North American News
Small declines for the major US indices. S&P and NASDAQ extend losing streak to 6 days
- Modest declines ahead of the US CPI data tomorrow
The major US indices all closed marginally lower in trading today. Nevertheless the declines were good enough for the 6 consecutive down day for the S&P and the NASDAQ. The S&P index closed below the 200 week moving average for the 2nd consecutive day. That moving average comes in at 3600 and will be an important level on Friday’s close. Both the S&P and NASDAQ are now down for the month of October. The Dow is still higher on the month.
The final numbers for the day are showing:
- Dow industrial average is closing down -28.36 points or 10110% at 29210.86
- S&P index is down -11.79 points or -0.33% at 3577.04
- NASDAQ index is down -9.08 points or -0.09% at 10417.11
- Russell 2000 is down -5.15 points at -0.3% at 1687.76
Looking at the US debt market:
- 2 year yield 4.289%, -2.7 basis points
- 5 year yield 4.110%, -5.6 basis points
- 10 year 3.898%, -4.1 basis points
- 30 year yield 3.880%, -2.2 basis points
US treasury auctions off $32 billion of reopened 10 yr notes at a high yield of 3.93%
- WI was at 3.914% at the time of the auction
- High yield 3.93%
- WI level of 3.914%
- Tail 1.6 basis points vs six-month average of 1.6 basis points
- bid to cover 2.34X vs 2.47X average
- Directs (a measure of domestic demand) 23.51% vs. six-month average of 17.3%
- Indirects (a measure of international demand) 56.79% vs. six-month average of 66.1%
- Dealers (they take the rest) 19.7% vs six-month average of 16.3%
US September PPI +8.5% y/y vs +8.4% expected
- US September 2022 producer price index data
- Prior was +8.7%
- PPI +0.4% m/m vs +0.2% expected
- Prior m/m reading was -0.1% (revised to -0.2%)
- Ex-food and energy +7.2% y/y vs +7.3% expected
- Ex-food and energy +0.3% m/m vs +0.3% expected
- Prior ex-food and energy m/m +0.4% (revised to +0.3%)
Fed’s Kashkari: There may be a housing downturn but not necessarily a crash
- That’s comforting
US 30-year fixed mortage rates are up to 7.11%. That’s put a halt to all real estate activity. That will give the supply chain a chance to catch up on materials but there simply aren’t enough houses in the US and a slowdown (or crash) now is planting seeds for material undersupply.
- By moving up rates at an aggressive but not overwhelming pace, allows room for assessment of economy
- Tremendous uncertainty about fundamentals of US economy
- It’s a judgement call on whether we move in 50 or 75 bps increments on rates
- We’re not seeing much evidence that underlying inflation is softening
- We will raise rates to perhaps 4.5% then stay there for ‘a while’ to assess
Commodities
Gold spikes up to $1,678 on the back of FOMC minutes
- Gold squeezes higher to reach $1,678 after Fed’s minutes.
- The US dollar loses ground as the Fed hints to moderate the hiking pace.
Gold futures spiked up to session highs at $1,677, with the US dollar turning lower as the minutes of September’s Fed meeting have been considered as tilted to the dovish side.
The yellow metal, however, has given away gains shortly afterward, with the US dollar retracing lost ground. XAU/USD is practically back at pre-Minutes levels at the time of writing.
Investors see hints of moderation in the Fed’s minutes
The Federal Reserve has shown its surprise at the pace of inflation and has confirmed that the officials maintain their commitment to continue hiking interest rates until the problem shows signs of resolving.
The market, however, has analyzed one comment as a potential sign of moderation on the monetary tightening cycle: “Several participants noted that (…) it would be important to calibrate the pace of further policy tightening with the aim of mitigating the risk of significant adverse effects on the economic outlook.”
These comments have been taken as a hint that the bank might be considering smaller rate hikes in the next months. This has had a negative impact on the USD, which sent gold futures higher.
US EIA cuts estimates for US crude oil output
- The latest forecasts in the STEO
Oil is struggling today on demand worries but supply will be the story next year.
The latest numbers from the EIA peg US output rising 500,000 barrels per day this year versus 540,000 bpd previously. That would put output at 11.75 mbpd.
For 2023 they now see production rising 610k bpd versus 840k bpd previously (and 1.05m in June). That’s a total of 270K bpd less in 2023 and I still think risks are to the downside.
On the demand side, they see 20k bpd more demand growth this year but cut 2023 demand growth by 490k. So much of the latter hinges on what China does with zero covid.
EU News
European equity close: It could have been worse
- Closing changes for the main European bourses
- Stoxx 600 -0.3%
- UK FTSE 100 -0.8%
- German DAX -0.2%
- French CAC -0.1%
- Italy MIB -1.0%
- Spain IBEX -1.3%
Bank of England accepts 2.3754 billion in daily gilt buyback operation
- Results of the latest operation
- Accepts 2.3754 billion vs 1.363 bllion yesterday.
- Rejects zero offers vs 47.6m yesterday.
Other News
FOMC minutes: Many saw holding rates for ‘some time’ after reaching sufficient level
- Minutes from the Sept 20-21 meeting
- Market participants generally anticipated a further slowing in the pace of rate increases after December
- Many participants emphasized that the cost of taking too little action to bring down inflation likely outweighed the cost of taking too much action.
- Several participants underlined the need to maintain a restrictive stance for as long as necessary, with a couple of these participants stressing that historical experience demonstrated the danger of prematurely ending periods of tight monetary policy designed to bring down inflation
- Several participants observed that as policy moved into restrictive territory, risks would become more two-sided, reflecting the emergence of the downside risk that the cumulative restraint in aggregate demand would exceed what was required to bring inflation back to 2 percent
- Participants observed that, as the stance of monetary policy tightened further, it would become appropriate at some point to slow the pace of policy rate increases while assessing the effects of cumulative policy adjustments on economic activity and inflation
- Many participants indicated that, once the policy rate had reached a sufficiently restrictive level, it likely would be appropriate to maintain that level for some time until there was compelling evidence that inflation was on course to return to the 2 percent objective
- Most participants remarked that, although some interest-sensitive categories of spending—such as housing and business fixed investment—had already started to respond to the tightening of financial conditions, a sizable portion of economic activity had yet to display much response
- Participants observed that a period of real GDP growth below its trend rate, very likely accompanied by some softening in labor market conditions, was required.
- Several participants noted that, particularly in the current highly uncertain global economic and financial environment, it would be important to calibrate the pace of further policy tightening with the aim of mitigating the risk of significant adverse effects on the economic outlook.
- Members agreed that recent indicators had pointed to modest growth in spending and production
Cryptocurrency News
Ethereum price could fool bulls into thinking it can go back to $1,400
- Ethereum price action dropped over 3% this week in value as bears are trying to reach $1,243.
- ETH price action could be seen recovering partially as markets reassess the situation.
- Expect a fade just inched of $1,400 and see it drop back, hitting $1,243.
Ethereum price action is recovering from its small drop of 3% as it recovers from a volatile start of the week. The big issue was the cable and pound sterling that moved several figures in just two days on the back of rumors that the BoE would or would not extend its bond interventions to stabilize the UK bond market, At risk is the collapse of the UK bond market that holds billions in pension funds money at the risk of going up in thin air.
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