Round up of today’s market news

North American News

Wall Street Sees Green for the Second Time This Week as U.S. Stocks Surge Higher

• Dow, S&P and Nasdaq up for the 3rd consecutive day

For the second consecutive day this week and the third consecutive day overall, the major stock indices are ending the day with higher closing values. The NASDAQ and S&P indices played a significant role in these gains, both showing an increase of over 0.5% today. However, it’s worth noting that these gains occurred while the market was trading near the mid-point of the day’s trading range.

The closing levels are showing:

• Dow industrial average rose 134.65 points or 0.40% at 33739.29. At session highs the index was up 293.56 points.
• S&P index rose 22.58 points or 0.52% at 4358.23.At session highs the index was up 49.81 points.
• NASDAQ index rose 78.59 points or 0.58% at 13562.83.At session highs the index was up 175.39 points.

Gains were helped by lower yields.The 10-year yield fell -13 basis points to 4.652%.The 30-year was down nearly 11 basis points while the 2-year was down -12.0 basis points.

Atlanta Fed GDPNow estimate for Q3 growth rises to 5.1% from 4.9% previously

• Atlanta Fed GDP estimate for Q3 growth

The Atlanta Fed GDPNow model for Q3 growth rises to 5.1% from 4.9% previously.

In their own words:

The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the third quarter of 2023 is 5.1 percent on October 10, up from 4.9 percent on October 5.After last week’s employment situation release from the US Bureau of Labor Statistics and this morning’s wholesale trade report from the US Census Bureau, the nowcasts of third-quarter real gross private domestic investment growth and third-quarter real government spending growth increased from 5.9 percent and 2.2 percent, respectively, to 6.7 percent and 3.0 percent.

The US treasury sells $46 billion of 3-year notes at a high yield of 4.74%

• The WI level at the time of the auction was at 4.723%

• High Yield: 4.740%
  • Previous: 4.660%
  • Six-Auction Average: 4.217%
• WI at the time of the auction: 4.723%
• Tail: 1.7 basis points
  • Previous: 1.0 bps
  • Six-Auction Average: -0.6bps
• Bid-to-Cover: 2.56X
  • Previous: 2.75x
  • Six-Auction Average: 2.79x
• Dealers: 22.09%
  • Previous: 20.2%
  • Six-Auction Average: 14.8%
• Directs: (a proxy for domestic demand): 21.94%
  • Previous: 22.1%
  • Six-Auction Average: 19.0%
• Indirects: (a proxy for international demand): 55.97%
  • Previous: 57.7%
  • Six-Auction Average: 66.2%

There was a high tail 1.7 basis points. The bad auction is something to pay attention to going forward and could lead to higher rates as the US auctions off more debt, but investor demand especially from foreign sources slows.

NY Fed year-ahead inflation 3.7% vs 3.6% previously

• Highlights from the NY Fed’s survey of consumer expectations

• Three year inflation 3.0% vs 2.8% prior
• Five-year inflation 2.8% vs 3.0%
• Median home price rise 3.0% vs 3.1% prior
• Credit access perceptions weakened in Sept

US August wholesale sales +1.8% vs +0.5% expected

• US August wholesale sales and inventories

• Prior was +0.8% (revised to +1.2%)
• Inventories -0.1% vs -0.1% expected
• Stock to sales ratio 1.36 vs 1.39 prior

US September NFIB small business optimism index 90.8 vs 91.3 prior

• Latest data released by NFIB – 10 October 2023

• Prior 91.3

US core CPI reading to fall to 3.8% by year-end – Goldman Sachs

• The latest forecast by the firm

It has been on a declining trend since peaking last year, which is what has allowed the Fed to pause on rate hikes. But at ~4%, there is still much uncertainty in terms of identifying if the trend will be able to keep up until core prices reach the pivotal 2% target.

As for the report this week, the reading is expected to ease further to 4.1% in September. And so, while the trend is encouraging, the Fed can’t quite declare victory just yet – and not likely any time soon. As such, policymakers will want to stick with the narrative of higher rates for longer for as long as they can get away with it.

Fed’s Kashkari: Inflation is headed down

• Comments from Kashkari
• I’m optimistic we can shrink the Fed’s balance sheet back to pre-crisis trend line
• We are seeing higher long-term Treasury yields but not higher inflation
• Reason for rise now in 10-year yield is a bit perplexing; one story is it is higher growth expectations
• It’s possible that higher bond yields could leave less for the Fed to do
• If higher long-term yields are due to expectations about Fed actions, we may need to deliver
• We will need to look at wage and inflation data for me to get comfortable we’ve done enough

Fed’s Waller: Will ‘stay on the job’ to achieve 2% inflation objective

• Comments from Fed Governor Waller on “The Evolution of Monetary Policy” in Washington
• Fed is determined to bring inflation down to 2%

Here is the conclusion portion of the speech:

I think it is worth concluding by emphasizing an important respect in which things have not changed since 1998 when Ben McCallum reviewed monetary policy developments. He noted, “Overall, the most fundamental change since the 1970s has been the assumption of responsibility by central banks for performance in terms of inflation rates. In 1998, it would be extremely surprising to run across a central bank statement that discussed medium-term inflation prospects in a manner suggesting that these are unaffected by monetary policy behavior.” That difference between 1973 and 1998 is also an important contrast between 1973, when U.S. monetary policy failed to play the part that it needed to play in restoring price stability, and the FOMC’s behavior over the past two years. Price stability is a primary responsibility of the Federal Reserve. This is why we have taken forceful steps aimed at reducing inflation—and why we will stay on the job to achieve our objective.

Fed’s Bostic: Inflation has improved considerably, still a long way to go

• Comments from the Atlanta Fed President
• We’re in a good place for us to get to 2% inflation
• There’s certainly more for us to do
• I don’t have a recession in my dot plot
• We don’t have to increase rates any further
• If things come in differently from my outlook, we might have to increase rates but that’s not my current outlook

NY Fed markets chief: No sign yet Fed needs to change balance sheet plans

• Comments from NY Fed chief Perli

• Unclear when reserves will grow scarce
• All signs suggest reserves remain abundant
• Money markets will signal when reserves are growing scarce
• Fed can still do repos to add liquidity if needed
• Standing repo, conventional repos can address stress quickly
• Fed rate control tools working well amid recent challenges

RBC says US stocks are able to “weather the current surge in interest rates”

Some points from RBC on US equities vs. higher rates. Last week the 10-year US Treasury yield hit its highest in 16 years, so the question of how stocks perform in a higher rate environment is pertinent.

Main points from RBC:

• S&P 500 tends to keep rising when the move in 10-year yields has been limited to less than 275 basis points. When the surges in yields are more than that, the stock market tends to decline (though long-term investors will take comfort in the fact that the 12-month forward gains in the S&P 500 that follow tend to be well above trend)
• “If we use early April 2023 as the starting point for the current yield surge, we are still in the category of milder moves. Of course, it is debatable what the starting point for the current surge in yields should be.”

US Treasury yield at 4.64% in Asia trade, significantly lower than late Friday levels

Japanese markets have reopened after the holiday Monday.

It was also a holiday Monday for the Bond market in the US. Thus we are getting first indications to the cash Treasury benchmark 10 year yield for the week, trading circa 4.64% in early Tokyo and down from around 4.78% late on Friday.

White House – not seen hard tangible evidence Iran directly involved in attacks on Israel

• A White House official questions once again Iran’s involvement in the murderous Hamas attacks on Israel

John Kirby is Coordinator for Strategic Communications at the National Security Council in the White House.

Speaking with media:

• There is no intention to put US boots on ground after Israel attack
• Expect additional security requests from Israel, US will try to fulfill those needs as fast as possible
• US Still believes Israel-Saudi normalization should be encouraged
• Can’t speculate at this stage how Saudi-Israel normalization efforts will be impacted
• Would not go so far as to say Hamas attack has paused normalization talks between Israel and Saudi
• Have not seen hard tangible evidence that Iran was directly involved in Hamas attacks on Israel
• Call for supplemental request to be approved to keep up support for Ukraine
• If we need additional defense funding for Israel, we will go back to congress
• Both Ukraine and Israel can be supported simultaneously by US

US is “surging” supplies of air defenses, munitions, other security assistance to Israel

A senior U.S. defense official has confirmed that the US military is “surging” fresh supplies of air defenses, munitions and other security assistance to Israel.The spoke on condition of anonymity to Pentagon reporters.

• “We are surging support to Israel… We remain in constant ongoing contact with our counterparts in Israel to determine and then support their most urgent requirements.”
• the official said Washington was contacting the defense industry to expedite pending Israeli orders, and looking at the U.S. military’s own stockpiles to help fill Israeli gaps
• “We are able to continue our support both to Ukraine, to Israel, and maintain our own global readiness,”
• said there was not yet any evidence seen by the United States of Iran being behind the attack in Israel
• “Of course, Iran is in the picture

Biden: American citizens are among those being held by Hamas

• Comments from Biden
• US has enhanced military force posture in the region, ready to do more
• Our message to anyone looking to take advantage of the situation: Don’t
• We will make sure that Israel has what it needs to defend itself
• We uphold the laws of war
• Will ask Congress to take urgent action to help Israel
• People of Israel lived through unadulterated evil this weekend

Commodities

Silver dips below $22 as bearish harami pattern looms

• Silver price struggles beneath the $22 mark, forming a bearish ‘harami’ pattern on daily charts.
• Potential bearish continuation looms, with sights set on the October 9 low of $21.57.
• Recovery above $22.00 necessitates claiming $22.11, with subsequent hurdles noted at 20-day EMA.

Silver loses some of its bright, retreats from around weekly highs of $22.01 and is back below the figure, exchanging hands at around $21.75, even though US Treasury bond yields continued to extend their losses.

The daily chart portrays the white metal was shy of reclaiming the June 23 swing low of $23.11, but failure to do it, exacerbated selling pressure at around the $22.00 mark. Consequently, it has dropped and is forming a two-candlestick bearish pattern, called a ‘bearish-harami’, the equivalent of an ‘inside day.’ A bearish continuation would happen, once Silver price slides below the October 9 swing low of $21.57, putting into play a test of the year-to-date (YTD) low of $19.90.

Crude oil futures settle at $85.97

• Down -$0.41 or -0.47%

The price of WTI crude futures settled at $85.97.Down -$0.41 or -0.47%.

The decline comes after yesterday’s 4.34% surge on the back of the Mideast tension. That move to the upside took the price back above the August 10 high of $84.85. In trading today, the low price reached $85.17 above that old high.

ICYMI: Yellen says the US “very likely” to move to enforce $60/barrel limit on Russian oil

US Treasury Secretary Yellen spoke in an interview with the Wall Street Journal (gated).

• “We are looking at enforcement very carefully and we want to make sure that market participants are aware we take this price cap seriously, and, to the extent Western services are used, we mean business about abiding by the cap,”
• Yellen didn’t describe any specific enforcement actions.

OPEC secretary general says not too worried about China in medium to long-term

• Remarks by OPEC secretary general, Haitham Al Ghais

• OPEC+ action helped to reduce oil market volatility
• Will have a pavilion at COP28 to showcase how OPEC members are dealing with emissions
• Hopes that all voices will be at the table at COP28

Goldman Sachs says unlikely to be any impact on main fundamental drivers of oil price

• “immediate impact”, longer term there could be

A Goldman Sachs note with their immediate assessment of the oil price impact of the terrorist attacks on Israel.

GS begin with the caveat:

• Recognizing the elevated uncertainty and incomplete information at this early stage

they go on:

• we note that there has been no impact to current global oil production,
• and that we see as unlikely any immediate large effect on the near-term supply-demand balance and near-term oil inventories, which tend to be the main fundamental driver of oil prices.

GS added that the attacks reduce the likelihood of normalization of the country’s relations with Saudi Arabia, and the associated boost to Saudi production over time.

GS continues to forecast Brent to US$100 by June 2024.

Goldman Sachs sees marginal impact from Israel gas production disruption for now

• But says that the given the uncertainty in the Middle East, the risks to gas prices are skewed to the upside

The firm notes that “we see tis potential tightening of global LNG balances as marginal for now”, adding that milder weather so far in October also helps to offset the scale of the potential disruption from the Middle East conflict.

Morgan Stanley says the near-term risk to oil supply is limited

• Adds “that could change”

Morgan Stanley assessed the impact on oil markets from the brutal Hamas attack on Israel.

• said that as neither Israel nor its direct neighbours are large oil producers the near-term risk to oil supply is limited
• “However, that could change in case the conflict were to extend to other countries in the region,”

EU News

European equity close: Booming day, huge gains

• Largest one-day gains since March

It has been a struggle lately for European equity markets but this is a major change in fortunes as the market jumps on the idea of a peak in rates.

Closing changes:

• Stoxx 600 +2.0%
• German DAX +1.9%
• UK FTSE 100 +1.9%
• French CAC +2.0%
• Italy MIB +2.4%
• Spain IBEX +2.3%

UK data: BRC Like-for-like sales +2.8%, Barclays Consumer spending +4.2%

• Some encouraging headline data out of the UK, but the details are not so hot.

Some perhaps encouraging headline data out of the UK, but the details are not so hot. Info via Reuters.

British Retail Consortium data:

• total sales at chain stores +2.7% y/y in September, from +4.1% in August
• like-for-like sales measure – which adjusts for changes in store space – slowed to show growth of 2.8% from 4.3% in August
• “Sales growth in September slowed as the high cost of living continues to bear down on households,” BRC Chief Executive Helen Dickinson said, citing the recent increase in the price of petrol and diesel as well as a rise in housing costs.
• Expensive items such as furniture and electricals performed particularly poorly while last month’s warm weather hit sales of autumnal clothing, Dickinson said.

Separate data from Barclays showed the pace of annual growth in the amount of money spent on credit and debit cards increased to 4.2% in September from August’s 2.8% rise

• the acceleration was largely due to higher outlays on motor fuel
• Jack Meaning, chief UK economist at Barclays, said the warning signs of wariness among consumers was filtering through into their spending decisions. “This suggests the outlook for consumers, and the businesses that rely on them, is weak, even as they finally see their disposable incomes rise faster than inflation,” Meaning said. “It makes it hard to see anything but a relatively stagnant economy on the horizon.”

ECB’s Villeroy: At this stage, further rate hikes are not the right thing to do

• Remarks by ECB policymaker, Francois Villeroy de Galhau

• Interest rates are on a good level
• Events in Israel add to economic incertitude
• Wary about oil price developments over Israel situation

Other News

Tesla’s China-made EV sales volume falls 10.9% year-on-year in September

Reuters with the info:

• Tesla sold 74,073 China-made electric vehicles (EVs) in September, a 10.9% decrease from a year earlier
• Sales of China-made Model 3 and Model Y cars were down 12.0% from a month earlier
• The company missed market estimates for third-quarter global deliveries on Oct. 2 as planned upgrades at its factories to roll out a newer version of the Model 3 mass-market sedan forced production halts.

Link here for more info

China Country Garden failed to make a HKD470mn payment

The firm will not be able to meet all its offshore payment obligations.

China – Maike Metals founder, He Jinbi (“Chinese Copper Tycoon”) taken away by police

ICYMI, news overnight of another executive apprehended by the Chinese police state.

He Jinbi founded and built Maike Metals. Maike Metals was China’s biggest importer of refined copper before a liquidity crisis almost sank the firm last year.

Colleagues have been informed that he was taken away by police for interviews.

Maike and He have been the focus of legal action by creditors since the company ran into difficulties.

China reportedly weighs new stimulus, higher deficit to meet growth target

• Bloomberg reports on the matter

Piling on more debt to solve a debt issue? That’s new. It is being reported that China policymakers are considering to issue at least ¥1 trillion of additional sovereign debt for spending on infrastructure in order to try and bolster growth prospects. In turn, that could raise the budget deficit for the year to be well above the 3% cap set out in March.

North Korea’s state media issued a statement saying that an “important report” coming up

Thats all the statement said, ‘important report’ coming up.

Financial Times reports that “Saudi Arabia stands by Palestinians, crown prince says”

The FT is reporting comments from Saudi Arabian Crown Prince saying that the kingdom stands by Palestinians:

His remarks are not breaking news, they’ve been reported elsewhere, the Saudi Press Agency (SPA) reported on Monday:

• Saudi Arabia’s Crown Prince Mohammed bin Salman and Palestinian President Mahmoud Abbas have discussed the military escalation in Gaza and its surrounding areas
• The crown prince reiterated that Saudi Arabia continues to stand by the Palestinian people

Australian October Consumer Confidence +2.9% m/m to 82.0

• Westpac Consumer Confidence Index

Westpac Consumer Confidence Index in Australia up to 82.0 in October

• prior 79.7

Australian Weekly ANZ Roy Morgan Consumer Confidence survey 80.1 (prior 78.2)

• The index, while still very low, is at its highest since February of this year.

ANZ comment:

• The ANZ-Roy Morgan Australian Consumer Confidence reached its highest since the end of February, but is still weak. Confidence about personal finances has been key to the uptrend.

Consumer inflation expectations were down 0.1% to 5.1% in the past week.

Australian September business confidence unchanged at +1

National Australia Bank Business Survey for September 2023

• business confidence unchanged at +1, its third month in a row at this level
• business conditions +11, from +14 in August

Highlights of the report:

• labour costs +2.0% in the past three months, from the previous reading of 3.2%
• purchasing costs also +1.8% from to 2.9%
• capacity utilisation remains high at 84.2%
• forward orders +2 in September from a zero reading in August

NAB comments:

• The September survey results suggest the momentum of some of the key cost pressures driving inflation may have started to step back in a welcome sign for the broader inflation outlook
• The conditions index has been hovering around its current level of +11 index points since May, suggesting the economy has remained in reasonable shape through the middle of the year

BOJ mulls raising FY 2023/24 core CPI target to ~3% from 2.5% forecast in July – report

• Kyodo News reports on the matter

The Japanese yen is gaining some light ground on the headlines here, with the yen slipping from around 148.90 to a low of 148.55. For some context, the 2.5% core CPI growth forecast was already a revision higher made in July (previously 1.8%).

World Bank chief economist says rising Asia debt levels could hold back growth

World Bank Chief Economist Indermit Gill spoke with Reuters in an interview on Monday

• Rising debt levels among “seemingly healthy” countries in Asia could drag growth in the region below currently forecast levels
• said surprisingly high debt levels in Asia were a concern, noting that increased government borrowing from domestic markets would limit the level of credit available to private firms, resulting in faltering investment.
• “We have a simultaneous problems: too much debt and too little investment,”
• “There’s a lot of government consumption and private consumption being financed through debt. There is not a lot of investment being financed through credit, and that’s not great.”
• The result could be “much lower growth” than we were forecasting

Cryptocurrency News

Ethereum falters as it faces supply inflation and whale offloading pressure

• Ethereum’s token supply has increased by nearly 10,000 ETH within the past week, signaling a lower burn rate.
• Ethereum’s price continued to decline on Tuesday amid the broader weakness in the altcoin space.
• The Ethereum Foundation executed a sale of 1,700 ETH pressuring the price further.

Ethereum is in the middle of a weak altcoin market while facing challenges of supply inflation and selling pressure from whales or large investors. Ethereum Foundation converted ETH worth $2.74 million into USDC on Monday.

Binance exec He Yi supports Israeli police freezing crypto accounts linked to Palestinian militant group Hamas

• Israeli police have frozen cryptocurrency accounts linked to Palestinian group, Hamas.
• Israel’s cyber arm collaborated with authorities and Binance exchange to target the concerned accounts.
• Binance co-founder He Yi has defended the move, alluding to the exchange’s stance against terrorism.

Binance exchange is working with Israeli police to freeze accounts linked to the Palestinian group, Hamas, according to the country’s local media.

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