5.1% and excluding Covid Vaccine up +5.9%. Medical devices however, came in lower at +10% vs. expected +11.8%. Shares are trading higher.
Choice Hotels (CHH) just announced the proposed acquisition of Wyndham Hotels (WH) for $90.00 per share in cash-and-Stock transaction. Wyndham’s shares are up +15.7% in pre-market trading.
Bank of America also reported a double beat but, barely. Q3 EPS $0.90 vs FactSet $0.83; Revenue $25.2B vs FactSet $25.13B. Provision for credit losses of $1.2B increased $336M. Net charge-offs of $931M increased compared to the prior year and remained below Q4-19 pre-pandemic levels. Fee earnings came in lower than expected. Brian Moynihan quote: “We did this in a healthy but slowing economy that saw US consumer spending still ahead of last year but continuing to slow.”

Chart of the Day

Goldman Sachs presents their sequential wage tracker showing how wage growth has slowed in every developed market. While this great for most of the countries in controlling core inflation, this is exactly what Japan doesn’t want to see. Japan’s focus is very much on higher nominal wages.