Round up of today’s market news

North American News

Major US Indices Reverse Gains from Friday with Nearly 1% Declines

U.S. stocks experienced a sharp pullback today, with major indices retreating nearly 1% following Friday’s gains.

Market Performance:

• Dow Industrial Average: fell 398.51 points or -0.94%, closing at 41,954.24
• S&P 500 Index: decreased by 55.13 points or -0.96%, settling at 5,695.94
• NASDAQ Index: dropped 239.95 points or -1.18%, ending at 17,923.90
• Russell 2000: fell 19.70 points or -0.89%, finishing at 2,193.09

Despite the overall declines, notable gains were seen in some stocks. Nvidia rose 2.29%, and Super Micro Computer surged 15.79%. However, the broader trend was negative, especially among the Magnificent Seven, with significant losses in several major tech stocks:

• Meta Platforms (Facebook): -1.86%
• Apple: -2.25%
• Amazon: -3.02%
• Alphabet (Google): -2.44%
• Microsoft: -1.57%
• Tesla: -3.70%

Market Sentiment:
Today’s market performance reflects a cautious sentiment as investors reassess their positions amid ongoing economic uncertainties and geopolitical tensions. The mixed performance within the tech sector, characterized by both gains in some stocks and sharp declines in others, indicates a potential shift in market dynamics as traders weigh risks and opportunities.

US September employment trends 108.48 vs 109.04 prior

• Employment trends data from the Conference Board

Fed’s Kashkari: The balance of risks has shifted towards higher employment

• Comments from the Minneapolis Fed President

• Balance of risks have shifted away from higher inflation towards maybe higher inflation
• Overall the US economy is resilient
• Not seeing signs of resurgent inflation
• Reduction in new rents gives us confidence that housing inflation will come down
• We could be surprised by stresses on particular banks from office sector real estate
• We’re watching office very carefully but not seeing evidence of systemic risk
• I’m deeply enthusiastic about generative AI
• Underbuilding is a big source of housing inflation
• Supply chain disruptions, labor shortages are another source of housing inflation, as is the risk of work from home
• Balance sheet shrinking has ‘a ways to go’
• There is huge uncertainty about neutral rate, I see it close to 3%

Goldman Sachs Slashes US Recession Odds Following Strong Jobs Report

• Goldman Sachs reduces chance of US recession to 15% after impressive employment data, maintaining forecast of rate cuts to 3.25-3.5% by 2025.

Goldman Sachs has lowered the odds of the United States slipping into a recession in the next 12 months by five percentage points to 15%, following the latest employment report that showed better-than-expected data.

The Wall Street brokerage maintained its forecast of consecutive 25 basis points cuts to reach a terminal rate of 3.25-3.5% by June 2025.

“More broadly, we see no obvious reason for job growth to be mediocre at a time when job openings are high and GDP (gross domestic product) is growing strongly,”

Trump is promising tariffs of up to 200% on vehicles imported from Mexico

• Raising the stakes from his previous 100% promise.

Trump spoke on Sunday, said he would place up to 200% tariffs on vehicles imported from Mexico.

The big 3 US auto makers all have plants building cars for the US market in Mexico.

Trump had previously promised 100% tariffs on imported cars and trucks. But on Sunday ratcheted this up to 200%:

• “We’ll put a tariff of 200% on if we have to”
• “We’re not going to let it happen. We’re not letting those cars come into the United States.”

Analysts say that new tariff on Mexican vehicle exports “likely would drive up the cost of motor vehicles, domestic as well as imports, used cars as well as new.”

HSBC expects six more rate cuts from the US Federal Reserve by June 2025

• Six consecutive 25bp rate cuts coming up from the Fed’s Federal Open Market Committee (FOMC)

HSBC expect a 25bp rate cut at the November 6 – 7 meeting, followed by another at the December 17 – 18 meeting, then in January, March, May and June, for a total of six consecutive 25 rate cuts.

Info via South China Morning Post

Commodities

Gold Slides

Gold is trading at $2,645, down 0.30%. The ongoing escalation of conflict in the Middle East involving Israel, Hamas, and groups like the Houthis supports gold amid a risk-off sentiment.

Market Expectations:
Despite a slight dip, gold remains within the $2,630 – $2,659 range. The rise in US Treasury yields has capped the yellow metal’s advance, although the intensifying conflict in the Middle East has prevented a more significant decline. Market participants are still highly anticipating a 25 basis points (bps) rate cut from the Federal Reserve (Fed), with expectations at 83.5%, while the chance of a 50 bps cut has been ruled out.

Geopolitical Context:
The market mood has turned risk-averse due to the worsening situation in the Middle East, with Israel expanding its ground operations in Lebanon and Hamas launching rockets at Tel Aviv. As hopes for a ceasefire diminish, the conflict has widened to involve groups such as the Houthis, who have been targeting ships in the Red Sea. The US Dollar Index (DXY) is hovering around 102.52, showing minimal gains, yet remains at levels last seen in August 2024.

Economic Indicators:
The recent US jobs report has eased recession fears, prompting several major banks, including Citi, JP Morgan, and Bank of America, to revise their November Fed predictions from a 50 to a 25 bps rate cut. Minneapolis Fed President Neel Kashkari expressed confidence that inflation is returning to the 2% target and noted no signs of “resurgent inflation.”

Additionally, the People’s Bank of China (PBoC) has halted its bullion purchases for the fifth consecutive month, maintaining its gold reserves at 72.8 million troy ounces as of last month.

The upcoming week will see significant economic releases, including inflation data, the Fed’s last meeting minutes, jobless claims, and the University of Michigan Consumer Sentiment report.

Crude Oil Soars to $77.37 Amidst Rising Tensions

Crude oil is trading at $77.22, reflecting an increase of $2.83 or 3.81%. The price has peaked at $77.36 and dropped to a low of $73.65. Crude oil futures have settled at $77.14, up $2.76 or 3.71%.

Market Drivers:
The surge in crude oil prices is largely attributed to escalating geopolitical tensions, particularly concerns about a potential retaliatory strike against Iran. Today marks the first anniversary of the Hamas terrorist attack on Israel, which has heightened fears of renewed conflict in the region. Last week, Iran launched approximately 200 missiles at Israel, leading to speculation that an Israeli counterstrike against Iran’s nuclear facilities or oil fields could be imminent.

Technical Insights:
The price has approached its 200-day moving average at $77.37, with a breach above this level representing the first such move since August 15, likely fueling further upward momentum. Reports suggest an imminent attack on Iran, contributing to heightened uncertainty in the oil market. Traders are cautious, anticipating potential spikes in oil prices if military action occurs, but there may be a subsequent “sell the fact” trade once the immediate impacts are assessed.

Implications of Strikes:
Should refineries be targeted in any potential strikes, this might paradoxically lead to increased oil exports, as oil could be sent out of the country rather than being processed domestically. Furthermore, the risk of retaliatory action from Iran could exacerbate tensions, with the possibility of strikes on oil production elsewhere in the Middle East.

Overall, the geopolitical landscape is influencing oil prices significantly, with traders closely monitoring developments for further price movements.

BP Shifts Strategy, Eyes Investments in Iraq and Permian Basin

• BP shifts focus from production cut target to new projects in Iraq and potential Permian Basin acquisitions.
• BP drops oil output target in strategy reset

BP has abandoned a target to cut oil and gas output by 2030 as CEO Murray Auchincloss scales back the firm’s energy transition strategy to regain investor confidence, three sources with knowledge of the matter said.

BP is currently in talks to invest in three new projects in Iraq, including one in the Majnoon field, the sources said. BP holds a 50% stake in a joint venture operating the giant Rumaila oilfield in the south of the country, where it has been operating for a century.

It will also weigh acquiring assets in the prolific Permian shale basin to expand its existing U.S. onshore business, which has expanded its reserves by over 2 billion barrels since acquiring the business in 2019, the sources said.

China gold reserves in September unchanged from August, 5th month in a row

• Up in USD terms due to the rising price

China’s gold reserves sat at 72.8 million fine troy ounces at the end of September, for a fifth straight month

Data via the People’s Bank of China released on Monday. In USD terms 191.47bn in September vs. 182.98bn in August

FX reserves 3.316tln USD vs. 3.288 tln end-August.

Saudi Arabia has raised its main oil prices for buyers in Asia, well above expectations

• Saudi Aramco premium increase of 90 cents vs. 65c expected

Mixed news out of Saudi Arabia, info comes via Bloomberg citing a pricing list they’ve seen:

• Saudi Aramco raised the official selling price of its key Arab Light crude to Asia by 90 cents, bringing it to a $2.20 per barrel premium over the regional benchmark
• vs. expected 65 cents / bbl
• cut the price of all grades to Europe and the US though

Saudi Aramco is the state owned oil producer.

EU News

European equities close mixed

• STOXX 600 inches up following losses last week. Minor gains across major European indices like CAC and FTSE.

On the day:

• Stoxx 600 +0.2%
• Germany DAX flat
• France CAC +0.5%
• UK FTSE 100 +0.2%
• Spain IBEX +0.5%
• Italy FTSE MIB +0.6%

Euro Zone Investor Morale Rebounds in October Amid Rising Expectations

• Europe Sentix Investor Confidence Actual: -13.8 Expected: -14.6 Previous: -15.4

Investor sentiment in the euro zone improved in October after months of decline, driven by higher expectations despite ongoing dissatisfaction with the current economic situation.

The Sentix index rose more than expected, reflecting optimism about potential economic recovery in the region, with rate cuts from the European Central Bank and Chinese stimulus playing key roles.

Europe Sentix Investor Confidence (Oct)

• Actual: -13.8
• Expected: -14.6
• Previous: -15.4

Eurozone retail sales YY 0.8% vs 1.0% expected

• Data for August 2024

• Eurozone retail sales YY 0.8% vs 1.0% expected
• Eurozone retail sales MM 0.2% vs 0.2% expected

German Factory Orders Plunge in August -5.8% Expected: -1.9% Previous: 2.9%

• Germany’s factory orders drop by 5.8% in August, missing expectations, causing a negative impact on the Euro.

Germany German Factory Orders (MoM) (Aug)

• Actual: -5.8%
• Expected: -1.9%
• Previous: 2.9%

UK House Prices Rise in September, Beating Expectations Actual: 0.3% Expected: 0.2%

• UK Halifax House Price Index for September shows a 0.3% increase, surpassing the 0.2% forecasted, with the previous month at 0.3%.

• United Kingdom Halifax House Price Index (MoM) (Sep)
• Actual: 0.3%
• Expected: 0.2%
• Previous: 0.3%

ING says an October ECB cut is not guaranteed

• Still think the bank cuts but also think it’s a closer call than markets think

• Market expects a 25bp rate cut from the ECB next week, driven by weak economic sentiment and inflation falling below 2%.
• Arguments for a cut include worsening growth and inflation outlooks, with disinflationary trends and some ECB officials showing support for a cut.
• But the bank says there are valid arguments against a cut and point to the lack of new hard data since September, reliance on sentiment indicators which hasn’t been very reliable, and persistent services inflation.
• ECB’s cautious stance suggests there is a risk that the bank may wait until December for more updated projections before cutting rates.
• Market pressure to cut is less influential during an easing cycle, making it less likely for the ECB to act just to meet expectations.
• Outcome is uncertain, with both rate cuts and a potential hawkish surprise possible

German retail sector faces economic uncertainty, no growth in consumer spending expected

• The German retail business climate dims as consumers worry about economic policies, leading to stagnant private consumer spending for the remainder of 2024.

Business climate in German retail clouds over, Ifo says

The business climate in the German retail sector clouded over in September, according to an Ifo survey published on Monday.

“Consumers are unsettled about the economic policy environment. That means that no further dynamic growth in private consumer spending can be expected for the rest of 2024,”

ECB Villeroy says Bank will quite probably cut rates in October, inflation undershoot risk

• European Central Bank meet on October 17

European Central Bank Governing Council policymaker and French central bank governor François Villeroy de Galhau, in an interview with an Italian newspaper, La Repubblica.

• ECB will probably cut interest rates on October 17
• economic growth is weak, bringing the risk that inflation will undershoot its 2% target
• “In the last two years our main risk was to overshoot our 2% target, now we must also pay attention to the opposite risk, of undershooting our objective due to a weak growth and a restrictive monetary policy for too long.”

Villeroy expects the Bank will cut further next year.

• ECB should be back at the “neutral” rate sometime in 2025
• “If we are next year sustainably at 2% inflation, and with still a sluggish growth outlook in Europe, there won’t be any reason for our monetary policy to remain restrictive, and our rates to be above the neutral rate of interest”

Further signs of a loosening jobs market in the UK – wage growth slows, hiring drop

• The implication for the Bank of England, at the margin, is further cuts as soon as November

Via the latest Recruitment and Employment Confederation (REC) and KPMG survey

• growth in starting pay for permanent roles was the lowest since February 2021.
• monthly index of permanent job placements continued a two-year decline, though the hiring drop was less severe than in August.
• increase in available candidates for roles
• vacancies dropped for the 11th consecutive month at the fastest rate since March.

Factors cited included:

• Companies face uncertainty regarding tax and economic policies ahead of finance minister Rachel Reeves’ first annual budget on October 30.
• Reeves has hinted at potential tax increases to support public services and investment

Implications of the survey results:

• KPMG said easing pay pressures could support further interest rate cuts by the Bank of England (BoE) in November.

Germany’s economy ministry forecasts a recession

• Germany’s economy is expected to contract by 0.2% for 2024

German newspaper Sueddeutsche Zeitung reported over the weekend on a dour forecast from German’s economy ministry, planning a downgrade to its 2024 economic growth forecast.

The new forecast will be for negative 0.2% growth, i.e. a shrinking economy, for 2024.

• prior forecast was for +0.3%
• 2023 recorded a 0.3% contraction

For 2025, the forecast will be:

• +1.1% (prior forecast +1%)
• for 2026, +1.6%

The higher forecasts for 2025 and 2026 are based on implementation of government measures to stimulate growth.

Asia-Pacific-World News

Japanese firms anticipate prolonged China slowdown, BoJ official reveals

• Many western Japan companies, especially in electronics, are preparing for an extended export slump to China, as per BOJ’s Osaka branch. They seek stability in exchange rates amidst currency volatility.

Western Japan Firms Expect China Slowdown to Persist, Says BOJ Official

Many companies in western Japan, particularly in electronics, are adjusting their business plans to account for a prolonged slowdown in exports to China, according to Bank of Japan’s Osaka branch.

These firms also prefer stable exchange rate movements, given their sensitivity to currency fluctuations.

Senior Chinese officials briefing Tuesday, steps to implement economic growth policies

• China returns from holiday on Tuesday – stimulus measures briefing scheduled

Senior officials from China’s top economic planning body, the National Development and Reform Commission, will hold a press briefing on Tuesday regarding measures to implement policies aimed at boosting economic growth.

The news comes via a notice from the State Council Information Office.

• five officials, including NDRC chair Zheng Shanjie will participate in the press conference
• conference will cover the topic of “systematically implementing a package of incremental policies to effectively promote economic growth, structural optimization, and sustainable development momentum”

No further details were provided.

Goldman Sachs upgraded its call on Chinese stocks to overweight

• Goldman citing an expected positive impact of Beijing’s stimulus

Goldman Sachs upgraded its call on Chinese stocks to overweight, due to optimism over Beijing’s stimulus measures.

Bloomberg (gated) with the report. In brief:

• Chinese equities could rise another 15%-20% if authorities deliver on policy promises.
• Valuations are below historical averages, earnings could improve, and global investor interest remains low.
• Recent stimulus measures have bolstered confidence that policymakers are taking sufficient action to reduce economic risks.
• Goldman raised its targets for the MSCI China Index and CSI 300 Index, implying a 15%-18% return.
• Goldman cautioned about potential risks, including weaker fiscal stimulus, profit-taking, US elections, and tariff concerns.

China house sales rose over the holiday period – property sector recovery?

• Chinese state media announcement

China began its week-long National Day holiday on Tuesday October 1.

In the week leading up to the holiday beginning Chinese authorities announced an array of economic stimulus measures. Some of the measures were aimed specifically at the property sector, such as:

• reductions in down-payment ratios
• reductions in mortgage rates
• an easing in property buying restrictions

China’s state broadcaster CCTV reported a statement from the Ministry of Housing and Urban-Rural Development on Saturday saying that the measures are having success. The statement cited the number of people visiting houses and sales offices, as a reflection of buying intentions, along with increased participation in sales promotions.

Chinese markets reopen on Tuesday, October 8.

China / Hong Kong stocks rising again – expectations of more China stimulus on Tuesday

• As posted earlier today, the National Development and Reform Commission, will hold a press briefing on Tuesday regarding measures to implement policies aimed at boosting economic growth.

Hong Kong’s Hang Seng benchmark index is up more than 2% on the session so far. Its hitting 31 month highs.

• the tech index is +3%

There are expectations of more stimulus announcements tomorrow.

Reserve Bank of India Urges Banks to Avoid Large Short Bets as Rupee Nears Record Low

• Reserve Bank of India cautions banks against significant short positions on the rupee nearing all-time lows to stabilize the currency amidst ongoing pressure.

India’s central bank has instructed both state-run and private banks to refrain from taking significant short positions against the rupee as it approaches record-low levels. The Reserve Bank of India (RBI) intervened via informal communications to stabilize the currency, which has been under pressure for several trading sessions.

Australian inflation: Melbourne Institute CPI for September 2024: 0.1% m/m (prior -0.1%)

• A private survey assessment of inflation in Australia

Melbourne Institute Inflation in September 2024 0.1% m/m

• prior -0.1%

2.6% y/y, almost to the mid point of the Reserve Bank of Australia 2 – 3% target band

• prior 2.5%

Core (trimmed mean) 0.1% m/m

• prior 0%

New Zealand – RBNZ shadow board equally divided on 25 or 50bp rate cut this week

• Reserve Bank of New Zealand rate cut coming up on Wednesday

The New Zealand Institute of Economic Research report on the views on their Reserve Bank of New Zealand “Shadow Board’.

The NZIER Shadow Board remains split over the extent of the Reserve Bank of New Zealand’s (RBNZ) next move on the Official Cash Rate (OCR) ahead of the upcoming October Monetary Policy Review. Half of the board members advocate for a 50 basis-point cut, citing concerns about the persistent weakness and increasing excess capacity within the New Zealand economy. They also point to the softening in headline inflation and inflation expectations, which, in their view, justify a more accommodative monetary policy stance. The remainder favor a more cautious approach, recommending a 25 basis-point reduction due to lingering upside risks in non-tradable inflation.

Japan PM’s Bold Move: No Capital Gains Tax Hike to Boost Investment

• Japanese Prime Minister Ishiba stands firm on current 20% capital gains tax rate to spur investment and ease tax burden on high-income earners.

Japanese Prime Minister Shigeru Ishiba has ruled out raising the capital gains tax, affirming his government’s commitment to maintain the current 20% flat rate on investment income. This move is aimed at encouraging investment and reducing the tax burden on high-income earners, especially those who gain significantly from stock and property investments.

Japan’s Leading Index Falls Short of Expectations in August Report

• Japan’s Leading Index for August disappoints with a lower than expected value of 106.7, marking a decline from the previous reading of 109.3.

Japan Leading Index (Aug)

• Actual: 106.7
• Expected: 107.2
• Previous: 109.3

Leading Index

• Actual: -2.6%
• Previous: 0.2%

Coincident Indicator (MoM)

• Actual: -3.7%
• Previous: 3.1%

BOJ Report: Price Hikes and Wage Increases Spreading Across Japan

• Bank of Japan notes broadening price hikes and wage increases due to labour shortages in multiple regions, further raise of wage expected.

The Bank of Japan said on Monday price hikes were broadening, as many companies saw the need to keep raising wages due to structural labour shortages. In a quarterly report, the BOJ revised up its assessment for two of nine regional areas in Japan. It left the assessment for the remaining regions unchanged.

Japan finance minister Kato says there are pros and cons to the weak yen

• Japanese official comments on the yen and BOJ

• Stated that a weak yen has both merits and demerits.
• Said there is a need to monitor how excessive forex movements will affect corporate activities and households.
• Emphasized that action must be taken if necessary, while monitoring the impacts of forex movements on economic and household activities.
• Indicated that specific policy steps would be left to the Bank of Japan, when asked whether the policy rate should be maintained at 0.25%.
• Expressed hope that the Bank of Japan will communicate thoroughly with markets and take appropriate policy measures to achieve the 2% inflation target in a stable and sustainable manner.

Bank of Japan rate hike plans “face political curve ball”

• A worthwhile background read ICYMI

We’ve been following along with the political machinations in Japan that, net, are pushing back against BOJ rate hike plans.

Reuters posted this piece late last week, ICYMI, and have updated it today.

A snippet of where the politics of rate hikes in Japan is at:

• Bank of Japan Governor Kazuo Ueda’s efforts to lift rock-bottom borrowing costs face fresh challenges as a yen rebound and the new political leadership’s preference for loose monetary policy raise the hurdle for rate hikes.

Cryptocurrency News

Crypto Investment Products Experience $147 Million Outflow Amid Middle East Tensions

Digital asset investment products faced significant outflows totaling $147 million last week, marking a sharp reversal from a three-week inflow streak. The report from CoinShares highlights a concentrated withdrawal in Bitcoin ETFs, which experienced $159 million in outflows, primarily driven by escalating tensions in the Middle East.

Market Overview:
Bitcoin (BTC) is currently trading around the $63,000 level, reflecting a 1% increase in the past 24 hours. However, it remains in the red for the week. The outflows broke a notable inflow streak of nearly $2 billion in the previous three weeks.

Regional Breakdown:
The US saw the highest outflows, amounting to $209 million, followed by Germany and Hong Kong with $8.3 million and $7.3 million, respectively. In contrast, Canada and Switzerland recorded inflows of $43 million and $35 million, respectively, indicating a more resilient sentiment in those regions.

Asset Class Performance:
The primary focus was on Bitcoin ETFs, which reported the bulk of the outflows. In contrast, short-Bitcoin ETFs saw modest inflows of $2.8 million. Ethereum ETFs also suffered, recording outflows of $29 million, after experiencing inflows the previous week. However, Solana ETFs reported inflows of $5.3 million, and multi-asset crypto products saw inflows of $29 million, suggesting some pockets of resilience in the market.

Underlying Factors:
The outflows were attributed to increased risk aversion among investors amid geopolitical tensions. CoinShares noted that the significant outflows coincided with missile attacks from Iran to Israel during the period from October 1-3, prompting investors to withdraw capital as a precautionary measure.

Despite these outflows, there is a growing demand for US spot Bitcoin ETFs, with data indicating a shift from net selling of 5,000 BTC on September 2 to net buying of 7,000 BTC by the end of the month. This suggests a potential for recovery in Bitcoin’s ETF landscape, provided the macroeconomic and geopolitical environment stabilizes.

The overall sentiment in the cryptocurrency market remains cautious as investors assess ongoing risks while seeking opportunities in specific asset classes amidst the broader turmoil.

Ripple Records $300,000 in Inflows as XRP Gains Momentum

XRP has seen an influx of institutional investment, with funds focused on the altcoin recording $300,000 in inflows last week, as detailed in CoinShares’ Digital Asset Fund Flow Report. As of Monday, XRP is trading at $0.5430, reflecting nearly a 2% increase.

Key Market Drivers:
The current upward movement in XRP’s price is influenced by several factors, including the scheduled 1 billion token unlock on October 1 and ongoing sentiments regarding the Securities and Exchange Commission (SEC) lawsuit. XRP has managed to maintain its position above the crucial support level of $0.5200.

Daily Market Movers:

• According to the CoinShares report, while XRP funds experienced a rise in capital inflows, the two largest cryptocurrencies by market capitalization faced negative trends:
  • Bitcoin saw outflows totaling $159 million.
  • Ethereum funds lost $28.9 million.

The influx into XRP signals growing interest among institutional investors, contrasting with the broader market sentiment impacting Bitcoin and Ethereum.

SEC Appeal:
Traders are closely monitoring developments in the SEC’s appeal against Ripple, which is challenging the recent ruling that imposed a $125 million fine on the company for the institutional sale of XRP tokens. The outcome of this legal battle could have significant implications for XRP’s future performance.

Token Unlock Influence:
Additionally, the scheduled release of 1 billion XRP tokens can exert downward pressure on the price, as such significant unlocks typically flood the market with new supply.

Overall, despite challenges, the recent inflows into XRP highlight a shift in institutional interest, suggesting that market participants remain optimistic about the altcoin’s prospects amidst regulatory scrutiny.

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