Round up of today’s market news

North American News

US Stocks Heading for Weekly Loss as Major Indices Dip at Closing Bell

• NASDAQ index leads the way to the downside this week

Major US stock indices closed lower with the NASDAQ and S&P index now down for the 3rd consecutive day.All the major currencies are on pace for declines on the week.

Looking at the final numbers :

• Dow industrial average tumbled an additional -251.65 points or -0.75% at 33413.44
• S&P index fell -36.60 points or -0.85% at 4277.99
• NASDAQ index fell -128.14 points or -0.96% at 13186.17

For the trading week the NASDAQ is leading the way lower. For the trading week:

• Dow industrial average is down -0.76%
• S&P index is down -1.15%
• NASDAQ index is down -1.65%

Geopolitical concerns, higher oil prices, higher bond yields, and a Fed chair that is still fighting for 2% inflation. Powell said that continued economic strength could warrant further tightening.

US weekly initial jobs claims 198K versus 212K expected

• US initial jobless claims and continuing claims for the week ending Oct 14

• Prior week jobless claims 209K (revised to 211K)
• The 4-week moving average initial jobless claims 205.75K vs. 206.25k last week
• Continuing claims 1734K vs 1710K expected
• Prior week continuing claims 1702K
• The 4-week MA of continuing claims is at 1694K vs last week’s 1674K

US September existing home sales 3.96m vs 3.89m expected

• September existing home sales data

• Prior was 4.04m
• Sales -2.0% vs -0.7% prior

Philadelphia Fed October manufacturing index -9.0 vs -6.6 expected

• The latest from the Federal Reserve Bank of Philadelphia – 19 October 2023

• Prior -13.5
• Employment 4.0 vs -5.7 prior
• Prices paid 23.1 vs 25.7 prior
• Prices received 14.6 vs 14.8 prior
• New orders 4.4 vs -10.2 prior
• Shipments 10.8 vs -3.2 prior
• Delivery times -21.4 vs -14.9 prior
• Inventories -7.0 vs 8.9 prior

Here’s the readings from the expectations component i.e. six months from now:

• Business activity index 9.2 vs 11.1 prior
• Employment 7.8 vs 6.5 prior
• Prices paid 48.5 vs 48.0 prior
• Prices received 46.9 vs 36.5 prior
• Capex -4.8 vs 7.5 prior
• New orders 18.9 vs 25.6 prior
• Shipments 5.4 vs 30.5 prior
• Delivery times -17.1 vs -9.5 prior
• Inventories 4.9 vs -3.4 prior

Conference board leading index for September -0.7% versus -0.4% expected

• Highlights of the conference board leading index which has now fallen for the 18 month in a row

Leading economic indicator for September:

• Prior month -0.5% revised from -0.4%
• Leading index for September -0.7% versus -0.4% expected
• The decline is the 18th month in a row

All the other leading indicators point to lower growth ahead

Coincident indicators:

• The Conference Board Coincident Economic Index (CEI) for the U.S. increased by 0.3% in September 2023 to 110.9 (2016=100).
• This follows a 0.1% increase in August.
• The CEI has shown a 1.1% growth over the six-month period from March to September 2023, in contrast to the 0.4% growth in the previous six months.
• The CEI comprises four component indicators: payroll employment, personal income less transfer payments, manufacturing trade and sales, and industrial production.
• In September, all four components of the index advanced, with personal income less transfer payments and employees on nonagricultural payrolls being the strongest contributors.
• Industrial production and manufacturing and trade sales also contributed positively.
• The recent six-month improvement in the CEI suggests that current economic activity in the U.S. remains positive.

Lagging Economic Index:

• The Conference Board Lagging Economic Index (LAG) for the U.S. increased by 0.2% in September 2023 to 118.5 (2016=100).
• However, it remains unchanged from the previous month due to data revisions that lowered the readings for June, July, and August.
• Over the six-month period from March to September 2023, the LAG has seen a slight 0.1% growth.
• This is a significant decrease from its 1.2% growth over the preceding six months.

Justyna Zabinska-La Monica, Senior Manager, Business Cycle Indicators, at The Conference Board said:

“The LEI for the US fell again in September, marking a year and a half of consecutive monthly declines since April 2022. In September, negative or flat contributions from nine of the index’s ten components more than offset fewer initial claims for unemployment insurance. Although the six-month growth rate in the LEI is somewhat less negative, and the recession signal did not sound, it still signals the risk of economic weakness ahead. So far, the US economy has shown considerable resilience despite pressures from rising interest rates and high inflation. Nonetheless, The Conference Board forecasts that this trend will not be sustained for much longer, and a shallow recession is likely in the first half of 2024.”

Fed’s Powell: FOMC is ‘proceeding carefully’

• Comments from the Fed Chair at the Economic Club of New York
• More evidence of above-trend growth or that the labor market is no longer easing, could warrant further hikes
• Extent of additional firming and how long to keep policy restrictive will depend on data, outlook and balance of risks
• Significant tightening financial conditions with higher bond yields can have implications for policy, we are attentive
• Policy stance is restrictive
• Recent data shows ongoing progress toward inflation and employment goals
• Return to 2% inflation likely to require period of below-trend growth and some further softening of the labor market
• A few months of good data is only the beginning of what it will take to build confidence on the inflation path
• Indications of wage growth show a gradual decline towards levels that would be consistent with 2% over time
• Inflation readings turned lower over the summer, a very favorable development. The September inflation data continued the downward trend but were somewhat less encouraging
• Shorter-term measures of core inflation over the most recent three and six months are now running below 3 percent
• We are attentive to recent data showing the resilience of economic growth and demand for labor.

Q&A from Fed Powell: Economy is very resilient and growing strongly

• Fed chair Powell Q&A at the New York economic club
• Economy is very resilient, growing strongly
• Growth is running above its longer run trend. That is a surprise
• Economy is a story of stronger demand.
• May be ways economy is less affected by interest rates.
• Interest-sensitive spending is a showing impact of Fed policy.
• We see policy working through usual channels
• I don’t think there is a fundamental shift in how rates affect economy.
• We are seeing a change in the exchange rate which is disinflationary
• The fact that we have a strong economy and job market, these are elements we want to see
• No precision in understanding monetary policy lags.
• Markets have been front running Fed policy changes.
• Household savings are higher, spending has been higher.
• We should be seeing effects of monetary policy arriving
• Fed has slowed on rates to give policy time to work.
• We have to use eyes and risk management to monitor monetary policy impact
• There is a lot of uncertainty on lags
• We are moving carefully with policy decisions.
• Long-run potential growth doesn’t change much. It is around 2%
• It is very hard to know how economy can grow with higher rates
• Doesn’t know where monetary policy will settle.
• Effective lower bound is not an issue for economy, monetary policy.
• By any reckoning, neutral rates ebbed over recent decades, unsure where it is now
• Models useful but have to look at what the economy is telling us
• The evidence is not that policy is too tight

Fed’s Goolsbee: Haven’t seen a recession and I’m hopeful we can avoid one

• Comments from the Chicago Fed dove
• The US labor market has eased but is still strong

JP Morgan warns that if the Fed cuts rates it’ll be for the wrong reasons, stocks to fall

Hugh Gimber, global market strategist at JPMorgan Asset Management spoke on CNBC (gated):

• believes Fed cuts in 2024 would likely coincide with declining corporate earnings, creating headwinds for stocks
• “I think the key point for me is that the reason the Fed cuts next year is not because inflation has just smoothly glided back to target. Rather, it’s because we start to see cracks in the growth outlook”
• “And that is clearly not a very positive scenario for equities, particularly when you think about what is baked into earnings numbers”
• “You have this disconnect at the moment: 12% earnings growth expected for next year and still the Fed expected to cut multiple times. Those things can’t both happen at the same time”

JP Morgan says “Cash is a trap”

The JP Morgan analysts may be talking their book, comments from J.P. Morgan Asset Management and J.P. Morgan Global Wealth Management

• “Cash is a trap”
• “important to take a long-term view”

Recommend stocks and bonds mix:

• portfolio comprising 60% stocks and 40% bonds may provide an annual return of 7% over the next 10–15 years

Anyway, then it gets a little more interesting, on equities:

• “even if U.S. margins prove resilient, returns available in other developed markets remain attractive by comparison,”
• “the market dominance that U.S. firms enjoyed through the 2010s faces competition from Europe and Japan in particular”
• outlook for emerging-market stocks has “moderated,”
• investors are “increasingly skeptical about the outlook for China and unwilling to pay high multiples”

Canada September producer price index +0.4% m/m vs +0.3% expected

• Canadian PPI for September 2023

• Prior was +1.3%
• Producer prices y/y % vs -2.7% expected
• Raw materials price index % vs +2.3% m/m prior
• Raw materials price index % vs -4.3% y/y prior

Commodities

Gold soars to $1982 post-Fed Powell’s comments, geopolitical risks

• Gold trades at $1971.15, marking a 1.24% gain.
• Fed Chair Jerome Powell’s comments at the Economic Club of New York led to expectations of no further rate hikes by the Fed.
• Powell states that policy is restrictive and emphasizes the need for careful policy setting.

Gold extended its gains to three straight days and approached the next cycle high of $1982.15 a troy ounce after remarks from the US Federal Reserve Chair Jerome Powell weighed on the Greenback, as investors expect no further rate increases by the Fed.The yellow metal is trading at $1971.15, gaining 1.24%.

Gold extends gains for three consecutive days, approaching the next cycle high of $1982.15 per troy ounce

During Powell’s appearance at the Economic Club of New York, Wall Street seesawed, but at the time of writing, trade with losses.Fed Chair Jerome Powell commented that policy is restrictive and that the Fed would proceed “carefully” in setting its policy.He emphasized that above-trend growth and a tight labor market “could warrant further tightening of monetary policy.”

Crude Oil grinds higher, WTI aimed straight at $90

• Crude Oil barrel bids are on the high side for Thursday.
• Global supply constraints remain a key narrative for light sweet crude.
• WTI traders may have overshot their expectations on increasing supply after Wednesday’s announced Venezuela sanction easing.

WTI barrel prices are getting pushed back into recent highs for Thursday, rising into $88.30 per barrel after kicking the day off with an early decline into $85.50.

Crude Oil markets saw some slight easing on Wednesday after it was announced that US-led sanctions on Venezuela will be lifted, allowing the South American country to return to exporting into the global market, but investors may have overrun their own expectations on how quickly that supply uptick would impact broader markets.

Adding to supply constraint concerns, the Energy Information Administration (EIA) showed on Wednesday that US Crude Oil reserves continue to dwindle down rapidly, with Crude Oil stocks for the week into October 13th declining by 4.491M, far below the 0.3M drawdown traders were expecting and taking a huge chunk out of the previous week’s 10.176M barrel buildup.

OPEC+ is reportedly unconcerned about the addition supply provided by Venezuela returning to crude markets, with the oil cartel keeping global production firmly below demand, fueled largely in part by Saudi Arabia and Russia’s combined 1.3 million bpd production and export cuts that were extended into the year-end.

Despite waning demand amidst China’s steepening economic slump, fossil fuels remain firmly undersupplied, and Middle East geopolitical concerns, fueled by the Gaza Strip escalation in the conflict between Israel and Palestinian Hamas, continue to weigh on energy traders with the critical Strait of Hormuz chokepoint nearby.

EIA weekly natural gas inventories +97 bcf vs +80 bcf expected

• Big build in natural gas
• Prior was +84

The US has officialy eased some restrictions on Venezuela’s oil, gas & gold sectors

U.S. Treasury department news via Reuters:

• Says it is issuing 6-month license authorizing transactions in Venezuela’s oil and gas sectors
• Says it has also issued general license authorizing dealings with Venezuela’s mining company Minerven
• Says general license will be renewed only if Venezuela meets election commitments and other commitments related to those wrongfully detained
• Has amended two licenses to remove secondary trading ban on certain Venezuelan sovereign bonds and PDVSA debt and equity

EU News

European equity close: A close on the lows

• Not a good day in European equity-land

Closing changes:

• Stoxx 600 -1.2%
• German DAX -0.4%
• UK FTSE 100 -1.1%
• French CAC -0.7%
• Italy MIB -1.3%
• Spain IBEX -0.6%

Switzerland September trade balance CHF 6.32 billion vs CHF 4.05 billion prior

• Latest data released by the Federal Statistics Office – 19 October 2023
• Prior CHF 4.05 billion; revised to CHF 3.81 billion

That’s a decent jump in the Swiss trade surplus as exports surged by 18.4% on the month while imports increased by 7.9% on the month in September. In nominal terms, Swiss watch exports were seen up 3.8% year-on-year.

France October business confidence 98 vs 100 prior

• Latest data released by INSEE – 19 October 2023
• Prior 100

After having steadied for a few months, French business morale darkened in September with all main areas experiencing a drop in confidence. Here’s the breakdown:

Other News

China new home prices for September -0.2% m/m (prior -0.3%) and -0.1% y/y (prior -0.1%)

China’s property market and sector are struggling to show any ‘green shoots’ at all. New home prices again fell in September.

Meanwhile Country Garden says its founder and board chair have not left the country, as online rumours have said.

Australia September Jobs +6.7K (vs. +20K expected) & Jobless rate 3.6% (vs. 3.7% exp)

• Australian employment market report for September 2023

While the number of jobs added during September, at +6.7K, is a disappointment the other ‘headline’, the unemployment rate, dropped to 3.6% from 3.7%. Due to a big drop in participation, from a record high of 67% in August to 66.7% in September.

The split between full- and part-time employment change is bad:

• full-time nearly -40K, this is worse than it looks given the prior month was only +2.8K
• part-time +46.5K
• hours worked fell 0.4% m/m (to be -0.9% for the quarter)
• underemployment rate 6.4% (from 6.6%)
• underutilisation rate (combines the unemployment and underemployment rates) 9.9% from 10.2%

Published at the same time was the National Australia Bank quarterly business survey:

Business Confidence in Q3 came in at -1

• prior -4

Japan September exports +4.3% y/y (expected +3.1%) Imports -16.3% y/y (expected -12.9%)

Japan trade data for September 2023. The Ministry of Finance says the September exports are the largest value ever.

Exports to the US +13% y/y (also largest value ever)

• to the EU +12.9% y/y
• to China -6.2% y/y
• to Asia -4.3% y/y

Former BOJ board member: Bank may scrap negative interest rates by the end of this year

ICYMI, former Bank of Japan policy board member Makoto Sakurai spoke in an interview, saying the Bank may scrap negative interest rates by the end of this year to adjust the currently excessive level of monetary easing.

Via a Bloomberg report (gated):

• “They could do it at any time and it won’t be a surprise, given the current economic recovery”, and that under the (relatively) new Governor Ueda “the BOJ has appeared cautious, but they have steadily taken policy actions at a faster pace than expected”
• added that real interest rates have fallen significantly, around the lowest level since the yield curve control program was introduced in 2016
• Sakurai saw the hurdle to further adjust yield control as higher than scrapping negative rates. That’s because the ceiling for long-term yields is already at 100 basis points, and raising it to 150 for instance could cause problems in Japan’s financial system or add stress to the fiscal environment, he said. “Changing the negative rate would lead to slight changes in the shape of the yield curve,” Sakurai said. “But the overall curve has already risen so it’s ok for the furthest part of short-term rates to increase.”
• That’s one indication there is too much easing, and suggests that the next BOJ move is more likely to address that, rather than aim to enhance stimulus sustainability, he said. “There is too much extraordinary monetary easing now,” Sakurai said. “The problem with that is it does unnecessary things like continuing to expand the BOJ’s balance sheet.”

Cryptocurrency News

Bitcoin holdings of listed companies falls marginally in October

• Only two of the top five Bitcoin holding companies that are publicly traded are in a positive position based on the ratio of BTC’s current value to cost.
• Microstrategy continued to accumulate BTC in September despite its stock prices falling.
• October 11 saw a sharp dip in BTC treasury value when compared to October 9. 

In October, the Bitcoin holdings of publicly listed companies, or Bitcoin ‘treasuries’, saw a slight reduction. Among the top five publicly traded Bitcoin holders, only two Marathon and Coinbase are in a profitable position based on the current value-to-cost ratio. MicroStrategy continues to accumulate BTC, with its Bitcoin holdings valued at approximately $4.5 billion.

ICYMI – SEC’s Gensler says still considering Bitcoin ETF proposals

Securities and Exchange Commission Chair Gary Gensler spoke in an interview with Bloomberg TV:

• says regulators are still weighing proposals for Bitcoin ETFs
• still speaking with firms seeking spot Bitcoin ETFs
• we have not one but multiple I think it’s eight or 10 filings that the staff and ultimately the commission is considering for what’s called exchange traded products for for Bitcoin
• those filings are in front of us I can’t prejudge any one of them but there’s eight or 10 that we’re looking at

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