North American News
Markets Grapple with Soaring Rates Amidst Ongoing Pressure..Nasdaq tumbles 1.6%
The surging yields continue to pressure markets.
- The 2-year yield is trading at 5.223%.That’s the high yield since June 2006 when the yield peaked at 5.283%
- The 10-year yield is trading at 4.911% 6.4 basis points.That is the highest level since July 2007.The high yield in 2007 reached 5.289%
- The 30-year yield is trading back below the 5% level of 4.988% after reaching 5.029%.That was still short of the 5.052% reached on October 6, but still close to the highest level going back to July 2007.
- The 2-10 year spread widened to -31 basis points, up 6.6 basis points on the day
- The 2-30 year widened to -22.6 basis points, up 6.0 basis points on the day.
The move higher in rates pressured stocks. The NASDAQ index was the laggard of the major 3 indices. A snapshot of the closing levels shows:
- Dow industrial average -332.59 points or -0.98% at 33665.07
- S&P index fell -58.62 points or -1.34% at 4314.59
- NASDAQ tumbled 219.45.4 -1.62% at 13314.29
After the close, Tesla reported a miss on revenues and earnings-per-share
- Revenues came in at $23.35 billion versus $24.10 billion estimate
- Earnings-per-share came in at $0.66 versus $0.73 expected
- Shares of Tesla are trading down -0.89% at $244.70
- Tesla does say they will deliver the 1st cyber trucks in the 4th quarter which may be
Meanwhile, Netflix beat on earnings-per-share and equaled their revenue per share estimates
- Revenues $8.54 billion versus $8.54 billion estimate
- Earnings-per-share $3.73 versus $3.49 expected
- Shares of Netflix are trading at $377.50 up $31.48 or 9.13%
Lam Research beat on the top and bottom lines but their shares are trading sharply lower:
- Revenues $3.48 billion versus $3.41 billion expected
- Earnings-per-share $6.85 versus $6.12 expected
- Despite the beat, shares are down -3.05% at $622.63.
GDPNow model estimate for real GDP growth in the third quarter of 2023 is 5.4 percent
The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the third quarter of 2023 is 5.4 percent on October 18, unchanged from October 17 after rounding. After this morning’s housing starts report from the US Census Bureau, the nowcast of third-quarter real residential investment growth decreased from 5.5 percent to 4.8 percent.
US sells 20-year bonds at 5.245% vs 5.257% WI
- Results of the $13 billion bond sale
- Prior was 4.592%
- Bid to cover 2.259 vs 2.74 prior
US September housing starts 1.358m vs 1.380m expected
- US Sept housing starts and building permits
- Prior was 1.283m (revised to 1.269m)
- Starts up 7%
- Permits 1.473m vs 1.450m
- Permits -4.4%
US MBA mortgage applications w.e. 13 October -6.9% vs +0.6% prior
- Latest data from the Mortgage Bankers Association for the week ending 13 October
- Prior +0.6%
- Market index 166.9 vs 179.3 prior
- Purchase index 129.8 vs 137.5 prior
- Refinance index 347.6 vs 385.8 prior
- 30-year mortgage rate 7.70% vs 7.67% prior
Reuters poll: 90 of 111 economists see no change in Fed funds rate in November
- …but does not see cut until later in 2024
- 90 out of 111 economists in Reuters poll expect the U.S. Federal Reserve to maintain the Fed funds rate within the 5.25%-5.50% range in November.
- 91 out of 111 economists anticipate the Fed to delay rate cuts until at least Q2.
- In a Reuters poll, the majority expecting a Fed rate cut by mid-2024 decreased to 55% from 71% in the previous poll.
- 26 economists in the Reuters poll expressed concern that the first Fed funds rate cut might come later than expected.
Beige Book: Most Districts indicated little change in economic activity since Sept report
- Comments in the Fed’s anecdotal review of the economy
- Consumer spending was mixed
- Tourism activity continued to improve
- Consumer credit quality was generally described as stable or healthy
- Real estate conditions were little changed and the inventory of homes for sale remained low
- Manufacturing activity was mixed, although contacts across multiple Districts noted an improving outlook for the sector
- The near-term outlook for the economy was generally described as stable or having slightly weaker growth.
- Expectations of firms for which the holiday shopping season is an important driver of sales were mixed.
- Labor market tightness continued to ease across the nation
- Prices continued to increase at a modest pace overall
- Districts noted that input cost increases have slowed or stabilized for manufacturers but continue to rise for services sector firms
- firms expect prices to increase the next few quarters, but at a slower rate than the previous few quarters
Fed’s Bowman: Inflation has come down but is still too high
- Comments at a Fed Listens event
- What has been somewhat surprising, however, is that the relative strength in goods spending has persisted, rather than reverting to its pre-pandemic trends
- This pattern we see in the U.S. is also unusual relative to other advanced economies, where the composition of goods versus services spending appears to have returned to historical norms
Feds Williams: Inflation has come down quite a bit
- Fed’s Williams starts to weigh in now
- Inflation is come down quite a bit.
- Still has a ways to go getting inflation back to target.
- Will “stick at it” to get inflation back to target
- At some point it will make sense to lower rates
- Fed needs restrictive monetary policy for a while to cool inflation
- The path of monetary policy depends on the data
Fed’s Waller: It’s too soon to tell if more policy action needed
- Comments from Waller
- More action on policy rate would be needed if demand, and economic activity keep up recent pace
- We can wait, watch and see before making definitive news on policy path
- Ir real economy slows, we can hold policy steady
- Past few months’ data has been overwhelmingly positive for employment and inflation goals
- I will be watching how recent long-term rate rise evolves and its impact on economy and financial conditions
- I will be patient in waiting for data to document how spending evolves
- Anticipate ‘unusually tight’ labor market to continue loosening, but watching closely
- Will watch next ‘several’ inflation reports for clearer indication on trajectory to 2%
- If inflation fell to 2.5%, Taylor rule would say to cut rates
- We can run our balance sheet down a total of $2 trillion to $2.5 trillion and keep reserves ample
- If saw inflation coming down to 2.5%, Taylor rule would say to cut rates
- We need to see how inflation progresses in 6 to 12 months, then see about cutting rates
- We still have one rate hike penciled in, will be totally driven by the data if it happens or when
- Higher long rates for whatever reason puts in tightening
- If long rates go up and persist, that will do some of the Fed to work
- Still seems to be more potential excess consumer saving than people think
- Consumer spending has been surprising
- Still hopeful rate hike’s will slow spending, inflation
- Data shows job market can call the a reduction in job vacancies and not necessarily loss of jobs
- Events in Middle East horrific, but hard to see much impact on US macroeconomy
- Balance sheet reduction was priced in a long time ago. All Fed is doing now is fulfilling that expectation
Fed’s Harker: Pause on rate hikes should be extended
- Remarks by Philadelphia Fed president, Patrick Harker, to the Wall St Journal
- Workings of the economy cannot be rushed
- Fed can wait until early next year to decide if we have done enough
Canada Sept housing starts 270.5K vs 240.0K expected
- Housing starts data from the CMHC
- Prior was 252.8K (revised to 250.4K)
BOC to maintain overnight rate at 5% next week, says Goldman Sachs and JP Morgan
- Both firms see the BOC already at the terminal rate
Of note, JP Morgan had previously made the call for the BOC to raise the overnight rate one more time this month but has now revised that with the terminal rate seen as it is at 5%.
Commodities
Silver rally stalls at around 200-DMA, bears eye $22.00
- Silver trades at around $22.85, a modest gain of 0.29%.
- Supports are identified at the psychological level of $22.50, the 50-DMA at $22.85, and the 20-DMA at $22.21.
- Immediate resistance lies at the 200-DMA at $23.31, with a key hurdle at the recent cycle high of $23.76.
Silver clings to gains although US Treasury bond yields continued to rise. However, the white-metal, failed to reclaim the 200-day moving average (DMA), leaving Silver exposed to selling pressure, but at the time of writing, exchanges hands at $22.85, gaining 0.29%.
The daily chart portrays the white metal as neutral-downward biased, as the market structure registers lower highs and lower lows.Even though Silver has rallied from around October lows of $20.65, the ongoing rally is an impulse, which needs to clear the latest cycle high of $23.76. to pave the way for a bullish resumption.
Gold taps $1,960 in Wednesday safe haven bids
- Spot Gold climbed further on Wednesday, extending to $1,960 as investors reversed direction.
- Global geopolitical tensions and political instability in the US are seeing market jitters rattle risk assets.
- US Treasury yields continue to climb as investor’s nerves shake out, 10-year hits highest yield since 2007.
Gold bids accelerated recent gains, climbing into the $1,960 handle as tensions over the Gaza Strip conflict and a hamstrung US Congress lacking a Speaker of the House give investors cause to pause, sending markets flowing back into safe havens.
WTI crude oil futures settle at $87.27
- That is up $1.83 on the day
After settling for TWO successive days at the same level, the price of WTI crude oil is settling today at $87.27.That’s up $1.83 on the day. The high price extended to $89.88. The low price reached $87.20.
On Wednesday, oil prices initially surged to their highest levels with WTI reaching USD 89.88/bbl.This rise was attributed to the ongoing situation in Israel, strong economic data from China, and positive US inventory reports.
EIA weekly US oil inventories -4491K vs -300K expected
- Weekly oil data
- Prior was +10176K
- Gasoline -2371K vs -1097K expected
- Distillates -3185K vs -1360K expected
- Refinery utilization +0.4%
- Implied mogas demand 8.94m vs 8.58m prior
- Domestic production 13.2 mbpd vs 13.2 mbpd prior
OPEC+ not planning extraordinary meeting after Iran calls for Israel oil embargo – report
- Reuters reports, citing two OPEC+ sources
Well, it might still be too early to really judge how the Israel-Hamas conflict is going to turn out. So, I would expect OPEC+ to stick with the status quo for a bit longer before making any hasty decisions. Oil is up over 3% on the day to $89.14 currently as commodities are still heavily influenced by developments in the Middle East for now.
Oil price rocketing higher
Oil had a strong session on Tuesday and that’s continuing in the Asian session.
Surging violence in the Middle East has raised, and keeps on raising, the prospect of negative repercussions for energy exports. We have had better data from China also that also indicates an improving picture for demand.
EU News
European equity close: Declines near 1%
- Closing changes for the main European equity markets
- Stoxx 600 -1.0%
- German DAX -1.0%
- UK FTSE 100 -1.1%
- French CAC -0.9%
- Italy MIB -0.8%
- Spain IBEX -1.0%
Eurozone September final CPI +4.3% vs +4.3% y/y prelim
- Latest data released by Eurostat – 18 October 2023
- Prior 5.2%
- Core CPI +4.5% vs +4.5% y/y prelim
- Prior +5.3%
UK September CPI +6.7% vs +6.6% y/y expected
- Latest data released by ONS – 18 October 2023
- Prior +6.7%
- Core CPI +6.1% vs +6.0% y/y expected
- Prior +6.2%
ECB’s Visco: Inflation not yet consistent with monetary, price stability
- Remarks by ECB policymaker, Ignazio Visco
- Monetary policy reaction was necessary
- Second-round effects are keeping inflation at levels not consistent with underlying monetary and price stability
UK finance minister Hunt: Inflation rarely falls in a straight line
- Hunt says they still expect inflation to “keep falling this year”
- If we stick to our plan, then we still expect inflation to keep falling this year
Other News
China Q2 GDP +1.3% q/q (expected 1.0%)
- China’s economy grew more strongly than expected in Q3 of 2023
China’s economic growth data for the July to September quarter of 2023. Beats featuring, only Fixed investment missing.
China Sep. Industrial Production 4.5% y/y (exp 4.3%) & Retail sales 5.5% y/y (exp 4.9%)
- China ‘activity data’ for September 2023
The activity data is centred on 3 indicators: industrial production, retail sales and fixed asset investment.
- Urban Unemployment 5.0% vs prior 5.2%
China’s National Bureau of Statistics (NBS):
- China’s economy recovered in January – September, laying solid foundation to hit full-year growth targets
- external environment has become increasingly complex and severe
- domestic demand is not yet sufficient
UBS, Morgan Stanley join the chorus in raising China GDP growth forecast for the year
- Another set of calls that sees a better take on China’s economy
UBS is revising higher their 2023 GDP growth forecast for China to 5.2% from 4.8% previously. Earlier, Goldman Sachs did go against the current by revising lower their forecast estimate to 5.3% (previously 5.4%). But they were one of the few, if not the only one, to not have downgraded China’s prospects in the months before so it balances out.
Now, Morgan Stanley is also chipping in by revising higher their GDP tracking estimate for China this year to 5.1% from 4.8% to 4.9% previously.
China – A Country Garden offshore bondholder says has not received interest payment
- It appears the Country Garden default is imminent
If payment is not made on this $15 million coupon Country Garden’s entire offshore debt will be deemed to be in default.
Payment was due on Tuesday at the expiry of the 30-day grace period.
China’s Xi says will remove foreign investment access restrictions in manufacturing sector
Chinese Communist Party Xi speaking at the Belt and Road forum:
- belt and road cooperation has progressed fromsketching the outline into filling in the details, blueprints turned into real projects
- This network has boosted the flow of goods, capital, technology and human resources into countries involved
- Only when the world is good, China will be good; and only when China is good, the world will be good
- Taking economic interdependence as a risk will not make one’s own life better or speed up one’s own development
- Ideological confrontation, geopolitical rivalry and bloc politics are not a choice for us; what we stand against are unilateral sanctions, economic coercion, decoupling and supply chain disruption
- Chinese modernisation is not for China alone but for all developing countries through our joint efforts
- China will build new logistic corridor across European continent linked by railway transportation
- China will enterinto free trade agreements with more countries, remove allrestrictions on foreign investment access in manufacturing sector
- China will deepen reform in state-owned enterprises, digital economy, intellectual property, government procurement
- In 2024-2028, China’s total trade in goods and services is expected to exceed $32 trln and $5 trln respectively
- China Development Bank and Exim Bank of China will each set up a 350 bln yuan financing window to support belt and road projects
- We will step up joint efforts to ensure safety of belt and road projects and personnels
- China will deepencooperation in green infrastructure, green energy and greentransportation
- China will increase number of joint laboratories to 100 in next five years, support young foreign scientists to work in China
- China will put forward global initiative for artificial intelligence governance
- China to establish compliance system for companies involved in Belt and Road, promote integrity in BRI cooperation
- We will build open, inclusive and interconnected world for common development
Nomura revises China 2023 GDP growth forecast slightly higher
- Is the doom and gloom on China over?
Nomura is the latest to revise higher its forecast of the Chinese economy, expecting 2023 GDP growth to come in at 5.1% compared to 4.8% previously. They are not the first to do so in recent weeks with JP Morgan and ANZ also having done so already.
The latest data from China does show some signs of stabilisation.
IMF slash their China growth forecasts for 2023 (5% from 5.2%) and 2024 (4.2% from 4.5%)
The International Monetary Fund (IMF) downgraded its 2023and 2024 growth forecasts for China, saying its recovery was “losing steam” and citing weakness in its property sector.
- expected China’s economy to by 5% this year, down from its previous forecast in April of 5.2%
- and 4.2% next year,down from 4.5%
- “In China, the recovery is losing steam, with manufacturing purchasing managers’ indexes entering contracting territory from April to August and conditions in the real estate sector weakening further,”
- prolonged housing market correction in China would in the near-term “trigger greater financial stress among property developers and larger asset quality deterioration”
Xi-Putin meeting: Close political coordination is necessary in current difficult times
- Putin stresses on the need for further cooperation
- “Dear friend, I’m glad to meet you again” (Putin)
- Political trust between China and Russia is continuously deepening (Xi)
- Both countries have maintained close, effective strategic coordination (Xi)
Australia data: Westpac Sep. Leading Index “improves but still pointing to sub-par growth”
Comments (in brief) from the WPAC report on its September 2023 Leading Index.
- The six-month annualised growth rate in the Westpac-Melbourne Institute Leading Index, which indicates the likely pace of economic activity relative to trend three to nine months into the future, rose to -0.34% in September from -0.48% in August.
- Long run of negative, below-trend reads continues.
- Lacklustre growth likely to carry into the first half of 2024.
- Components highlight stabilising activity and reduced drag from commodity prices offset by shaky sharemarket and softening labour market.
RBA Gov Bullock says is a bit more worried about the inflation impact from supply shocks
Reserve Bank of Australia Governor Bullock:
- Bit more worried about inflation impact from supply shocks
- We are seeing demand slow, per capita consumption is declining
- Have not yet seen full impact of past rate rises on consumption
- if inflation remains higher than expected will respond
- If inflation remains higher than expected, will have to respond with policy
- We think we are running narrow path, but very alert to upside inflation risks
New Zealand will begin publishing additional monthly price indexes
New Zealand is the only OECD nation still relying on quarterly inflation data.
Statistics New Zealand have announced that they’ll begin publishing additional monthly price indexes to assist the central bank and economists to more accurately forecast quarterly headline inflation. The first round of data will be released on November 14.
New price index data to be published monthly are:
- alcoholic beverages and tobacco
- petrol and diesel
- domestic and international airfares
- accommodation services.
Stats NZ produces monthly food and rent price indexes. The new data will be combined with the existing food and rent data in a new release to be called Selected price indexes (SPI).
RBNZ chief economist Paul Conway
- “Getting reliable price data faster is critical to our job of controlling inflation and getting it back in our target band”
- “Monthly prices data is a very welcome addition that will help the Monetary Policy Committee make wise decisions”
Bank of Japan to conduct an unscheduled bond buying operation
- BOJ offers to buy Y 100 bin JGBs (Residual maturity of 10YR to 25YR) outright from 10/19
- BOJ offers to buy 300 bin yen JGBs (Residual maturity of 5YR to 10YR) outright from 10/19
- BOJ offers to buy JGBs at fixed-rate with unlimited amount (Residual maturity of 5YR to 10YR) outright from 10/19
The Bank of Japan doing so as part of its Yeild Curvew Control (YCC) efforts.
Japan tourism recovers to near pre-Covid levels
- This is the fourth straight month that Japan welcomed more than 2 million visitors
The number of visitors to Japan rose to 2.18 million in September, highlighting a near full recovery to pre-Covid levels at this point. Relative to 2019, the visitor numbers last month are now roughly 96% of that. Well, a weaker yen is definitely a factor as well I would say.
Cryptocurrency News
Gensler: SEC still speaking with firms seeking spot bitcoin ETFs
- Head of the SEC on the bitcoin ETF
The fiasco around this week’s fake headline that a bitcoin ETF was approved has put the focus back on what looks like the inevitable approval of the ETF.
The latest comment from Gary Gensler doesn’t sound like it’s imminent.
Coinbase shares to surge – the Bitcoin ETF false news was a dress rehearsal for real thing
Analysts at Barclays say the market response to the false news from Monday on the BTC ETF approval is guidance on what is to come once real approval has been granted:
- we continue to see limited P&L benefit to Coinbase
- (but) we view this (the response to the false news) as an early read-through to how the market could react if and when an approval comes
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