US index futures are European bourses reversed earlier losses and traded higher, led by small-caps, as Treasuries resumed their slide after Friday's gains while oil dropped on hopes that a diplomatic solution may emerge to the Israel-Hamas conflict: Secretary of State Blinken has returned to Israel and Joe Biden could follow on Wednesday or Thursday according to unconfirmed reports, as they seek to avoid an escalation. As of 7:45am, S&P futures were 0.3% higher while Nasdaq 100 futs gained 0.1% after declines on Wall Street at the end of last week. The US Dollar started the session lower and commodities came for sale across all three complexes. Brent crude oil held near $91 a barrel, after surging almost 6% on Friday. Gold fell but bitcoin surged.
In premarket trading, Pfizer dropped more than 3% after the pharmaceutical giant slashed its revenue and earnings forecasts. Apple dropped as much as 1.7% after a study suggested the iPhone 15 is selling far worse in China than its predecessor. Market tracker Counterpoint Research estimated sales of the company’s new iPhone are down 4.5% compared with the iPhone 14 over their first 17 days after release. European energy stocks were boosted by recent gains in oil prices, with Shell hitting a record high. Semiconductor stocks in Europe and US underperformed after Bloomberg reported that the US plans to close the loopholes in rules restricting China’s access to advanced semiconductors and chipmaking gear. Meanwhile, crypto-exposed stocks rose tracking the Bitcoin price as the digital asset rose toward the $28,000 level. Here are some other notable premarket movers:
- Instacart shares advance 1.8% after a slew of brokers initiated coverage on the online grocery delivery firm with buy-equivalent recommendations.
- Lululemon shares rose 4.7%, putting the athletic-apparel brand on track for a seventh-straight day of gains, after S&P Dow Jones Indices announced on Friday that the company would replace Activision Blizzard on the S&P 500.
- Manchester United fell 9.9% amid ongoing speculation over a possible deal for the Premier League team. Bloomberg News reported that the Qatari group led by Sheikh Jassim Bin Hamad J.J. Al Thani has withdrawn its bid.
- Trade Desk dropped 4.1% as CEO Jeffrey Terry Green reported a series of insider stock transactions amounting to $14.9 million.
- Pfizer fell 2.6% after the pharmaceutical giant slashed its revenue and earnings forecasts for the year after agreeing to take Paxlovid doses back from the US government amid fading demand.
- Chip equipment stocks including Applied Materials, KLA and Lam Research slipped after Bloomberg News reported that the US plans to close the loopholes in rules restricting China’s access to advanced semiconductors and chipmaking gear.
- Enphase Energy drops as much as 2.2% after BMO Capital Markets downgrades the solar energy equipment maker to market perform from outperform, saying that a trough in US residential solar demand is deeper than expected.
- Instacart advances 2.1% after a slew of brokers initiated coverage on the online grocery delivery firm with buy-equivalent recommendations.
- Novavax (NVAX) falls as much as 4.7% after the Financial Times reported that EU regulators have delayed a decision to approve the company’s revised Covid-19 vaccine.
- Nvidia (NVDA) slips 1.2% and other semiconductor stocks in Europe and US underperform on Monday after Bloomberg News reported that the US plans to close the loopholes in rules restricting China’s access to advanced semiconductors and chipmaking gear.
- Stocks exposed to cryptocurrencies rise in US premarket trading on Monday, tracking the Bitcoin price as the digital asset rose toward the $28,000 level. Bitcoin gains 2.3% to trade at $27,832 as of 4:53 a.m. New York time, a one-week high. Crypto stocks gaining in US premarket trading include: Riot Platforms +5.2%, Marathon Digital +5.6%, Hut 8 Mining +8.5%, Coinbase Global +2.2%, Cleanspark +6.3%, Hive Digital Technologies +6.6%, crypto miner Bitdeer Technologies +16%
Markets were calmer Monday after last week’s rush into haven assets, as investors await further developments in the Middle East. As BBG notes, the war is an additional concern for traders already busy interpreting the outlook for the economy and interest rates, just as the latest earnings reporting season gets into full swing.
As the earnings season ramps up, Wall Street strategists warned that the outlook for corporate profits is weakening and could remain subdued. Morgan Stanley’s Michael Wilson said earnings revisions breadth — referring to the number of stocks seeing upgrades versus downgrades — for the S&P 500 has fallen sharply over the past couple of weeks. Citigroup’s index of earnings revisions shows downgrades have outpaced upgrades for four straight weeks ahead of the reporting season. JPMorgan strategist Mislav Matejka expects this to continue. Citigroup Inc.’s index of earnings revisions shows downgrades have outpaced upgrades for four straight weeks ahead of the reporting season. JPMorgan strategist Mislav Matejka expects this to continue.
That said, Geopolitics remains front and center: weekend reports that Biden is considering an Israel trip boosting hopes for a diplomatic solution as the US backchannels with Iran; meanwhile Bloomberg reported that the US continues to reduce/restrict China’s access to chips pushing Chinese stocks lower. The House is set to vote on the next speaker is tomorrow.
Over the weekend US officials rushed to speak with Middle Eastern nations — including back-channel talks with Iran — to contain the conflict. President Joe Biden is weighing visiting Israel himself and German Chancellor Olaf Scholz is expected to arrive Tuesday, according to Bild Zeitung. Jordan’s King Abdullah II is in Rome, where he’s expected to meet Prime Minister Giorgia Meloni as part of an effort to ease tensions.
Elsewhere on the political front, Polish equities jumped the most since May 2022 and the zloty rallied as a bloc of pro-European opposition parties appeared on track to unseat the nationalist government.
Meanwhile, the yield rollercoaster is back with big swings returning to Treasuries, where 10-year yields jumped and clawed back much of last week’s 19 basis-point drop, while those on the 30-year climbed 10 basis points.
“The geopolitical tension in the Middle East remains the key focus of the market,” said Luke Hickmore, investment director at Abrdn Investment Management. “It might seem calmer now, but if the war widens to include other parts of the area then that means more pressure on oil and more uncertainty for the market to cope with. It’s going to be a big driver here.”
European stocks are slightly lower with the Stoxx 600 down 0.1%. Mining and energy names are outperforming. Major markets are mostly lower with only the UK and SXXP in the green. Regional bond yields are higher helping banks outperform with energy and GLP themes also acting well. Energy prices remain the key to UK/EU recession outcomes; BOE seen on hold. In individual stock moves Monday, Manchester United Plc slumped 18% after Bloomberg News reported that a Qatari group of investors had withdrawn its bid to buy the English football club. Here are some of the most notable European movers:
- Salzgitter rises as much as 7.2% and SSAB advance 5.2% as JPMorgan upgrades the steel products makers, saying their relatively large exposure to European spot prices could accelerate near-term earnings momentum in an upturn
- Kion rises as much as 3.6% and is the biggest gainer on the Stoxx 600 industrial index after the German warehouse-equipment firm upgraded its full-year Ebit guidance, citing supply chain and pricing improvements
- Synthomer gains as much as 4.8% after Peel Hunt upgrades to buy to reflect potential opportunity into the recovery
- SoftwareOne shares rise as much as 6.9% to CHF19.29 after Reuters reported the Swiss software provider received non-binding bids last week from private equity firms Bain Capital and Apax Partners
- Oriola shares rise as much as 8.3% on Monday, reacting to the Finnish health-care company’s late-Friday announcement that it had agreed to offload its shares in Swedish pharmacy chain Svensk dos
- Warsaw’s WIG20 equity index surges as much as 4.9%, as exit polls show Poland’s pro-EU opposition is on track to win a majority in Sunday’s election
- Tupras fall as much as 2.3% after UBS downgrades the Turkish oil refiner to sell from neutral, citing the lack of further share-price catalysts after the upcoming 3Q results
- MTU Aero shares open as much as 1.5% higher before falling, after Hauck & Aufhaeuser upgrades the engine manufacturer to buy from hold, predicting “material upside” for the shares
- Telecom Italia shares fall after advancing as much as 3.3% in early trading after the phone company said it received a binding offer from KKR for its fixed network unit
- Atos shares fall after soaring as much as 22%, the most since 2007, after the French tech firm said Chairman Bertrand Meunier is stepping down amid a shareholder revolt over his turnaround plan for the company
Earlier in the session, Asian stocks fell in the start of the week as a selloff in the region’s semiconductor stocks and ongoing tensions in the Middle East sap risk appetite. The MSCI Asia Pacific Index fell as much as 0.9%, extending losses from Friday, with Taiwan Semiconductor, and Samsung among the biggest drags. A gauge of the region’s chipmakers fell 1.9% after Bloomberg reported that the US is considering further restrictions to curb China’s access to advance semiconductors. Meanwhile, Indonesia’s Gojek Tokopedia tumbles to a fresh low after its co-founder sold shares.
- Chinese stocks in mainland and Hong Kong declined despite fresh liquidity injection by the central bank, underscoring concerns that Beijing’s efforts may not be sufficient to revive confidence in the country’s economy. China’s property stocks are also trading close to their lowest level since 2009 while participants digested several recent developments including the PBoC’s decision to maintain the 1-year MLF rate, as expected, with the operation the largest MLF net injection since December 2020. Furthermore, it was confirmed that the US is to take steps to prevent American chipmakers from selling AI chips to China that circumvent government restrictions and that China’s securities regulator will restrict securities lending which local press suggested could help support markets as it would tighten rules for short selling.
- Australia's ASX 200 was subdued amid underperformance in tech, telecoms and industrials but with losses stemmed by resilience in commodity-related industries.
- Japan's Nikkei 225 underperformed and gapped below the 32,000 level despite the lack of fresh pertinent catalysts.
- Stocks in India dropped for a third straight session following global risk-off sentiment amid the Israel-Hamas war and a slump in Asia chip stocks. The S&P BSE Sensex fell 0.2% to 66,166.93 in Mumbai, while the NSE Nifty 50 Index was little changed at 19,731.75. Of the 18 sectoral indexes tracked by BSE, eight fell and 10 gained. Stocks across Asia declined.
In rates, treasuries are in the red with US 10-year yields rising 9bps to 4.70% as bunds and gilts follow suit. Treasuries were cheaper across the curve in a bear-steepening move with 30-year yields cheaper by 10bp on the day. Similar losses seen across core European rates as flight-to-quality bid from Friday is faded following diplomatic efforts to contain the Israel-Hamas conflict. Beyond Middle East conflict, focal points this week include a packed Fed speaker slate headed by Chair Powell at the Economic Club of New York on Thursday. US yields cheaper by 1.5bp-10bp across the curve with long-end-led losses steepening 2s10s, 5s30s spreads by ~7bp and ~5bp on the day; 10-year yields around 4.69% with bunds and gilts outperforming by 3bp and 1bp in the sector. US auctions this week include $13b 20-year bond reopening Wednesday and $22b 5-year TIPS new issue Thursday
In FX, the Bloomberg Dollar Spot Index falls 0.1%. The Swiss franc is the weakest of the G-10 currencies, falling 0.1% versus the greenback. The kiwi rose 0.6%, leading Group-of-10 gains against the dollar climbing as much as 0.8% to an intra-day high of 0.5929 after the New Zealand center-right opposition party won Saturday’s election.
- EUR/CHF slipped 0.37% to 0.9513 as safe-haven flows sees the Swiss Franc inch closer to revisiting its all-time high on a trade-weighted basis; EUR/CHF one week implied volatility hit the highest since March as geopolitical risk boosted demand for tail-risk hedges
- EUR/PLN dropped as much as 1.8% to 4.4541, after the Polish election result saw the Polish Zloty climb the most in 18 months; investors piled cash into Poland as markets braced for a pro-EU party win
In commodities, Brent futures drop 0.3% to trade near $90.60. Spot gold loses 1% to around $1,914.
Bitcoin jumped but failed to breach the USD 28k mark in European hours and as such remains just shy of the early-October best around the figure. Action which follows gains in APAC trade which have been attributed by some to the SEC's decision not to appeal the Grayscale ruling.
US economic data slate includes October Empire manufacturing at 8:30am the Budget Statement; data this week includes retail sales, industrial production, housing starts/building permits and existing home sales. Scheduled Fed speakers include Harker (10:30am and 4:30pm); this week includes Williams, Bowman, Barkin, Kashkari, Waller, Harker, Cook, Jefferson, Powell, Goolsbee, Barr, Bostic, Logan and Mester
Market Snapshot
- S&P 500 futures up 0.1% to 4,362.75
- MXAP down 0.9% to 155.62
- MXAPJ down 0.7% to 488.82
- Nikkei down 2.0% to 31,659.03
- Topix down 1.5% to 2,273.54
- Hang Seng Index down 1.0% to 17,640.36
- Shanghai Composite down 0.5% to 3,073.81
- Sensex little changed at 66,278.75
- Australia S&P/ASX 200 down 0.3% to 7,026.55
- Kospi down 0.8% to 2,436.24
- STOXX Europe 600 little changed at 448.79
- German 10Y yield little changed at 2.78%
- Euro up 0.2% to $1.0533
- Brent Futures down 0.5% to $90.40/bbl
- Gold spot down 1.1% to $1,912.24
- U.S. Dollar Index down 0.16% to 106.48
Top Overnight News
- China’s central bank stepped up efforts to support the nation’s economic recovery and debt sales by delivering the largest cash injection since 2020 with one-year policy loans. The PBOC added a net 289 billion yuan ($39.6 billion) into the financial system via the so-called medium-term lending facility, the largest monthly injection since December 2020. At the same time, it drained a net 134 billion yuan of short-term liquidity through open-market operations. BBG
- China is tightening curbs on short-selling activities as authorities step up efforts to shore up a struggling stock market. The Securities Regulatory Commission said with effect from Oct. 30, hedge funds wishing to short sell a stock must hold 100% of the value of the transaction in their account while other investors need to have at least 80%. BBG
- President Biden is weighing a trip to Israel, adding to the US diplomatic push after Antony Blinken held a round of talks with Arab leaders to discuss the Israel-Hamas war. Blinken returns to Israel today. The US said it held back-channel talks with Iran, warning it not to escalate the conflict. BBG
- The Israeli military is preparing to invade the Gaza Strip soon with tens of thousands of soldiers ordered to capture Gaza City and destroy the enclave’s current leadership, according to three senior Israeli military officers who outlined unclassified details about the plan. NYT
- A surge in global borrowing costs, triggered by a sell-off in US Treasuries, means eurozone rate-setters have probably done enough to tame inflation, the governor of Spain’s central bank has said. FT
- Italy’s cabinet will approve a new budget on Mon that increases the deficit to 4.3% of GDP from 3.6% at a time when markets are pushing back against elevated sovereign issuance. RTRS
- A changing of the guard among the biggest buyers of US Treasuries has Wall Street veterans bracing for further pain in the world’s largest bond market. Increasingly absent are steady-handed investors including foreign governments, US commercial banks and the Federal Reserve. In their place, hedge funds, mutual funds, insurers and pensions are piling in. Market watchers are quick to note that unlike their more price-agnostic predecessors, the new buyer base is likely to demand a heavy premium to finance Washington’s spendthrift ways, especially with debt sales set to surge as deficits swell. BBG
- Individual investors are dialing back how much risk they are taking across markets. Some are accumulating cash or stashing it in funds tracking bonds or money markets to take advantage of yields that have soared to 16-year highs. Others are backing away from turbocharged bets on stocks, borrowing less to amplify their positions. Many have pulled money out of U.S. stocks, putting equity exchange-traded and mutual funds on track for the first year of outflows since 2020. WSJ
- Economists are increasingly upbeat on the prospects of US growth – the odds of a recession within the next year have fallen to 48% vs. 54% in the last WSJ poll from July. WSJ
- Last week HFs sold Staples at the fastest pace in 11 weeks amid the sector’s price underperformance. Last week’s short selling in Staples was the largest in 3 months and ranks in the 98th percentile vs. the past five years. The Prime book is now U/W Consumer Staples by -3.8% vs. the S&P 500 Index (versus -3.4% last week), which is in the 89th percentile vs. the past year and in the 95th percentile vs. the past five years.
A more detailed look at global markets courtesy of Newsquawk
Asia Pacific stocks were mostly lower amid ongoing geopolitical concerns with the Israel-Hamas conflict threatening to spill over to neighbours in the region. ASX 200 was subdued amid underperformance in tech, telecoms and industrials but with losses stemmed by resilience in commodity-related industries. Nikkei 225 underperformed and gapped below the 32,000 level despite the lack of fresh pertinent catalysts. Hang Seng and Shanghai Comp. saw somewhat varied price action with the Hong Kong benchmark choppy and the mainland ultimately pressured as participants digested several recent developments including the PBoC’s decision to maintain the 1-year MLF rate, as expected, with the operation the largest MLF net injection since December 2020. Furthermore, it was confirmed that the US is to take steps to prevent American chipmakers from selling AI chips to China that circumvent government restrictions and that China’s securities regulator will restrict securities lending which local press suggested could help support markets as it would tighten rules for short selling.
Top Asian News
- PBoC conducted CNY 789bln in 1-year MLF with the rate kept unchanged at 2.50% vs CNY 500bln maturing.
- PBoC said the number of bright spots in China’s economy is increasing and China will pay more attention to the balance between economic growth and sustainability, while China will focus on expanding domestic demand, boosting confidence and accelerating the virtuous circle of the economy, according to Reuters.
- PBoC Governor Pan met with IMF MD Georgieva and said China is looking forward to the timely conclusion of the 16th IMF quota review increase and realignment with the quota realignment fundamental to IMF’s governance form. PBoC’s Pan also stated the IMF’s quota realignment should reflect members’ relative weights in the global economy and strengthen the voice and representations of emerging markets and developing countries.
- US is to take steps to prevent American chipmakers from selling AI chips to China that circumvent government restrictions with the US efforts part of upcoming restrictions on AI chip exports to China to be announced this week.
- China’s securities regulator said will restrict securities lending and appropriately curb securities lending by strategic investors and senior management of listed firms, according to Reuters. Furthermore, Chinese press suggested the latest securities rule is to help support markets and cited efforts to tighten rules for short selling.
- EU foreign policy chief Borrell said the EU has ties with China that are independent of other nations, while it was also reported that EU’s Mora is to visit China for follow-up talks.
- New Zealand shifted to the right in a rejection of the Labour Party and PM Hipkins conceded defeat, while National Party leader Luxon is set to become the next PM.
- Japanese top currency diplomat Kanda says interest rates is merely one factor in FX; intervention is one option when excessive FX moves are seen; JPY is still perceived as a safe asset, alongside the CHF and USD.
European bourses are under modest pressure as the weekend's deluge of geopolitical developments keeps tensions elevated and the tone tentative, Euro Stoxx 50 -0.2%. As such, sectors are tilting into the red overall despite an initially firmer start to European trade with the morning's main movers driven by individual updates around stocks including Telecom Italia, Atos and Ocado. Stateside, futures are slightly firmer on the session awaiting fresh catalysts with the aforementioned tentative tone capping and real action, ES +0.1%. Apple (AAPL) iPhone 15 sales -4.5% in the China debut YY, via Counterpoint.
Top European News
- BoE Governor Bailey said he is puzzled by stubborn pay growth in the UK but added that they have had some good news on inflation recently, while he also commented that workforce dropouts hit the UK growth and stoke prices.
- BoE's Pill says we must not declare premature victory after mechanical fall in headline inflation; if we look at market inflation expectations, we cannot be complacent. Thinks more of BoE rate rise has been transmitted than 20-25% but not dramatically so.
- ECB President Lagarde said the labour market shows no real sign of weakening.
- ECB’s Nagel reiterated that inflation remains too high and policy is to remain restrictive for the foreseeable future.
- ECB's de Cos said higher borrowing costs underline governments’ need to reduce deficits next year, while the surge in global borrowing costs, triggered by a sell-off in US Treasuries means eurozone rate-setters may have done enough to tame inflation, according to FT.
- ECB's Wunsch (Hawkish) says that discussing PEPP is not a pressing issue, a matter of consistency. Fine with it being discussed in October or a bit later, via Econostream. On whether they are at terminal rate "maybe, maybe not". Chances of hiking after pausing are far from marginal.
- Polish PM Morawiecki said the ruling nationalists PiS will try to form a government if the president gives them this task after exit polls showed the ruling nationalists with 36.8% of votes and the largest opposition group Civic Coalition received 31.6% of votes, according to Reuters.
- Italian PM Meloni says 2024 budget contains measures worth circa EUR 24bln in tax cuts and higher spending.
- German Finance Minister Lindner said to the UK "If you want to intensify your trade relationship with the EU - call us!", via BBC
- UK government is reportedly "quietly drawing up plans to hold key trade talks with China for the first time in five years", via Politico citing officials, adding that the government is considering a range of options for strengthening ties.
Fixed Income
- Greenback gravitates ahead of NY Fed manufacturing survey and Fed's Harker, while keeping tabs on geopolitical news, DXY towards base of narrow 106.400-610 range.
- Franc sags after pre-weekend safe haven advance, USD/CHF back above 0.9000.
- Yen pivots 149.50 vs Dollar eyeing yields and latest verbal intervention from Japan's top FX diplomate Kanda.
- Kiwi back on 0.5900 handle vs Buck and Zloty above 4.5000 against Euro after NZ and Polish elections.
- Euro flanked by decent option expiries vs Dollar at 1.0500 and between 1.0540-50.
- Cable straddles 1.2150 as Pound digests hawkish-leaning comments from BoE's Pill on inflation.
- Loonie tethered to 1.3650 against its US rival pre-Canadian data and BoC outlook survey.
- PBoC set USD/CNY mid-point at 7.1798 vs exp. 7.3121 (prev. 7.1775).
Fixed Income
- More momentum fading in debt as Bunds test 129.00 after topping 130.00 last week, Gilts lose grip of 94.00 handle compared to 95.50+ m-t-d peak and T-note touches 107-09+ vs 108-16 pre-US CPI.
- BTPs also underwater within 109.76-31 range and digesting Italy's EUR 24bln budget of tax cuts and spending.
Commodities
- WTI Nov and Brent Dec futures were subdued intraday settling higher by almost USD 5/bbl each on Friday amid the growing Middle Eastern tensions heading into the weekend; however, benchmarks have lifted incrementally off of lows with WTI edging into positive territory most recently.
- WTI Nov resides around USD 87.75/bbl (in a USD 87.07-87.98/bbl range) while Brent Dec sits around USD 90.75/bbl (in a USD 90.18-91.20/bbl parameter).
- Dutch TTF prices are softer intraday to the tune of around 2.5% at the time of writing, but prices remain around EUR 52/MWh as LNG workers in Australia are poised to resume strike action.
- Spot gold has reversed some of its marked upside from Friday, as we await the next set of updates on the geopolitical front; though, the yellow metal remains above the USD 1915/oz mark but has lost the 100-DMA at USD 1922/oz.
- Russian Deputy PM Novak says Russia and Venezuela have agreed to seek ways of boosting cooperation in oil and increasing oil output.
US Event Calendar
- 08:30: Oct. Empire Manufacturing, est. -6.0, prior 1.9
- 14:00: Oct. 16-Oct. 20: Sept. Monthly Budget Statement, est. -$150b, prior -$429.8b
Central bank speakers
- 10:30: Fed’s Harker Speaks on the Economic Outlook
- 16:30: Fed’s Harker Speaks About the Economic Outlook
DB's Jim Reid concludes the overnight wrap
Morning from New York. I say morning but it’s only just gone midnight here after a late and delayed landing. That left plenty of time to write this on the plane after a busy weekend celebrating my wife’s 50th birthday. It ended with her going to see Madonna live last night while I travelled. I’m not entirely sure who got the short straw.
In the overnight session there has been some relief that a ground offensive hasn't begun yet in Gaza and that diplomatic channels seems to be open for now. President Biden is considering a trip to Israel in the next week which will be an important event. For now we are retracing some of Friday's flight to quality bid as markets feared a weekend of escalation. Yields on 10yr USTs (+5.18 bps) are at 4.66% as we go to print. S&P 500 (+0.20%) and NASDAQ 100 (+0.26%) futures have edged higher with Oil stable for now after a spike on Friday.
Most Asian equity markets are retreating this morning though as Friday's sentiment spills over with additional news that the US plans new tighter curbs on China's access to advanced semiconductor chips. As I check my screens, the Nikkei (-1.64%) is the biggest underperformer across the region with the KOSPI (-1.06%), the CSI (-0.80%), the Shanghai Composite (-0.56%) and the Hang Seng (-0.39%) also dropping in early trade.
Outside of events in the Middle East it looks a busy week but without an obvious focal point. There is a barrage of Fed speak before their media black-out at the weekend but Powell’s speech at the Economic Club of New York on Thursday will be the highlight. We detail who is speaking in our day-by-day calendar at the end but DB’s Brett Ryan’s week ahead gives a bit more detail of their various biases here. The key data point will likely be US retail sales (tomorrow) which we expect to decline (-0.1%) after two strong months, but we also have a lot of US housing data with the NAHB (tomorrow), starts/permits (Wednesday) and existing home sales (Thursday). US weekly jobless claims (Thursday) corresponds to payrolls survey week so will be used to fine tune estimates. Staying with the US, earnings season will start to get into gear with the highlights being Bank of America, Goldman Sachs and Johnson and Johnson (tomorrow), Morgan Stanley, Tesla, Netflix, ASML, and Procter & Gamble (Wednesday), TSMC (Thursday) and American Express (Friday). Tesla and Netflix probably have the most ability to move macro markets given their size.
China sees its monthly activity dump on Wednesday where signs of a turnaround will be scrutinised. This is the same day as UK inflation comes out (preview here). The UK labour market data tomorrow is interesting as unemployment is now 0.8pp above the lows at 4.3% and has increased more than anywhere else in the DM world. UK retail sales is out on Friday.
In Europe we have the ZEW survey in Germany (tomorrow) and the PPI report on Friday, with retail sales for France also due that day. With regards to German PPI it's expected to hit -14.2% YoY from -12.6% the previous month so crazy numbers historically after peaking at an even more crazy +45.8% YoY just over a year ago.
In Japan the national CPI on Friday will be the last before the October 31st BoJ meeting where YCC is likely in our opinion to be abandoned. So an important print.
Now, looking back on last week. We closed out the week with an air of nervousness surrounding events in the Middle East after it was reported on Friday that the Israeli army announced a 24-hour evacuation order for over one million civilians in north Gaza. On Friday, we also had the University of Michigan’s consumer sentiment preliminary survey results for October. The headline result surprised significantly to the downside at 63.0 (vs 67.0 expected), down from 68.1 in September. 5-to-10-year inflation expectations rose to 3.0% (vs 2.8% expected), and 1-year inflation expectations jumped from 3.2% to 3.8% (vs 3.2% expected). A few months of higher energy prices seems to now be filtering through to short-run expectations and thus complicating central banks’ policy choices. Fortunately for now long-run expectations remain under some control.
Ultimately, these inflation numbers were secondary to news of the Israeli army’s evacuation order. US 10yr Treasury yields fell -8.6bps on Friday and -19.0bps on the week as investors fled to quality, the largest weekly decline in yields since mid-July. 30yr yields also fell, down -21.4bps week-on-week (and -10.1bps on Friday), the largest weekly decline for 30yr yields since the first week of 2023. Interesting we had one of the largest rises in 30yr yields in the last decade on Thursday with a poor auction so there is an element that Treasuries are a bit of a reluctant flight to quality flow recipient. German 10yr bund yields followed the global picture, falling -14.8bps week-on-week (and -4.9bps on Friday) .
With risk-off sentiment dominating, equities struggled at the end of the week. The S&P 500 dipped -0.50% on Friday, although it was still up +0.45% week-on-week. Technology was buffeted on Friday, as the tech-heavy NASDAQ dropped -1.23% (-0.18% on the week). Weak performance was most evident for the mega caps as the Magnificent Seven index fell -2.05% (-0.39% on the week), led by the likes of Tesla (-2.99%) and Nvidia (-3.16%). In Europe, the STOXX 600 slipped -0.98% on Friday but was up +0.96% week-on-week.
Oil spiked sharply on Friday on the news in Israel, as concerns over risks to oil supply from the Middle East rose. It was also boosted by news of the US sanctioning two shipping companies for violating the price cap on Russian oil. Brent broke through the $90/bbl level, rising +5.69% to $90.89/bbl. The +7.46% weekly increase, is its largest since February. WTI crude climbed +5.77% to $87.69/bbl, and +5.92% in weekly terms. With the geopolitical backdrop increasingly fragile, the haven of gold also rose +3.28% on Friday to $1933/ounce (and +5.45% week-on-week), its greatest daily increase since the banking stress in March. However, European gas futures took the prize for the week, after prices rose +51.0% week-on-week to EUR 55.35/MWh (and +3.87% on Friday), its greatest percentage increase since March 2022 just after Russia’s invasion of Ukraine.
