Round up of today’s market news

North American News

Major US Indices Close Mixed as Dow and S&P Slide While NASDAQ Reaches July Heights

Market Performance Overview
The major US stock indices experienced another mixed close, with the S&P 500 and Dow industrial average declining for the second consecutive day, while the NASDAQ posted modest gains, closing at its highest level since July 10.

• Dow industrial average: -6.71 points (-0.02%) at 42,924.89
• S&P 500 index: -2.78 points (-0.05%) at 5,851.20
• NASDAQ index: +33.12 points (+0.18%) at 18,573.13
• Russell 2000: -8.18 points (-0.37%) at 2,231.52

Earnings Reports Impact

• Texas Instruments reported better-than-expected earnings per share (EPS) of $1.47 (vs. $1.38 estimate) and revenues of $2.17 billion (vs. $2.12 billion estimate). However, the company provided weak guidance for Q4 revenues, projecting between $3.7 billion and $4 billion, below the expected $4.08 billion, leading to a decline of -0.54% in its stock amid volatile trading.
• Starbucks‘ preliminary Q4 earnings fell short of expectations, reporting an EPS of $0.80 (vs. $1.03 expected) and revenues of $9.1 billion. Shares of Starbucks are down -2.81% following the announcement.
• Seagate Technologies surpassed earnings estimates with an EPS of $1.58 (vs. $1.47 expected) and revenues of $2.17 billion (vs. $2.12 billion estimate).

Market Sentiment
As traders digest mixed earnings results and adjust expectations for future performance, the market remains in a cautious state. The contrasting performance of the indices reflects ongoing uncertainties, influenced by earnings forecasts and macroeconomic factors. Investors will be closely monitoring upcoming economic data and additional corporate earnings reports to gauge market direction in the near term.

Starbucks Faces Headwinds as Q4 Global Comp Sales Drop 7% Amid Consumer Concerns

Earnings Report Overview
Shares of Starbucks (SBUX) fell nearly 6% in after-hours trading following the release of weak preliminary Q4 earnings, signaling potential challenges ahead for the coffee giant.

• Global comparable store sales: -7%
• US comparable store sales: -6%
• China comparable store sales: -14%

Market Reaction
The disappointing sales figures have raised concerns about consumer spending and Starbucks’ market position. Analysts suggest that the decline might indicate broader consumer weakness, but there are also indications that Starbucks is struggling to maintain its appeal in a competitive landscape.

CEO Transition Impact
The slump in sales follows the controversial firing of the company’s CEO in September, and the decision to suspend guidance for FY 2025 adds further uncertainty. The lack of a clear leadership direction could be affecting investor confidence.

Detailed Insights from the Earnings Release
The company attributed its performance primarily to weaknesses in North America, with U.S. comparable store sales declining by 6%. This drop was driven by a 10% decline in comparable transactions, although partially offset by a 4% increase in average ticket size. Despite accelerated investments in product offerings and marketing efforts, Starbucks struggled to improve customer traffic across both Starbucks Rewards and non-reward customer segments, leading to lower-than-expected results.

In China, the 14% decline in comparable store sales was driven by an 8% decrease in average ticket size and a 6% drop in transactions. Increased competition and a challenging macroeconomic environment negatively impacted consumer spending in the region.

Outlook
With Starbucks facing significant challenges in both the U.S. and China, investors will be closely monitoring future developments and strategic responses from the company as it navigates a shifting market landscape. The upcoming quarters will be crucial for assessing whether Starbucks can regain its footing and rebuild consumer confidence.

US October Richmond Fed manufacturing composite index -14 vs -21 prior

• The Richmond Fed manufacturing survey for October 2024 details

• Services index +3 vs -1 last month
• Manufacturing shipments -8 vs -18 last month

Other details:

• Employment -17 vs -22 last month
• Wages 16 vs 15 last month
• Prices paid 2.70 vs 3.36 last month
• Prices received 1.71 vs 1.57 last month
• New orders -17 vs -23 last month
• Backlog of orders -14 vs -16 last month
• Capacity utilization -11 vs -20 last month
• Capital expenditures -23 vs -13 last month
• Services expenditure -22 vs -17 last month
• Finished goods inventories 17 vs 20 last month
• Raw materials inventory 12 vs 12 last month
• Equipment and software spending -21 vs -13 last month

IMF boosts US growth forecasts

• The latest global growth forecasts from the IMF

• US growth seen at 2.3% for 2024 vs 2.6% in July
• US 2025 growth seen at 2.2% for 2025 vs 1.9% in July

Fed’s Daly says the recent rate cut was a ‘close call’

• Federal Reserve Bank of San Francisco President Mary Daly participates in a moderated question-and-answer session at the 2024 WSJ Tech:

• Says Fed will continue to adjust policy
• 50 bps cut was meant to right-size policy, expect additional cuts going forward
• Recent fed rate cut a ‘close call’
• I came down strongly in favor of 50 bps cut
• 50 bps cut was what was needed; didn’t want to find out we had overtightened, and taken jobs from people
• Will be data dependent for Fed’s November meeting
• So far have not seen anything that would suggest we would not continue to cut rates
• Policy is absolutely still tight
• I don’t want to see labor market slow further
• To get a soft landing accomplished we have to adjust policy rate as inflation falls
• Reasonable estimate for the neutral rates is between 2.5 and 5%
• Fed will learn, experientially, where the neutral rate really is
• My own neutral rate estimate is around 3%
• Would want to be open-minded to continue to ease policy if inflation is falling, even if economy is strong

For the US stock market, the party is over say Goldman Sachs

• Goldman Sachs expect much lower returns for the US stocks for the next ten years

• Goldman Sachs’ latest report (David Kostin, Goldman’s chief US equity strategist) on the S&P 500, in brief:
• Predict a 3% annualized return for the S&P 500 index over the next decade, real increase of 1%
• significantly lower than the index’s 13% annualized total return over the past ten years
• Consensus is around 6%, so GS is only half that
• their projections fall within a range of +7% to -1%
• and uncertainty in forecasting such a distant future

Fed’s Schmid: Very strong commitment at the Fed for 2% inflation

• Federal Reserve Bank of Kansas City President Jeffrey Schmid

• Very strong commitment at the Fed for 2% inflation
• Fed doesn’t focus too much on anticipated shocks
• Expect modest cuts in upcoming quarters
• Says his personal opinion is that crypto is a risk asset, a playground, and not a currency

Earlier:

• Calls for cautious, gradual, deliberate approach to rate cuts
• Says he prefers to avoid outsized rate cuts
• ‘reasonably confident’ inflation heading in right direction
• We are seeing a normalization of labor market, not a deterioration
• Current policy is restrictive, but not very restrictive
• Interest rates will settle well above levels seen in pre-pandemic decade
• Preference is for relatively aggressive approach to balance sheet reduction

Canada September producer price index -0.6% vs -0.5% expected

• Canadian PPI data

• Prior was -0.8%
• Producer prices -0.9% y/y vs +0.2% prior
• Raw materials price index -3.1% vs -3.1% prior
• Raw materials price index -8.8% y/y

Commodities

Gold Surge’s to Record Highs Amid Geopolitical Tensions and Fed Rate Cut Expectations

Current Price Overview
Gold has reached an all-time high of $2,748, just below the $2,750 psychological mark, driven by escalating geopolitical uncertainties and strong expectations for further Federal Reserve (Fed) rate cuts.

Market Insights

• Gold has extended its gains for five of the last six trading sessions, trading at $2,744 with a nearly 1% increase. The surge reflects a risk-averse sentiment among investors, despite rising US Treasury yields.
• Following the Fed’s recent rate cut of 50 basis points on September 18, the US 10-year Treasury note has increased by 62 basis points to 4.20%, indicating a shift in trader sentiment toward a less dovish Fed.

Fed Commentary

• Mary Daly, President of the San Francisco Fed, expressed support for further rate easing, stating she has seen no reason not to continue lowering rates.
• In contrast, Jeffrey Schmid, Kansas City Fed President, advocated for a more cautious approach, noting that the labor market is normalizing rather than deteriorating.

Rate Cut Expectations

• Traders are pricing in 42 basis points of cuts by year-end, with an 89.6% probability of a 25 basis point reduction at the upcoming November meeting, according to the CME FedWatch Tool.

Geopolitical Factors

• Tensions in the Middle East remain elevated as Israel prepares for retaliation against Iran following a significant missile attack. This geopolitical uncertainty continues to bolster gold’s appeal as a safe haven asset.

Daily Market Movers

• Upcoming economic data releases include US Initial Jobless Claims for the week ending October 19, which are expected to rise from 241K to 242K.
• October’s S&P Global Manufacturing PMI is projected to improve from 47.3 to 47.5, while the Services PMI is expected to dip from 55.2 to 55.
• Data from the Chicago Board of Trade indicates that investors are now estimating 47 basis points of Fed easing by the end of the year, slightly lower than the previous week.

Outlook
As geopolitical tensions and Fed rate cut expectations continue to shape market dynamics, gold remains a favored asset for risk-averse investors. The interplay between economic indicators and central bank decisions will be crucial in determining the metal’s price trajectory in the coming weeks.

Private survey of oil inventories shows headline crude oil build greater than expected

• The inventory data from the private survey is out now, official data follows Thursday morning (US time).

• API Inventory Data:
• Crude +1.643 million (exp. +700,000)
• Gasoline -2.019 million
• Distillates -1.478 million
• Cushing -216,000
• SPR +700,000

Oil: Geopolitical tensions remain at a boil – TDS

Crude oil markets may feel oversold, but trend following models hold a war chest of dry-powder to deploy in either direction, TDS’ Senior Commodity Strategist Daniel Ghali notes.

Crude oil markets seem oversold

“While our return decomposition framework suggests that markets have continued to erode supply risk premia over the last week, geopolitical tensions remain at a boil and traders are awaiting more information on Israel’s targets for a strike against Iran, keeping a floor on prices.”

“With prices failing to keep up with downtrend signals, CTAs are still set to cover their shorts this session. The scope for subsequent algo flows remains elevated, suggesting event risks will carry additional momentum over the coming week.”

“Interestingly, nascent signs of reflation continue to strengthen in the cross-section of the commodities complex, suggesting that demand trends could favor more buying activity, offering a cross-current to the erosion of supply risk premia in the event that Israel refrains from targeting energy infrastructure as expected.”

ICYMI – Saudi Aramco CEO is bullish on China’s oil consumption

• Oil remarks from Monday

Saudi Aramco Chief Executive Officer Amin H. Nasser says the firm is bullish on China’s oil consumption

Citing:

• government stimulus measures
• jet fuel demand is a bright spot
• sees global oil demand at more than 100 million barrels per day through 2050

Bloomberg carried his comments, but also poured some cold water on them:

• other market commentators forecast that China’s demand for fuels like gasoline & diesel has already peaked or will be peaking soon, backed by the nation’s rapid electrification of its passenger vehicle fleet
• In recent months, parts of the country’s trucking sector have also seen a jump in orders for commercial vehicles that run on liquefied natural gas

EU News

European equities closes mostly flat

• Closing changes in the main European bourses

• Stoxx 600 -0.2%
• German DAX -0.1%
• France CAC flat
• UK FTSE 100 -0.1%
• Spain IBEX -0.1%
• Italy’s FTSE MIB -0.6%

IMF trims Germany growth

• The latest global growth forecasts from the IMF

• Euro Zone growth at 0.8% for 2024 vs 0.9% in July, 1.2% for 2025 vs 1.5% in July
• German economy expected to stagnate this year vs 0.2% growth forecast previously
• German GDP expected to grow by 0.8% in 2025 vs 1.3% forecast previously

BOE’s Greene: I tend to favor a gradualist approach to cutting rates

• Comments from Greene

• Risks to growth in the UK are two-way
• Wouldn’t put too much weight on the latest fall in UK CPI as it may be driven by volatile components
• Signs of inflation persistence are going in the right direction but it’s a question of speed

ECB’s Villeroy: There is a risk of undershooting 2% target, especially if growth weak

• Comments from Villeroy

• Inflation could be at target in early 2025
• The ECB is not behind the curve but risk of cutting rates too late is bigger than cutting too early
• No reason for rates to stay restrictive in 2025

ECB’s Lagarde: Can’t jump to conclusion that inflation target is a done deal

• Comments from the ECB President on Bloomberg

• “We are not unhappy with what we have seen,” on inflation.
• Hopes inflation can get back to target sooner than projected
• Inflation numbers are relatively reassuring
• We “absolutely confident” in hitting inflation target sustainably in the course of 2025 but not sure when
• We have to be very sharp in evaluating services inflation
• European consumers don’t consumer as much as Americans
• The pace of cuts is to be determined later
• I don’t want to speculate on what it would take to cut 50 bps
• I don’t know where neutral is

ECB’s Knot: Falling interest rates should ease debt burdens

• Comments from Knot

• Financial system held up in face of aggressive central bank rate rises
• Falling interest rates should ease debt burdens

ECB Rate Cut Impact Analysis: Inflation Concerns Forward, Policy Tightening Ahead

• PIMCO’s take on the recent ECB rate cut highlights inflation risks influencing future policy decisions, with expectations of another rate cut in December and a predicted terminal rate of 1.85% by 2024.

A bit of a different take on the ECB rate cut. In a recent note, PIMCO highlighted that while the European macroeconomic outlook is softer than anticipated, risk management continues to drive central bank decisions.

• The analysts suggested that any unexpected inflationary pressures could lead the European Central Bank (ECB) to slow the pace of future rate cuts, although last Thursday’s reduction provides a safeguard against downside risks.
• Despite persistent inflation, largely fueled by price pressures in the services sector, PIMCO expects the ECB to maintain a tight monetary policy stance for the time being.
• The firm emphasized that upcoming economic data will be crucial in determining how quickly the ECB eases its restrictive policies.
• PIMCO also anticipates that the ECB’s Governing Council will engage in discussions about the appropriate neutral policy rate next year, particularly once the rate falls below 3%.
• The firm believes that another rate cut is likely in December, and views market pricing for a terminal rate of around 1.85% in the second half of 2024 as reasonable.

Eurozone Rate Cuts Forecast: Franklin Templeton

• Franklin Templeton predicts additional ECB rate cuts in light of weak economic data and inflation below target, with European fixed income emerging as an attractive option in the face of anticipated easing measures.

In a recent note, Franklin Templeton commented on the European Central Bank’s (ECB) 25 basis point rate cut, attributing the move to weak economic data and inflation falling below the 2% target.

As sluggish growth persists across Europe, the firm expects the ECB to continue its rate-cutting cycle, potentially dropping rates below 2% by mid-2025. Another 25 basis point cut is anticipated in December to address both subpar growth and inflationary shortfalls.

While there are indications that inflation could rebound later in 2024, Franklin Templeton cautions that this may prompt the ECB to slow its pace of easing. However, the firm warns that such caution could be premature, as inflation is likely to fall back below target in 2025, reinforcing the case for further rate cuts.

Against this monetary backdrop, Franklin Templeton views European fixed income as increasingly attractive, with a supportive central bank environment expected to persist.

Asia-Pacific-World News

IMF trims China growth

• The latest global growth forecasts from the IMF

• Global growth 3.2% vs 3.2% in July forecast
• China growth at 4.8% for 2024 vs 5.0% in July
• BOJ expected to maintain gradual rate hiking path
• Japan’s growth outlook cut to 0.3% for 2024 (prev. 0.7%)
• Forecasts India growth at 7.0% for 2024, 6.3% for 2025, both unchanged from July

IMF’s Gourinchas: China’s stimulus measures announced by PBOC not sufficient to lift GDP

• The IMF weighs in on China’s stimulus so far

• China stimulus measures announced by the PBOC are not sufficient to lift growth in a substantially material way

Goldman Sachs and others have been highlighting this as well. There are certainly some things for the stock market but it’s tough to disconnect the stock market from the real economy, especially with the risk of Trump tariffs just weeks away.

Fidelity International cuts 500 jobs in China

Reuters report, citing unnamed sources on Fidelity International (investment management services including mutual funds, pension management and fund platforms) is cutting around 500 jobs in China:

• largest downsizing in recent years
• cuts seem mainly in Dalian tech/operations centre

PBOC sets USD/ CNY reference rate for today at 7.1223 (vs. estimate at 7.1229)

• PBOC CNY reference rate setting for the trading session ahead.

In open market operations (OMOs):

• PBOC injects 158bn yuan via 7-day RR, sets rate at 1.5%
• 68bn mature today in OMOs
• net injection is 90bn

China’s $120bn effort to prop up the yuan

• China’s FX regulator, SAFE, stabilizing the exchange rate.

China’s FX regulator is the State Administration of Foreign Exchange (SAFE).

They’ve published data for year-to-date sales of foreign currency by commercial banks

• 121.3bn net FX sold January – September

SAFE adds:

• yuan exchange is basically stable at reasonable and balanced levels
• FX mkt shows relatively strong resilience

New Zealand September exports higher than August, imports down a touch

• New Zealand trade data for September 2024

New Zealand Imports (Sep)

• Actual: 7.12B
• Previous: 7.15B

New Zealand Exports (Sep)

• Actual: 5.01B
• Previous: 4.85B

New Zealand Trade Balance (MoM) (Sep)

• Actual: -2,108M
• Previous: -2,306M

New Zealand Trade Balance (YoY) (Sep)

• Actual: -9,090M
• Previous: -9,400M

BOJ Executive Director Kato – not targeting FX levels

• BOJ Executive Director Kato

• says want to extremely thoroughly gauge US economy, US elections, Fed policy
• we are not targeting fx levels but are carefully looking at upside risks from rising import prices

Cryptocurrency News

Crypto Market Update: Bitcoin Steady, Ethereum and XRP Face Corrections Amid Election Speculations

Current Price Overview
Bitcoin is trading at $67,184 on Tuesday, remaining steady as it hovers above the $67,000 mark. In contrast, Ethereum and XRP have both seen corrections of nearly 2%, reflecting market fluctuations tied to the upcoming US presidential election.

Market Updates

• Bitcoin: Despite its stability, analysts at QCP Capital indicate a bullish outlook for Bitcoin, noting it is currently 8% away from its all-time high of $73,777.
• Ethereum: The price stands at $2,624, down 1.57%. Data from Farside Investors reveals that Ethereum ETFs recorded net outflows of $20.8 million.
• XRP: Trading at $0.5327, XRP has erased 2.26% on the day as traders remain cautious amidst ongoing regulatory concerns.

Key Developments

• The upcoming US presidential election is influencing trader sentiment, with experts suggesting it could impact both Bitcoin and altcoin prices.
• Shiba Inu, the prominent meme coin, has announced an airdrop of 10 million Phil tokens (PHIL) for SHIB holders, providing an opportunity for users to earn double rewards.
• Uniswap (UNI) will be listed on Upbit, a major South Korean crypto exchange, in both the Korean Won (KRW) and USD Tether (USDT) markets on October 22, expanding its accessibility.

Industry Insights

• Bitcoin Spot ETFs have experienced significant inflows, totaling $294 million for the seventh consecutive day, indicating a resurgence in institutional demand for Bitcoin.
• ApeCoin (APE) saw its official address move 8.289 million tokens to Wintermute’s Over-The-Counter (OTC) desk, with the value of the tokens exceeding $12 million.
• In political news, Chris Larsen, a co-founder of Ripple, has donated $10 million in XRP to Vice President Kamala Harris’ presidential campaign, highlighting the intersection of cryptocurrency and political influence.

Outlook
As the US presidential election approaches, traders are bracing for potential volatility in cryptocurrency prices, particularly in Bitcoin and altcoins. The interplay between market sentiment and regulatory developments will be critical in shaping the trajectory of the crypto landscape in the coming weeks.

XRP Experiences a 2% Decline Amid Uphold’s Support for Ripple Stablecoin

Current Price Overview
XRP is trading at $0.5334 on Tuesday, reflecting a 2% drop in value. Market sentiment appears bearish, with XRP potentially on track for a near 7% decline as traders assess the implications of ongoing regulatory challenges.

Market Context
Despite the downturn, the crypto exchange Uphold has expressed support for Ripple’s stablecoin, RLUSD, highlighting its integration into the platform. This backing comes at a crucial time as XRP holders grapple with the uncertain future of the altcoin amid the Securities & Exchange Commission (SEC) lawsuit against Ripple. The ongoing legal battle remains a significant factor influencing XRP’s price volatility.

Key Developments
Several recent announcements from Ripple have shifted focus within the community:

• During the Swell 2024 event, Ripple outlined its partnerships with official exchange platforms and teased the anticipated launch of RLUSD, although no specific launch date was provided.
• The SEC has made its legal documents related to its appeal in the Ripple lawsuit available online, alleviating some concerns about XRP’s legal status as a non-security. The appeal is narrowly focused on the final ruling rather than the broader classification of XRP.

Market Movers
Key elements affecting XRP’s price today include:

• The SEC vs. Ripple lawsuit and ongoing appeals
• Announcements regarding Ripple’s stablecoin RLUSD and its expected integration with exchanges
• Bitwise’s XRP ETF application, which is under scrutiny and could see movement post-US presidential elections
• Ripple co-founder Chris Larsen’s political contributions, which may affect public perception and regulatory attitudes

Outlook
Ripple’s President, Monica Long, believes that the introduction of RLUSD could enhance XRP’s utility and adoption among institutions, potentially providing a positive impact on its market presence. However, market dynamics remain volatile as traders weigh regulatory developments and strategic partnerships. The outcome of the upcoming US presidential election may also play a crucial role in shaping the future of XRP and related ETF applications.

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