North American News
US Major Indices Rally, Snapping Four-Week Losing Streak as S&P Surges Higher
- Major indices erase early declines after the stronger than expected US jobs report
The major US indices are ending the day with gains, even in the face of a robust and anticipated US jobs report and rising yields. Traders are optimistic that the subdued wage data and the unchanged unemployment rate of 3.8% (compared to the expected 3.7%) will deter the Federal Reserve from taking any immediate action.
Looking ahead, we anticipate the release of critical US consumer price index data next Thursday.
The final numbers are showing:
- Dow industrial average rose 288.01 points or 0.87% at 33407.59
- S&P index rose 50.31 points or 1.18% at 4308.49
- NASDAQ index rose 211.50 points or 1.60% at 13431.33
For the trading week, the Dow industrial average could not erase its declines and still closed lower, but the S&P rebounded into positive territory today and snapped a 4-week losing streak. The NASDAQ index is also higher and has now risen for 2 consecutive weeks.
- Dow industrial average, -0.30%
- S&P index, +0.48%
- NASDAQ index +1.60%
Some of the big gainers today were the big cap/AI stocks:
- Adobe, +1.98%
- Nvidia, +2.41%
- Google, +1.87%
- Microsoft, +2.46%
- Meta, +3.49%
- Netflix, +2.43%
US September non-farm payrolls +336K vs +170K expected
- September 2023 US employment data from the non-farm payrolls report
- Prior +187K (revised to +227K)
- Two-month net revision +119K vs -110K prior
- Unemployment rate 3.8% vs 3.7% expected
- Prior unemployment rate 3.8%
- Participation rate 62.8% vs 62.8% prior
- U6 underemployment rate 7.0% vs 7.1% prior
- Average hourly earnings 0.2% m/m vs +0.3% expected
- Average hourly earnings 4.2% y/y vs +4.3% expected
- Average weekly hours 34.4 vs 34.4 expected
- Change in private payrolls +263K vs +160K expected
- Change in manufacturing payrolls +17K vs +5K expected
- Household survey +86K vs +222K prior
- Birth-death adjustment -119K vs +103K prior
The odds of a November rate hike in the Fed funds market rose to 30% from 22% yesterday. Treasury yields are up 5-6 bps since the release and the US dollar has jumped. US 10s are now up to 4.84% and 30s are a shade below 5%.
As for the broader market, this is a problem as it validates the recent move up in Treasury yields and may push 10s to 5%.In turn, the rise at the long end is doing much of the Fed’s work for it, which means they probably don’t have to hike.However it also means the economy particularly things like autos and housing are particularly vulnerable to a slowdown next year.
Tesla has cut prices for some vehicles in the US
- TLSA price cuts on Model 3, Model y LR
Tesla has cut prices for some vehicles in the US
Model 3 cut to USD38,990
- from 40,240
Model Y Long Range to USD48,490
- from 50,490
Mortgage rates at 23 year high
- The 30-year fixed rate mortgage today came in at 7.84%
- That is up from around 7.1% at the beginning of September
Versus 2 years ago, the monthly mortgage payment on a $400,000 home with 20% down is up $965. That doesn’t include that prices are up 17% over the last 2 years and over 40% since the start of the pandemic.
US 10 year yield tests the high from earlier the week after stronger US jobs report
- High from earlier this week reached 4.887%
The stronger US jobs data has US yields moving sharply to the upside once again:
- 2 year yield 5.110%, +8.6 basis points
- 5 year yield 4.808% +12.5 basis points
- 10 year yield 4.86% +14.5 basis points
- 30 year yield 5.03% +14.4 basis points.
JP Morgan bond manager sees strong economy, can handle higher rates, 10yr could get to 6%
Bloomberg (gated) has the report on the manager of US$8.8 billion JPMorgan Strategic Income Opportunities Fund.
In brief:
- As of the end of August, 63% of the portfolio was in cash-like instruments
- the rest is primarily in short-dated, floating-rate investment-grade debt
- Eigen’s view on the economy, informed by the thriving business at an athletic facility he owns in Rhode Island, tells him bond investors are in for more pain.As he sees it, the Federal Reserve may raise interest rates at least once more, and keep them there for as long as 18 months to slow the economy and curb inflation.
Exxon in talks to buy Pioneer – WSJ report
- Pioneer has a market cap of just over $50 billion in what would be a huge deal
The WSJ reports that Exxon is in talks to buy Pioneer Natural Resources in what would be the largest oil deal since Exxon and Mobile came together and one of the largest corporate takeovers ever.
Pioneer’s market cap is $50 billion and the WSJ says the takeover could be worth ‘roughly $60 billion’ and that a deal could be sealed as soon as in the coming days, though it’s still possible it doesn’t get done.
WSJ’s Timiraos: its a weird payroll report
- Weird alright and volatile price action too
The WSJ’s Timiraos called the US jobs report weird in a tweet that outlined a WSJ article.”Hiring smashed expectations”, but “no decline in the unemployment rate”.The average hourly earnings were also little lesson expectations.
In the article:
- U.S. job growth exceeded expectations with 336,000 jobs added in September, the highest since January, and an upward revision of July’s numbers.
- The surge in employment led to a significant selloff in the bond market, pushing longer-term borrowing rates to a 16-year high (yields are still higher but off highs)
- The strong job market keeps the option open for the Federal Reserve to increase interest rates again this year, despite concerns of a slowdown due to high interest rates, inflation, and other economic factors.
- The unemployment rate remained at 3.8%, with employers increasing wages to compete for workers; average hourly earnings rose 4.2% year-over-year in September.
- Employment in restaurants and bars returned to pre-pandemic levels, with significant job additions in hospitals, nursing homes, and trucking, partly due to increased hiring for the new school year.
- The robust jobs report could challenge the Federal Reserve’s efforts to slow the economy and raises questions about the sustainability of the summer’s inflation decline.
- The 10-year U.S. Treasury yield exceeded 4.8% for the first time since 2007, increasing the costs of home mortgages, auto loans, and business debt, and introducing a new economic risk.
- The Federal Reserve maintained its key interest rate at a 22-year high in its last meeting, with the possibility of another increase this year to combat inflation.
CNBC Leesman: If the Fed is to do a 1/4, they should do 50
- Some interesting views
- If the Fed are to do a 1/4 basis points, they should do 50.
- He commented that Bostic said that the Fed is “sufficiently restrictive” (argues for staying the course)
- Fed’s Bowman said specifically “hikes. (argues for more than 1 hike).
- Thinks the “Big Guy” wants to take a step back and wait, but also says that he does not want to be the guy who can’t stop inflation.
UAW Pres Fain: UAW strike is working but not there yet
- No new strikes announced
- UAW Pres. Fain say strike is working but we are not there yet
- He says that GM leapfrogged the pack in negotiations
- There are no new tentative agreement with companies but is making significant progress
GM reportedly made concessions in recent talks according to Reuters including agreeing to place EV battery plants under master contract. There will be no strike in the GM Arlington Texas plant. They also announced that they will not announce additional strikes for Ford or Stallantis. However they did consider a strike at the Arlington GM plant but decided against the move thanks to the concessions from GM.
“De-inverting” yield curve is the new “inverting yield curve” recession warning
An inverted yield curve refers to a situation in the bond market where longer-term debt instruments have a lower yield than shorter-term debt instruments.
- Typically, longer-term bonds have higher yields than shorter-term bonds to compensate investors for the additional risks associated with holding an asset over a longer time frame, such as inflation risk or greater price volatility.
- An inverted yield curve is often viewed as a signal of an impending economic recession.
Now its all about a ‘de-inverting’ yield curve.
- The spread between the two-year and 10-year Treasury bonds has started to narrow.
- The 2-10 year yield curve is starting to de-invert as the 10-year Treasury note moved past a 16-year-high to edge closer to the two-year bond.
JP Morgan:
- “This very recent move in Treasurys has been a little bit more dangerous,”
- “I think the move in the Treasury market, the disinversion of the curve, I think that actually makes a hard landing much more likely,”
- It’s the highest real rates have been since 2009, a sign that the economy is bound to feel more pain from a higher cost of borrowing. “That’s going to hurt businesses. That’s going to hurt consumers. It’s just going to take some time,”
Also, ‘bond king’ Jeffrey Gundlach:
- “The US Treasury yield curve is de-inverting very rapidly,”
- That “should put everyone on recession warning, not just recession watch,”
- “If the unemployment rate ticks up just a couple of tenths it will be recession alert. Buckle up.”
JPMorgan’s Marko Kolanovic is preparing for a possible 20% drop in the S&P 500
JPMorgan’s Marko Kolanovic spoke with CNBC on Thursday, is looking for the further fall due to high interest rates setting up a shunt lower.
- Says cash at a 5.5% return in money market and short-term Treasurys is a key protection strategy at present
- “I’m not sure how we’re going to avoid (recession) if we stay at this level of interest rates,”
- Says a short term bounce is possible
- ″[We’re] not necessarily calling for an immediate sharp pullback. Could there be another five, six, seven percent upside in equities? Of course… But there’s a downside. It could be 20% downside.”
Report that US President Biden has begun making plans for personal meeting with China’s Xi
The White House has begun making plans for a November meeting in San Francisco between President Biden and Chinese leader Xi Jinping.
- At the Asia-Pacific Economic Cooperation summit, to be held Nov. 11-17.
WaPo with the report (may be gated), says:
- With tension high, the leaders will look to reset relations
Trump would accept House speakership for a “short period” – Fox reporting
Fox with the report that former US President Trump says he’d step in as Speaker of the US House.
- “I have been asked to speak as a unifier because I have so many friends in Congress,”
- “If they don’t get the vote, they have asked me if I would consider taking the speakership until they get somebody longer-term, because I am running for president.”
- “They have asked me if I would take it for a short period of time for the party, until they come to a conclusion—I’m not doing it because I want to—I will do it if necessary, should they not be able to make their decision,”
- Trump stressed that if Republicans cannot come to a consensus, he would take the speakership for a short “30, 60, or 90-day period.”
Canada September employment 63.8K vs 20.0K expected
- Canadian September 2023 jobs report
- Prior 39.9K
- employment change 63.8Kvs 20.0K estimate.
- Unemployment rate 5.5% vs. 5.6% estimate. Last month 5.5%.
- Full-time employment 15.8K vs 32.2K last month
- part-time employment 47.9K vs. 7.8k last month.
- Participation rate 65.6% vs 65.5% last month.
- Average hourly wages permanent employees 5.3% vs 5.2% YoY last month
Other details from StatCan
- Core-aged women (25-54 years) saw an employment increase of 37,000 (+0.6%), and men in the same age group saw an increase of 32,000 (+0.5%).
- Employment in educational services rose by 66,000 (+4.5%), and transportation and warehousing saw a 19,000 (+1.8%) increase.
- Employment decreased in finance, insurance, real estate, rental and leasing by 20,000 (-1.4%), in construction by 18,000 (-1.1%), and in information, culture, and recreation by 12,000 (-1.4%).
- Six provinces, led by Quebec (+39,000; +0.9%) and British Columbia (+26,000; +0.9%), experienced employment growth, while Alberta (-38,000; -1.5%) and New Brunswick (-2,700; -0.7%) saw declines.
- Average hourly wages increased by 5.0% (+$1.63 to $34.01) year-over-year in September.
- Total hours worked remained almost the same in September but increased by 2.6% year-over-year.
Commodities
Gold trying to recover on the week, rising into $1,830 post-NFP
- Gold spot prices are catching a late-week lift out of the week’s lows following a bumper NFP report.
- XAU/USD is still in bearish territory for the week after draining from $1,850.
- The US NFP firmly beat market expectations, sending risk appetite into the ceiling for Friday.
Gold spot prices have climbed into $1,833.00 in late Friday trading after a bumper US Non-Farm Payrolls (NFP) printing, and risk-on market flows are sending XAU/USD bids into fresh highs despite still remaining notably lower than Monday’s opening prices.
The US economy added an unexpected 26K jobs to the employment landscape, handily beating the forecast 170K and rising even further from the previous reading of 227K, which was revised upwards from 178K.
WTI crude futures settle at $82.79
- Up $0.48 or 0.58%
The price of WTI crude futures are settling at $82.79. That’s up $0.48 or 0.58%. Since then the price has rallied up to $82.98.
For the week, the price is still down sharply by -8.57% currently that is the sharpest fall since March 13, 2023 week
Baker Hughes oil rig count 497 versus 502 last week
- Baker Hughes rig count for the week of October 6th
- Oil rigs 497 vs 502 last week
- Gas rigs 118 vs 116 last week
- Total rigs -4 at 619 last week
OPEC could intervene in oil market if prices dip too far
That’s the view from RBC on the oil price drop.
Global head of commodity strategy at RBC Capital Markets spoke with CNBC on Thursday:
- “I think OPEC is a different OPEC than in 2015. I would anticipate, if we continue to see selling pressure over the next few days, if this looks like it is going to be a sharp sell-off potentially plunging into the 70s, I think we’ll at least start to hear very clear statements from OPEC about potentially coming back in,”
- “I think that this market remains stronger than this selling action would have us believe at the moment”
EU News
European indices close higher on the day. German Dax rises over 1%
- Indices closing near highs for the day
The major European indices are closing higher on the day and also at the highs for the day.
- German Dax is trading up 155.94 points or 1.03% at 15226.17
- France’s CAC is up 66.18 points or 0.95% at 7064.44
- UK’s FTSE 100 is up 44.82 points or 0.60% at 7496.37
- Spain’s Ibex is up 71.78 points or 0.78% at 9229.49
- Italy’s FTSE MIB is up 291.17 points or 1.06% at 27781.98
For the trading week, the major indices are still lower on the week:
- German Dax, -1.02%
- France’s CAC -1.03%
- UK’s FTSE 100 -1.49%
- Spain’s Ibex -2.11%
Italy August retail sales -0.4% vs +0.4% prior
- There was talk about a flat reading
- Prior was +0.4% m/m
- Sales +2.4% y/y vs +2.7% prior (revised to +2.8%)
Halifax says downward pressure on UK house prices likely to last into next year
- Halifax house prices fell 4.7% y/y in September, after a 4.5% decline in August
- Halifax house prices -4.7% vs -4.6% prior (revised to -4.5%)
High borrowing costs continue to weigh on UK home prices and Halifax said the downward pressure will continue into next year. Gilt yields are up 1.9 bps to 4.565%.
German industrial orders rebounded in August
- August industrial orders +3.9% vs +1.8% expected
Orders rose 3.9% in August compared to 1.8% expected. In addition, the July reading was revised higher to -11.3% from -11.7%. I suspect the market is having a hard time getting excited about the rebound given the worrisome plunge in last month’s data.
The bounce may also have been a one-off with a 37.9% increase in the manufacture of computer, electronic and optical products. The stats office said it was the electronic ones that were largely responsible for the increase.
Deutsche Bank on the report:
“Given the extreme monthly volatility, it is difficult to identify the underlying trend. Comparing May/August with the first four months of the year gives a 2% increase (dom. 1.0%, for 2.6%). Still, real turnover is down by a good half-percent in July/August compared to Q2, which is in line with our call of a 0.3% q/q drop in Q3 GDP. “
ECBs Knot: We are getting on top of inflation
- ECBs Knot is speaking and says:
- We are getting on top of the inflation
- Policy is in a good place
- We have a credible perspective of bringing back inflation to 2% in 2025
- Comfortable with current stance of policy
- Would prefer a tolerance band around target rate
- Italian spreads have increased recently because of budget issues
- Unemployment cost of disinflation is benign compared to previous policy tightening cycles
- Would prefer a tolerance band around target rather than a strict point target for inflation
- ECB stands ready to respond to new upside risks should they materialize
Also speaking is ECB’s Vassle and Vujcic:
Vujcic:
- We are on a good track
- If projections stand, will manage a soft landing
- EUR projections is difficult. I only see the next 6 months with good clarity
Vasle:
- We are seeing a soft landing right now
- Possible to get inflation target without recession
- Very close to rate peak
- Impossible to tell today if we are done or more could be needed
ECB’s Schnabel: If risks materialize, further rate hikes may be necessary
- Schnabel speaks with Croatian newspaper
- Overall, the recent news on inflation is encouraging
- Core inflation has proven more stubborn
- We cannot take it for granted that inflation will only move downwards from now on, because we could have new supply side shocks
- we cannot say that we are at the peak or for how long rates will need to be kept at restrictive levels
- I still see upside risks to inflation
- Cites wages as upside risk
Czech central banker Kubelkova says inflation may drop near target already in January
Czech central bank board member Karina Kubelkova spoke in an interview with daily Mlada Fronta Dnes, published on Friday:
- said Czech inflation may drop near the central bank’s 2% target already in January and be around it in the first half of 2024
- said that to start cutting interest rates from the current 7.00% level, the bank would need to see that its forecast is materialising and new risks do not appear.
- Risks of price growth remain, including from wages, “There is a whole lot in the area of uncertainties: the war in Ukraine, prices and accessibility of energy or projection of inflation expectations into wages,”
- She said wage growth next year lower than 7.8% expected in the bank’s current staff forecast would help in achieving and maintaining the inflation target.
Other News
JP Morgan raised its China GDP forecasts for 2023 and 2024
Analysts at JP Morgan raised their economic growth forecasts for China citing policy moves and improving economic signals.
- Revised up the full-year growth forecast to 5.0% for 2023 (previously: 4.8%)
- 4.4% for 2024 (previously: 4.2%)
JPM are optmisistic on more policy support to come:
- “Further policy measures could be announced, such as product-specific consumption support and further relaxation of administrative controls in the housing market.”
China Mineral Resources Group, huge buyer of iron ore, in talks with 4 big suppliers
China Mineral Resources Group is in negotiations with the big four iron ore suppliers of their needs in 2024:
- Rio Tinto, BHP, Vale, and Fortescue
Chinese developer Sunac won approval to restructure around US$10bn of debt
Troubled Chinese property developer Sunac has had some good news, a bit of a breakthrough on its debt restructuring.
ICYMI:
- A court approved a $10bn restructure plan agreed with creditors
- Sunac will issue new notes and convertible bonds to creditors as part of its plan
Japan data: August inflation adjusted (real) wages fell 2.5% y/y
Japan’s real wages in August declined for a 17th month in a row.
This is important as the Bank of Japan has persistently been emphasising thatsustainable wage rises is a prerequisite for deciding whether and how to dismantle its ultra-loose monetary stimulus.
Inflation-adjusted real wages, a barometer of consumerpurchasing power, fell in August by 2.5% y/y
- prior -2.7%
Nominal pay growth was +1.1%
- prior +1.1% also
Special payments -5.4% year-on-year
- the biggest fall since January 2021
Former BoJ official: BoJ will likely discuss whether to tweak fwd guidance, YCC at meeting
Kazuo Momma is a recent ex-Bank of Japan official, was the executive director in charge of monetary policy, and is now a senior economist at Mizuho Research & Technologies.
He says Bank of Japan board members will likely discuss whether to tweak forward guidance along with the yield curve control mechanism when they meet next, October 30 and 31.
- “Japan’s long-term yields have already risen to 0.8%,”
- “Even if it’s not stuck at the ceiling of 1%, it will be a topic of discussion whether the current ceiling would be reasonable if there’s more upward pressure going forward.”
Momma outlined options the bank is likely to discuss:
- could raise the rate for its daily fixed rate operation from 1%
- or lift its target rate for 10-year bond yields to 0.25%
- could push the upper limit higher
“There won’t be an end to the negative rate and YCC in October, as they are linked to the 2% inflation target that hasn’t been achieved”
Japan August Household spending -2.5% y/y
Household spending data from Japan for August 2023.
-2.5% y/y
- expected -4.3%, prior -5.0%
3.9% m/m
- expected +0.9% and prior -2.7%
Japan finance minister Suzuki repeats he has no comment if Japan intervened in FX market
Suzuki saying it again.
MUFG says BOJ could end negative rates as early as January 2024
Reuters conveying opinion from MUFG’s Market Head
- Lingering concerns about govt finances likely to keep investors on guard against buying JGBs
- BOJ could move to end negative interest rates as early as in January
- BOJ will probably have to maintain the YCC framework to avoid any abrupt rise in long-term interest rates
Former Fed vice chair Clarida says the BOJ policy rate could be hiked to 0% by early 2024
- A big “if” caveats this view.
Clarida is now a Pacific Investment Management Co (PIMCO) managing director and the firm’s global economic advisor.He posted his thoughts on the Bank of Japan.
In brief:
- After seeing years of disinflation or outright deflation, Japan’s policymakers are comfortable with the above-target inflation seen since early 2022.
- Under the new leadership of Governor Kazuo Ueda, we’ve already seen several changes at the BOJ, including a material adjustment in July to its yield curve control (YCC) strategy.
- If data indicate inflation can sustain more than the BOJ currently forecasts, which we expect, then the BOJ could abolish YCC late this year or early next.
- At some point, as the economy reflates, we expect the BOJ will move away from the zero or below-zero short-term rates that have prevailed for over a decade.The policy rate could be hiked to 0% by early 2024.
RBA – small but rising share of Australian households in early stages of financial stress
From the Reserve Bank of Australia Financial Stability Review
- Global financial stability risks are elevated and growing
- Risks include China property sector, a disorderly fall in global asset prices, exposure to commercial real estate
- Tightening in global financial conditions could slow growth, lift unemployment
- Fall in global asset prices could raise funding costs in Australia, limit supply of credit
- Australian financial system sound, some pockets of stress among household borrowers
- Australian banks well capitalised, have low exposure to commercial property
- Banks well positioned to manage any increase in mortgage arrears, absorb loan losses
- Small, but rising share of households in early stages of financial stress
- Most borrowers wellplaced should interest rates rise further
- Most borrowers alsowell placed to cope with extended period of high rates
- Any increase in unemployment would add to stress, but unlikely to threaten system overall
- Risks posed by non-bank institutions in Australia remain low
SGD traders heads up – Monetary Authority of Singapore policy statement due October 13
The Monetary Authority of Singapore is the country’s central bank.
It has two scheduled policy meetings a year, in April and October. Its announced the date it’ll deliver its next policy statement, Friday October 13.
Cryptocurrency News
Bitcoin Weekly Forecast: BTC bearish fractal forecasts correction to $25,000
- Bitcoin price trades around $27,000 and $28,000 for the fifth consecutive day.
- BTC fractal remains intact, preventing BTC from retesting the $30,000 psychological level.
- A lack of buying pressure could see BTC crash to $25,000 or lower.
- A decisive daily candlestick close above $30,000 will invalidate the bearish outlook.
Bitcoin hovers around $27,600 and shows no directional bias on the daily chart. Liquidity pockets are present in both directions, leaving traders guessing where BTC will go next.
Bitcoin price fractal holds steady
Bitcoin fractal discussed previously has faced rejection at the 200-day Simple Moving Average (SMA) at $28,000 and faces a strong sell-off. This caused the October 2 candlestick to close below it. Since then, BTC has been consolidating in a $1,300 range as it trades between $27,000 and $28,000. The bearish fractal is in play, and if history repeats, Bitcoin price should head lower to the next key support level at $25,762. A breakdown of this barrier could cause BTC to retest the $25,000 psychological level and the subsequent support level at $20,431.
XRP price to see further uptrend as rumors of Circle and Ripple working together arise
- XRP price has slowly but consistently risen over the past month, with the altcoin shooting up by 10%.
- Ripple proponent John Deaton stated that despite the win against the SEC, the other projects and tokens remain in a regulatory gray area.
- Rumors of Circle and Ripple working together arose this week after the revelation of Circle’s vice president being a speaker at Swell.
XRP price has seen considerable growth over the past month, however, this may not be the end of the rally. Beyond Ripple winning Judge Torres’ favor in the lawsuit filed by the SEC against the company, rumors of the payment processor joining hands with USDC-issuer Circle are also rising.
Follow our recently launched pages. Join our community and never miss a beat in the dynamic world of trading.
https://www.facebook.com/BilalsTechLtd
https://www.linkedin.com/company/bilals-tech/
