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Rise and shine everyone.
The big news today will be oil. We have the OPEC+ meeting and official statements from Saudi and Russia have reaffirmed their cut until the end of the year at 1.3 million barrels per day and we are likely not going hear about an extension just yet. Our view is that comments during the meeting will be benign in the face of supply remaining tight until the end of the year. We doubt the cartel wants to push prices to levels where demand adjusts lower permanently and we see resulting crash in prices, as we have seen so many times in the past.
We also received an update on US Oil Inventory at Cushing, Oklahoma. Last week, we got reports that stocks were dangerously low and that sparked of a rally in WTI Crude Oil to $95/bbl. It’s doubtful that we will get a big surprise today but, an important number to keep an eye on. The US SPR levels have also fallen to dangerously low levels, with only 17 days of inventory at the moment.
In other news, US Equities are marginally higher this morning after quite a steep sell off yesterday sparked by a big miss in US JOLTS data. The 30Y bond yield briefly crossed 5% earlier this morning. While they have pulled back from those levels, bond yields are still over close to their recent highs and the yield curve has steepened further to -0.33%. Gold is off it’s lowest levels and Crude is down to $87.50. Bitcoin is higher while the US Dollar Index has pulled back slightly to 106.67.
Asia and Australia
Asian equities sharply lower Wednesday. Nikkei extended selloff, down to its lowest since mid-May. Hong Kong nears 11-month low dragged by slumps in tech stocks, while mainland China remains offline. ASX also down to 11-month low. South Korea sharply lower after holiday break. Taiwan weighed by falling semi stocks. Southeast Asia mixed. India trading down.
The big news in Asian markets yesterday was the Japanese Yen which hit the 150 against the US Dollar. That was a line in the sand for many analysts and the USD/JPY didn’t stay at that level for too long. It came crashing down to 147.27 before recovering to 149. We’re seeing some pressure this morning with the Yen back down to 148.87. There’s no official news from Japan that any intervention took place.
The Bank of Japan carried out a series of unscheduled purchases of Japanese Government Bonds as benchmark 10-year yields hit the highest in a decade. they offered to buy JPY 675B ($4.25B) worth of 5Y to 10Y maturity JGBs. The offer greatly exceeded market expectations. We may see some recovery in Japanese equities if the Yen can push past 149 and stay there.
RBNZ left OCR unchanged at 5.50% as expected and reiterated rates need to stay restrictive so that a prolonged period of subdued activity reduces inflation. Noted near-term risk that activity and inflation do not slow as expected.
South Korea: Industrial production rose 5.5% MoM in August, marking fastest growth since June 2020, notably beating consensus 0.2% and rebounding from a 2.0% decline in the previous month. Strength was mainly attributed to recovering overseas semiconductor demand after encouraging signs from September exports.
Europe, Middle East, Africa
European equity markets recover early losses, now higher after closing lower on Tuesday, near six-month lows. The DAX briefly dipped below 15,000 for the first time since March 2023 as the 10-year bund yield crossed 3%, for the first time since 2011. We still believe there is more room to the upside for yields in Europe and remain bearish on European equities.
September Eurozone PMI services in at 48.7 vs preliminary 48.4 and prior month at 47.9, marking a two month high. The overall composite PMI index in at 47.2 in September vs August's reading of 46.7, also a two-month high.
Services PMI readings across Europe are slightly better - Spain and Germany are back in expansionary territory. France however, slipped lower.
On the other hand, Eurozone retail sales missed expectations in August, coming in at -1.2% MoM v or -2.1% YoY. Prior M/M revised higher from -0.2% to -0.1%. Data points to weaker consumer demand as cost-of-living continues to bite.
UK PMI services show business downturn eases after inflation data, BoE pause
The Americas
President Biden plans to announce his administration has approved an additional $9B in student debt relief. This would be a major boost for the consumer.
Unions representing 53K Las Vegas workers in talks, could strike as soon as 6-Oct. This would bring a fresh round of wage negotiations and pressure on core CPI.
August JOLTS job openings having received outsized attention for an unexpected rise to 9.6M vs July's 8.8M. We discussed yesterday that the number in July was finally headed to where the labor market would be in better balance. We would need to see 7-8 million Job Openings, and yet yesterday brought a surprise increase. The quits rate went up but very marginally - nothing to take note of: 3.638M vs. 3.619M in July.
US HIgh Yield spreads are rising with credit markets showing more weakness than equities. The MOVE Index, that tracks bond volatility, is also at 141.67, the highest level since May 2023.
Calendar
(news taken from Reuters, FT, Bloomberg; Calendar from Trading Economics)
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