North American News
Major US indices have a huge day higher as CPI inflation comes in lesson expectations
- NASDAQ index rises by 7.35%
Th major US indices had a huge day to the upside after weaker than expected CPI data led to the dollar tumbling, yields falling. That combination goosed the major indices higher
The major indices enjoyed their best day since the pandemic volatility when the major indices were moving up and down in 5-12% range daily. For today:
- Dow industrial average rose 1201.43 points or 3.7% had 33715.36
- S&P index rose 207 22 points or 5.54% at 3956.38. The index closed above its 100 day moving average at 3901.
- NASDAQ index was the biggest gainer with a 760.98 point rise or 7.35% at 11114.16
- Russell 2000 rose 107.52 points or 6.11% at 1867.92.
It is a great move. It is the largest move higher since the pandemic. There is room to roam, but understand that there may come a day where it realized that it still rose 0.4% for the month. That inflation is still well above the 2% target for both the headline and the core.
However, enjoy it while you can and look for higher levels to potentially sell (like the 200 day MA).
US October CPI +7.7% y/y vs +8.0% expected
- Highlights of the US October 2022 CPI report
- Prior was +8.2%
- m/m CPI +0.4% vs +0.6% expected
- Prior m/m reading was +0.4%
- Real weekly earnings -0.1% vs -0.1% prior
Core inflation:
- Ex food and energy +6.3% vs +6.5% y/y expected
- Prior ex food and energy +6.6%
- Core m/m +0.3% vs +0.5% exp
- Prior core m/m +0.6%
The details of the report show shelter running hot with owners-equivalent rent +0.6%.
- Used cars -2.4% m/m
- Food +0.6% m/m
- Energy +1.8% m/m
- Fuel oil +19.8% m/m
- New vehicles +0.4%
- Apparel -0.7%
- Medical care 0.0%
US initial jobless claims 225K vs 220K estimate
- US initial jobless claims and continuing claims
- US initial jobless claims 225K vs. 220K estimate. Last week revised to 218K vs 217K previously reported
- 4 week moving average of 218.75K vs 219K last week
- continuing claims 1.493M vs 1.487M last week
- 4 week moving average of continuing claims 1.450.25M vs 1.418M last month
- The largest increases in initial claims for the week ending October 29 were in California (+1,989), Oregon (+1,541), Washington (+693), Illinois (+457), and Minnesota (+456)
- The largest decreases were in Florida (-1,534), Kentucky (-1,007), North Carolina (-659), Arkansas (-517), and South Carolina (-471)
US sells 30-year bonds 4.080% vs 4.113% WI
- Results of the $21 billion sale of 30-year bonds
- The bonds were trading at 4.113% in the when-issued market ahead of the sale
Today’s CPI report saved the US Treasury a lot of money with cash 30s down 17 bps ahead of the sale.
Yesterday’s 10-year sale was terrible and I suspect the market was worried about a repeat today. Instead it was just the opposite with a strong bid and a stop-thru of 3.3 bps. You’ll start to see more and more talk about a low in bonds (and high in yields) at the long end.
Commodities
Gold tops the October high as US inflation cools
- Lower inflation is the first step towards lower rates
The gold chart will be one to watch today as it tries to confirm a bottom.
It’s currently up $29 to $1735, which puts it above the October high of $1729 but with not much room to spare. A close above that level would confirm a triple bottom just above $1600.
US crude oil settles at $86.47
- Up $0.64 or 0.75%
The price of WTI crude oil futures are settling at $86.47. That’s up $0.64 or 0.75%. The low for the day reached $84.74. The high extended to $87.31. Looking at the daily chart, the high price from earlier this week testing the high price from the month of October. That level and 2 October came in at $93.62. The high price from Monday reached $93.73 just above that level before rotating back to the downside.
The move to the upside snapped a 3 day losing streak which saw the price moved from $93.62 on Monday, to the low price today of $84.74. That represents a decline of -9.5%.
From the daily chart, there is support in between a swing area below and $81.21 up to $82.10. On the topside the falling 100 day moving average at $91.27 is now resistance followed by the swing area between $93.62 and the 38.2% retracement of the move down from the June high at $94.38.
EU News
ECB’s Vasle says not yet at peak inflation, pipeline pressures significant
- Comments from the ECB’s Vasle and Schnabel
- Inflation is more and more broad based
- Further rate hikes needed, need to go beyond neutral
- Appropriate to start QT next year
ECB raises eurosystem bond lending to ease year-end collateral concerns
- Is this a sign of trouble? Double top in the euro eyed
The euro is down 70 pips today to 0.9942 and some are eyeing a move from the ECB to allow national central banks to lend out up to 250 billion in bonds against cash (from 150 billion).
I don’t think it’s a meaningful move but collateral issues are worth watching. The ECB has bought up huge parts of the bond market and firms often post sovereign bonds as collateral in trades. It’s simply become difficult to find bonds; though that may also indicate that firms don’t want to hold duration with the ECB hiking.
“This is a precautionary measure to ease collateral scarcity and support market functioning around the year-end,” said the ECB’s Schnable in the announcement.
Other News
Fed’s Logan: CPI data a welcome relief but still a long way to go
- Logan says it may soon be appropriate to slow the pace of hikes
- Logan says she doesn’t see the decision about slowing the pace of hikes as being particularly closely related to incoming data
- Process of Fed cooling the economy is just getting started
- A slower pace of hikes shouldn’t be taken to represent easier policy
Fed’s Mester: Upside inflation risks remain. Fed needs to press forward on rate rises.
- More hawkish tones from Fed’s Mester
- Main risk on inflation is that the Fed doesn’t hike rates enough
- Fed needs to press forward on rate rises to core inflation
- Upside inflation risks remain
- Wage pressures are high and persistent
- October CPI show signs of moderation on inflation
- Unclear how high rates must go and how long policy states restrictive
- Return to price stability will bring pain, take time
- Expects were market volatility as Fed works to tame inflation
- Economic growth could easily turn negative for the Tory
- Inflation to moderate, hit Fed target in 2025
- Fed strongly committed to taking action to lower inflation
- Labor markets remain very tight
China continues to reiterate commitment to zero-covid policy
- No signs of a shift in policy
The big trade of 2023 is the inevitable shift in China towards living with covid. We’ve seen some enthusiasm for the trade after the People’s Congress but that has fizzled.
Today was the first meeting of the new Politburo Standing Committee and they called for the unwavering support of the country’s covid policy even as they face the worst outbreak in a year.
The Shanghai Composite was down 0.4% and Hang Seng down 1.7% today.
There’s talk of a chance in policy in the springtime and that could come just as the market grows comfortable with a peak in Fed rates and a potential shift to cuts. Combined, that would set up a rip in risk trades.
Cryptocurrency News
Alameda owes FTX about $10 billion – report
- FTX lent billions of dollars worth of customer assets to fund risky bets by Alameda
The idea that Sam Bankman-Fried was some sort of MIT trading savant is coming undone.
The WSJ now reports that FTX lent billions of dollars worth of customer assets to fund risky bets at Alameda, his trading firm. Now Alameda owes FTX about $10 billion.
That makes it likely that Alameda is now unwinding positions in order to fund the shortfall to FTX. However some of those bets may have been in FTX Token, which has declined 90%.
Bankman-Fried described the move to lend customer deposits to an investor as “a poor judgment call” but it’s likely illegal.
The person also says FTX had $16 billion in customer assets. It was hit with $5 billion of withdrawals on Sunday alone, Bankman-Fried reported.
Bankman-Fried also tweeted this week that “FTX has enough to cover all client holdings. We don’t invest client assets (even in treasuries).” He later deleted the tweet.
A separate report from Axios reports that FTX has approached Kraken as a potential rescue partner.
Tether freezes USDT belonging to FTX at the request of law enforcement – report
- That’s a liquidity problem
Sam Bankman-Fried said that covering customer deposits was a liquidity issue today but if Tether is freezing USDT held by FTX then you have to imagine other firms got similar requests. That’s going to make it awfully difficult for FTX to raise funds.
The report about the asset freeze is from CoinDesk and it’s also a reminder that for all the talk about using crypto to surpass governments, that governments are still in charge.
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