Futures Dip After Hot PPI, China Frenzy Unravels

Futures are lower ahead of the last trading day of the week, but well off session lows as JPM earnings were solid enough to push the stock higher and reverse some of the market's losses as Q3 earnings season was officially launched. As of 8:45am, S&P futures are down fractionally, while Nasdaq futures dropped 0.2%, hammered by TSLA which is down -5.8% pre-market as the Robotaxi event failed to meet market expectations. Bond yields are higher with the 10Y rising 3bps to 4.09%, while the Bloomberg Dollar index reversed earlier losses. Commodities are mixed with Oil fractionally lower, base metals higher, and pPrecious metals mixed. Today’s macro focus will be banks earnings and PPI, which came in fractionally light MoM (headline 0.0% MoM, Exp. 0.1%; core 0.2%, exp. 0.2%), but hotter on a YoY basis (core 2.8% YoY, Exp. 2.6%). Over the weekend, key macro catalysts will be China finance minister’s press conference on stimulus package.

In premarket trading, JPMorgan rose 1% after the bank reported a surprise gain in net interest income for the 3Q and raised its forecast for the key revenue source. Wells Fargo also gained, rising 3% after posting 3Q profit that topped analyst expectations as a surge in investment-banking fees helped counter a dip in lending revenue as interest rates fall. Tesla fell 6% as Elon Musk unveiled prototypes of the automaker’s long-awaited robotaxi Cybercab. Analysts note that the event did give a clearer picture of the company’s autonomous plans, but it was “light on the details.” Here are some other notable premarket movers:

• Aehr Test Systems (AEHR) jumps 13% after the semiconductor manufacturing firm reported fiscal 1Q results and reiterated its guidance for the fiscal year.
• A.O. Smith (AOS) falls 10% after the manufacturer of water heating and water treatment equipment lowered its annual forecasts for net sales and adjusted earnings per share, citing continued softness in its China business.
• BNY Mellon (BK) gains 1% after the bank’s 3Q adjusted earnings per share beat the average analyst estimate.
• Humana (HUM) slips 3% after the US Medicare program released final quality ratings for private Medicare Advantage plans, confirming a previously announced cut for the health insurer.

The producer price index for final demand was flat from August after rising 0.2% in the prior month, printing below estimates. From a year ago, however, it rose more than expected up 1.8% and 2.8% for headline and core, respectively, both above estimates of 1.6% and 2.6%.

European stocks reversed earlier losses and rose 0.2% with automobile and telecommunications shares leading the decline, while real estate and basic resources stocks are the biggest outperformers. Here are the biggest movers Friday:

• Aeroports de Paris gains as much as 2.7% as JPMorgan upgrades to overweight in note switching its top pick within the European airports space
• Zalando shares rise as much as 1.5% after the online fashion retailer delivered preliminary third-quarter results that were significantly above expectations and boosted its full-year guidance
• Brembo shares gained as much as 4.6% in Milan after the Italian company signed an agreement with Apollo Global Management’s Tenneco to buy a 100% stake in Öhlins Racing for $405m
• BP shares drop as much as 1.6% after the UK oil company said in a 3Q trading update that it expects rising net debt due to weaker refining margins
• Thales declines as much as 3.2% after Berenberg cuts to hold, citing in note continuing challenges for the defense contractor’s Space busines
• J Sainsbury falls as much as 5.1% after the largest shareholder in the UK supermarket chain, the Qatar Investment Authority, offered around $400 million worth of shares at a discount to the last closing price
• Revenio declines as much as 5.6% following a downgrade to sell from hold at Nordea, which cites short-term uncertainties for the Finnish ophthalmological device and software firm
• THG shares drop as much as 7.9%, hitting their lowest intraday level since January 2023, after the online retailer reported third-quarter revenue that Citi said missed their estimates

Earlier, Asian equities were headed for a second week of losses as the rally in China fizzled. The MSCI Asia Pacific Index pared earlier gains of as much as 0.4%. TSMC and Fast Retailing were among the biggest boosts to the regional benchmark. Japanese stocks were mixed, while China’s onshore gauge capped its worst week since July ahead of a policy briefing by the Ministry of Finance on Saturday. Chinese stocks have been volatile this week as traders digested weaker-than-expected holiday spending data and await further announcements from the key meeting this weekend. Investors and analysts are expecting China to deploy as much as 2 trillion yuan ($283 billion) in fresh fiscal stimulus, according to a majority of 23 market participants surveyed by Bloomberg.

“We have to expect some profit taking” after China’s sharp rally in the past few sessions, said Jessica Amir, market strategist at Moomoo. Meanwhile, “traders are also considering the risks should China not deliver a second bazooka stimulus package on the weekend.”

In FX, the Bloomberg Dollar Spot Index is little changed. The Bloomberg Dollar Spot Index dipped 0.1% as the greenback slipped against most Group-of-10 peers; the Norwegian krone led gains alongside the British pound, while the Japanese yen slumped.

• EUR/USD inched up 0.1% to 1.0943 reversing an earlier drop; France’s government unveiled a budget for next year that aims to deliver a €60.6 billion remedy for its creaking public finances
• GBP/USD rose as much as 0.2% to 1.3081; The UK economy returned to growth in August, putting Britian on course for modest growth in the third quarter, albeit at a slower pace than in the first half of the year

In rates, treasuries are lower, with US 10-year yields rising 4bps to 4.10%, the highest since July 31. French government bonds dip after the government unveiled a budget for next year that aims to deliver €60.6 billion in spending cuts and higher taxes. The OAT-bund spread is steady around 77 bps.

Oil prices decline, with WTI down 0.7% as Israel’s government has yet to decide how to retaliate against Iran for a missile attack last week. Spot gold rises $8 to around $2,637/oz.

Today's data calendar includes September PPI (full summary here) and October preliminary University of Michigan sentiment (10am). Fed speakers scheduled include Goolsbee (9:45am), Logan (10:45am) and Bowman (1:10pm)

Market Snapshot

• S&P 500 futures down 0.1% to 5,822.75
• STOXX Europe 600 little changed at 519.13
• MXAP little changed at 192.69
• MXAPJ up 0.2% to 613.35
• Nikkei up 0.6% to 39,605.80
• Topix down 0.2% to 2,706.20
• Hang Seng Index up 3.0% to 21,251.98
• Shanghai Composite down 2.5% to 3,217.74
• Sensex down 0.3% to 81,370.74
• Australia S&P/ASX 200 down 0.1% to 8,214.51
• Kospi little changed at 2,596.91
• German 10Y yield little changed at 2.27%
• Euro up 0.1% to $1.0949
• Brent Futures down 0.7% to $78.86/bbl
• Gold spot up 0.4% to $2,641.07
• US Dollar Index down 0.18% to 102.80

Top Overnight News

• China could announce fiscal stimulus measures worth a combined ~$280B when the finance ministry holds a press conf. on Saturday according to a Bloomberg survey of investors and analysts. BBG
• China’s housing market sees a spike in foot traffic following gov’t stimulus measures. WSJ
• South Korea’s central bank lowered its policy rate by 25bp, as expected, but the decision wasn’t unanimous (one person wanted to keep rates unchanged) and while further easing will come, additional reductions are unlikely in the near-term. WSJ
• France on Thurs unveiled a budget plan with EU60B worth of spending cuts and tax hikes as the country looks to put its fiscal policy on a more sustainable path. FT
• The U.S. government announced quality ratings for 2025 Medicare health and prescription drug plans on Thursday, the first indication of which large health insurers, including CVS Health, UnitedHealth Group, and Humana will get bonus payments in 2026. RTRS
• Tesla stock slumped premarket after Elon Musk’s much-hyped Cybercab launch fell flat. The event lacked technical details, glossed over topics including regulation, and his comment that production may start in 2026 only highlighted Tesla’s poor record on timelines. Musk originally promised to get 1 million on the road by 2020. BBG
• Boeing’s relationship with its union turns more acrimonious, with the aerospace giant filing unfair labor practice charges, alleging labor leaders are failing to negotiate in good faith. BBG
• BAC: Berkshire Hathaway filed a form 4 disclosing the sale of 3.9mn/4.0mn/1.6mn shares on 10/8, 10/9, 10/10. This takes their stake below the 10% reporting threshold and creates some uncertainty around whether they are still reducing their stake until the next 13F filing. .. Have heard mixed views around how the stock will trade with this uncertain supply overhang but we would flag that this has turned into a crowded long heading into the print on Tuesday. All eyes on JPM print this AM. GS GBM
• Fed's Goolsbee (2025 Voter) says does not see convincing evidence is overheating; repeats Fed must focus on both sides of the dual mandate; repeats inflation has cooled and job market is strong: BBG
• DBRS calculates insured losses for hurricane Milton likely in the USD 30-60bln range.
• Blackrock reported strong FQ3 EPS upside at 11.46 (vs. the Street 10.40), with the beat driven by robust margins (op. margins spiked 350bp Y/Y to 45.8% vs. the Street 44.1%) and higher revenue (sales climbed 25% to $5.197B vs. the Street $4.99B). Total net inflows were $221.1B in the quarter, including $160B long-term (the $160B number was far above the consensus forecast of $100B). Equity inflows were particularly robust at +$74.1B (vs. the Street $30B). Total AUM was nearly $11.5T as of the end of Q3. RTRS

A more detailed look at global markets courtesy of Newsquawk

APAC stocks traded mixed following the choppy price action stateside where markets reflected on disappointing data and hawkish-leaning comments from Fed's Bostic, while regional participants await the Chinese Ministry of Finance's press briefing. ASX 200 price action was lacklustre with the index contained by weakness in real estate, utilities and financials.  Nikkei 225 eked marginal gains with index heavyweight Fast Retailing leading the advances post-earnings, while Seven & I was at the other end of the spectrum after it cut its guidance and announced a restructuring plan to fend off a takeover. KOSPI sits with marginal gains following the BoK's 25bps rate cut which Governor Rhee framed as a hawkish cut. Shanghai Comp was pressured in the absence of Hong Kong participants and stock connect flows, while participants await tomorrow's Ministry of Finance press conference and whether China will unveil large fiscal stimulus.

Top Asian News

• China issues guidelines on strengthening supervision, preventing risks and promoting high quality development of the Futures market. Will be cracking down on illegal and irregular activities. Measures will be implemented to curve specific speculation. To support deepening product and business cooperation
• China's Infrastructure Ministry, Ministry of Industry and Information Technology, and State Administration for Market Regulation are to hold a briefing on Monday at 10:00 local time (03:00BST/22:00EDT).
• BoK cut its base rate by 25bps to 3.25%, as expected, with the decision not unanimous as board member Chang Yong-Sung dissented and the central bank also voted to lower policy interest rate in special loan programmes. BoK said it will thoroughly assess trade-offs among inflation, growth, and financial stability, as well as noted that South Korea's economy is to continue moderate growth and the BoK will carefully determine the pace of further cuts to the base rate. Governor Rhee stated that five board members said keeping the policy rate at 3.25% is appropriate for the next three months and one board member was open to a further cut in the three months ahead, while Rhee added that today's policy decision could be viewed as a hawkish cut. Furthermore, he said they will look at property prices, Q3 growth figures and the pace of household debt growth for the rate review in November, while he added that they will look at financial stability risks for any further rate reduction decisions and the pace of rate cuts will be slower in South Korea compared with the US.

European bourses, Stoxx 600 (U/C) are bobbling around the unchanged mark in what has been a very lacklustre and indecisive session thus far. European sectors are mixed but with the breadth of the market fairly narrow; Real Estate takes the top spot alongside Basic Resources whilst Autos lags. US Equity Futures (ES, NQ, RTY) are very modestly on the backfoot, continuing the losses seen in the prior session. Tesla (-5.7%) slips in the pre-market after its event where it unveiled Cybercab and a driverless Model Y, but RBC said they heard much of what they expected to hear.

Top European News

• French Markets Digest Barnier’s Budget as Fiscal Concerns Linger
• German Finance Chief Has More Room to Lift Net Debt Next Year
• Northvolt to Pay Taxes Monday as Battery Maker Battles Crisis
• Hays Rebounds From 2013 Low as Panmure Sees Stock Bottoming Out
• MANDATE: Louis Dreyfus Exp. €500m 7Y Investor Calls
• China Seeks Carbon Data From Ships as Trading Scheme Grows

FX

• DXY is slightly lower and trading within a very busy 102.76-94 range, which is within the confines of the prior session. Today’s docket includes US PPI, UoM Inflation Prelim. and speak from Fed’s Goolsbee, Logan & Bowman.
• EUR is slightly firmer vs the Dollar and trading just ahead of its 100 DMA (1.0934) in a current 1.0930-53 range. Today’s Final German CPI print for August were unrevised, but the internal commentary held a slight hawkish skew.
• GBP is firmer vs the Dollar and trading within a very narrow 1.3042-80 range. Cable was little moved on the back of the softer-than-expected GDP 3M/3M and Y/Y figures, with the Services figure also printing below expectations.
• JPY is very slightly lower vs the Dollar, with price action rangebound in what has been a quiet European session thus far. USD/JPY currently trades within a busy 148.41-85 range, which resides towards the midpoint of the prior day’s confines.
• Antipodeans are ever-so-slightly firmer vs the Dollar, attempting to nurse of their recent losses. Price action has been contained within a tight range given the lack of notable newsflow, so focus will ultimately lie on China’s MoF press conference on Saturday.

Fixed Income

• USTs remain bid following on from the US 30yr auction, which was well received. Since then, they have faded slightly from best but remain within reach of today’s 112-09+ peak and therefore only a few ticks shy of Thursday’s 112-11+ best.
• Bunds were initially firmer, in-fitting with USTs after the auction. However, an unrevised flash/prelim. set of German CPI (where the internals held a hawkish skew) sparked some modest pressure. A release which sparked around 10 ticks of pressure in Bunds, downside which has continued since to a 133.05 base.
• OATs are slightly firmer following the French draft budget; the OAT-Bund 10yr yield spread remains steady around the 76bps mark. Next up for France, is Fitch's credit review.
• Gilts are firmer and gapped higher at the open in reaction to today's somewhat mixed GDP figures with the M/M as expected but Y/Y figures coming in softer than expected, a dynamic which spurred a dovish reaction at the open but it is hard to say how much of this was from the UK or led by the catch-up to US supply. Gilts currently off best levels and holding around 96.18.
• Italy sells EUR 9.50bln vs exp. EUR 7.5-9.5bln 3.45% 2027, 2.65% 2027, 3.45% 2031, 4.15% 2039, 3.45% 2048 BTP:

Commodities

• Crude is under pressure having initially spent much of the APAC session within a tight range. Downside accelerated on reports that there was no vote at all at the end of the Israeli Security Council Meeting on Thursday.
• Spot gold is firmer, continuing to extend above the USD 2600/oz mark but yet to test the USD 2650/oz point and by extension the USD 2659/oz WTD peak.
• Base metals hold a positive bias vs generally flat overnight with price action somewhat hampered by the absence of Hong Kong participants with the remainder of the region largely awaiting the Chinese support updates which are expected on Sunday and Monday.

Geopolitics: Middle East

• "Israel Hayom: Last night's cabinet meeting witnessed sharp differences between ministers", via Al Jazeera
• At the conclusion of Thursday's Israeli Security Council Meeting there was no vote on the outline of Israeli action in Iran or on giving "authorization of Netanyahu and Gallant to accept the decision", via Kann's Stein.
• Israeli Broadcasting Authority says the Security Cabinet has not yet made a decision on the nature of the response to Iran, according to Sky News Arabia.
• US President Biden and Israeli PM Netanyahu narrowed the gaps regarding the nature of Israel's response against Iran, according to Walla News' Ravid citing three US officials. The officials noted that Netanyahu and Biden made significant progress during their phone call in achieving an understanding of the scope of Israel's retaliation against Iran, while the administration was "a little less worried" after the call, and another official said "We are moving in the right direction".
• Iranian delegate to the UN said they do not seek war but are ready to defend their sovereignty against any aggression against their security and interests, while they will the exercise natural right to self-defence in accordance with international law against any attack. Furthermore, the delegate said Israel is a threat to international peace and its aggressive actions lead the region to all-out war.
• Lebanon's delegate to the UN said Lebanon is ready for a diplomatic solution and to facilitate the task of mediators.
• Israeli army said a local leader of the Islamic Jihad movement was killed in a raid on the Nour Shams camp in Tulkarm in the West Bank, according to Al Jazeera.

Geopolitics: Other

• US Secretary of State Blinken denounces China's naval manoeuvres at ASEAN summit and said they are "increasingly dangerous".

US Event Calendar

• 08:30 PPI 0.0% M/M, Exp 0.1%
  • PPI Core 0.2% MoM, Exp. 0.2%
  • PPI 1.8% YoY, Exp. 1.6%
  • PPI Core 2.8% YoY, Exp. 2.6%
• 10:00: Oct. U. of Mich. Sentiment, est. 71.0, prior 70.1
  • Oct. U. of Mich. Current Conditions, est. 64.0, prior 63.3
  • Oct. U. of Mich. Expectations, est. 74.8, prior 74.4
  • Oct. U. of Mich. 1 Yr Inflation, est. 2.7%, prior 2.7%
  • Oct. U. of Mich. 5-10 Yr Inflation, est. 3.0%, prior 3.1%

Central Banks

• 09:45: Fed’s Goolsbee Gives Opening Remarks
• 10:45: Fed’s Logan Participates in Panel Discussion
• 13:10: Fed’s Bowman Speaks on Community Banking

DB's Jim Reid concludes the overnight wrap

It's yet another morning where I wake to social media posts of the most stunning Aurora Borealis pictures in my area last night. I stuck my head out the window at 9:30pm before I went to bed and it all looked pitch black. I think I need to work on my iPhone settings as that seems to be the trick. Talking of which, it's the annual new model arrival day today so maybe I can up my game.

There have been some strange lights shining in market skies in the last week with the way above expected payrolls last week and a slightly above expected US CPI yesterday. The narrative has certainly changed a bit. Maybe the full implication of yesterday's inflation number was offset by the much weaker than expected claims. However, we are in for a period of data heavily influenced by recent storms and strikes. So this will likely make it a complicated few weeks for markets and the Fed. Although I've struggled to work out which way things will go in recent weeks the view I've felt most certain of was that the market was massively overpricing the perfect scenario of smooth enough data that the Fed would be able to serenely cut rates back below 3% without a recession. If we don’t get a recession, it’s hard to see how rates can be cut anywhere near as aggressively as this.

Anyway there'll be more twists and turns in that argument but for yesterday the response in markets to the data was fairly muted but a confused one, complicated further as oil prices posted a fresh advance due to geopolitical tensions in the Middle East.

We’ll start off with the CPI release, as that set the tone for a day where investors grew a bit more concerned about inflation. It showed that headline CPI was stronger than expected in September at +0.18% (vs. +0.1% expected), meaning that the year-on-year number only came down to +2.4% (vs. +2.3% expected), even if it was still the lowest since February 2021. But what concerned investors more was the core CPI number, which came in at a monthly +0.31% in September (vs. +0.2% expected), pushing the year-on-year number up to +3.3% (vs. +3.2% expected). Now of course, that’s only one month’s reading, but it also meant the 3-month annualised rate for core CPI rose to +3.1%, having been at +2.1% in August. So the last couple of months have added to fears that inflation is proving a bit more persistent than the Fed would like, and there were fresh signs that investors were pricing this in as well. For instance, the US 5yr inflation swap (+6.5bps) was up to a three-month high of 2.51% yesterday (low of 2.14% on September 10), and it was a decent day for precious metals, which traditionally operate as an inflation hedge, with gold prices up around +0.7% and a further +0.6% this morning.

Ordinarily, an inflation release like that would have led investors to dial back their expectations for rate cuts. But just as that was coming out, we simultaneously had the weekly initial jobless claims, which were noticeably worse than expected. They moved up to 258k over the week ending October 5 (vs. 230k expected), which is the highest they’ve been since August 2023. Now to be fair, there are some weather-related factors that can help explain that, and the numbers are likely to remain volatile for several weeks as a result. But even so, the number was higher than expected, and given it’s quite a timely release, it pushed back against the more positive labour market narrative from last week’s jobs report. The chances are still high that it was heavily distorted though and with the current storms in Florida, getting a clean reading soon will be tough.

Nevertheless, with all that in hand, investors moved to increase the pricing of Fed rate cuts in the coming months, even as they priced in more inflation for the years ahead. The likelihood of a 25bp cut next month rose marginally from 83% the previous day to 85%, but having peaked at 95% intra-day after the data. The move was more sustained further out the curve, with the rate priced in for the December 2025 meeting falling by -8.2bps to 3.34%. The reversal in November pricing from the day's peaks came following a WSJ interview with the Fed’s Bostic, who left open the possibility of a pause in November, saying that “I am totally comfortable with skipping a meeting if the data suggests that’s appropriate”. On the other hand, comments from Williams, Goolsbee, and Barkin suggested they were largely unphased by the stronger CPI print.

The more dovish Fed pricing contributed to a rally in front-end yields that pushed the 2yr Treasury yield down -6.5bps to 3.96%, while the 10yr yield was down a more marginal -1.1bps to 4.06%. This comprised of sharply diverging moves in real yields and breakevens, especially at the front end. While 2yr breakevens (+9.8bps) rose to their highest since early July, 2yr real yields (-16.3bps) posted their sharpest daily fall since the December 2023 FOMC. So signs of market pricing turning in a slightly more stagflationary direction.

Whilst markets were digesting the latest US data, there were ongoing concerns about a potential escalation in the Middle East, and Brent crude oil prices moved up +3.68% yesterday to $79.40/bbl. That came as Israel’s security cabinet met last night to discuss how and when to retaliate against Iran’s strikes last week, with Israel’s public broadcaster reporting that the final decision will be made by PM Netanyahu and defence minister Gallant.

Against this backdrop, equities were unable to hold onto their recent gains, with the S&P 500 (-0.21%) moving off from its record high the previous day. The declines were pretty broad based, with nearly 70% of the S&P 500 lower on the day with the small-cap Russell 2000 (-0.55%) struggling in particular. Meanwhile in Europe, there was a similar pattern of evenly spread but modest declines, with small losses for the STOXX 600 (-0.18%), the DAX (-0.23%) and the CAC 40 (-0.24%). All change from today as we see the unofficial start of earnings season with releases beginning to ramp up, with several US financials reporting including JPMorgan, Wells Fargo, BNY Mellon and BlackRock.

Over in Europe, last night we heard the details of the French government’s 2025 budget proposal. This confirmed a fiscal deficit target of 5% of GDP, foreseeing some EUR 60bn of spending cuts and tax increases. The budget will now pass to parliament to be the first major test of PM Barnier’s minority government. Earlier in the day, the Franco-German 10yr spread had remained at 77bps, with yields on 10yr bunds (-0.1bps) and OATs (-0.1bps) both basically unchanged on the day.

Overnight in Asia, Chinese stocks are lagging behind other markets with Hong Kong closed for a holiday. The CSI 300 is down -1.88% while the Nikkei 225 and the Kospi are up by +0.72% and +0.18%, respectively. US equity futures are up less than a tenth of a percentage as I type. All eyes are on tomorrow's finance ministry briefing in China to hopefully get much more details on the stimulus package the market has grown a little more nervous of this week. So lots to report by Monday.

To the day ahead now, and data releases include US PPI for September, the University of Michigan’s preliminary consumer sentiment index for October, and UK GDP for August. From central banks, we’ll hear from the ECB’s Holzmann, and the Fed’s Goolsbee, Logan and Bowman. Finally, today’s earnings releases include JPMorgan, Wells Fargo, BNY Mellon and BlackRock.