Round up of today’s market news

North American News

Major US Indices Close Sharply Lower Amid Geopolitical Concerns

The major US stock indices experienced significant declines today, primarily driven by escalating geopolitical tensions following Iran’s missile attacks on Israel. This development has led to heightened market anxiety and a broad sell-off.

Index Performance

• Dow Jones Industrial Average: Fell by 173.18 points or -0.41%, closing at 42,156.97.
• S&P 500: Dropped 53.73 points or -0.93%, finishing at 5,708.75.
• NASDAQ Composite: Suffered the most significant decline, down 278.81 points or -1.53%, closing at 17,910.96.
• Russell 2000: Decreased by 32.93 points or -1.48%, ending at 2,197.03.

Key Market Movers

• Apple: Shares fell -2.91%, reflecting disappointing expectations for iPhone sales.
• Nvidia: Declined by -3.66% amid broader market concerns.
• Microsoft: Decreased by -2.33%.
• Positive Performers: Notably, Google/Alphabet rose 0.69%, while Meta Platforms increased by 0.70%.

Market Dynamics

• Port Strikes: Additional concerns regarding port strikes may further impact supply chains and prices moving forward.
• US Treasury Yields: Despite the overall market downturn, US yields moved lower but remained above their lowest levels:
  • 2-Year Yield: 3.610%, down 4.0 basis points
  • 5-Year Yield: 3.515%, down 6.2 basis points
  • 10-Year Yield: 3.739%, down 6.5 basis points
  • 30-Year Yield: 4.077%, down 5.5 basis points

As geopolitical tensions persist and economic indicators fluctuate, market participants will remain vigilant in assessing the potential implications for investment strategies and overall market sentiment.

Atlanta Fed Q3 GDPNow cut to 2.5% from 3.1%

• The latest GDP tracker

The GDP tracker was boosted in the prior release but it’s been reeled back in.

“After this morning’s construction spending release from the US Census Bureau and the Manufacturing ISM Report On Business from the Institute for Supply Management, the nowcasts of third-quarter real personal consumption expenditures growth and third-quarter real gross private domestic growth decreased from 3.3 percent and 2.9 percent, respectively, to 3.0 percent and 0.8 percent.”

US September ISM manufacturing index 47.2 vs 47.5 expected

• US ISM manufacturing for September 2024

• Prior was 47.2
• Prices paid 48.3 vs 54.0 prior
• Employment 43.9 vs 46.0 prior
• New orders 46.1 vs 44.6 prior
• Production 49.8 vs 44.8 prior
• Supplier deliveries 52.2 vs 50.5 prior
• Inventories 43.9 vs 50.3 prior
• Backlog of orders 44.1 vs 43.6 prior
• New export orders 45.3 vs 48.6 prior
• Imports 48.3 vs 49.6 prior

US Sept S&P Global final manufacturing PMI 47.3 vs 47.0 prelim

• Final revisions to the September US PMI

• Prelim was 47.0
• Prior month was 47.9

Chris Williamson, Chief Business Economist at S&P Global Market Intelligence:

“The September PMI survey brings a whole slew of disappointing economic indicators regarding the health of the US economy. Factories reported the largest monthly drop in production for 15 months in response to a slump in new orders, in turn driving further reductions in employment and input buying as producers scaled back operating capacity.

“However, companies are sensing that at least part of the drop in demand is likely to be temporary, as spending, investment and inventory building have been paused in many cases amid the uncertainty caused by the Presidential Election. The prospect of lower interest rates has meanwhile raised confidence in the longer- term outlook, with firms anticipating that demand will be rekindled by lower borrowing costs if the political environment improves. Hence, despite the deterioration in the current business situation, business expectations about the year ahead have in fact improved.

“While the current weak demand environment has helped keep cost pressures low in the manufacturing sector, the potential for geopolitical events to drive energy prices higher alongside possible spikes in shipping prices poses upside risks to the inflation picture.”

JOLTS job openings 8.040M vs 7.660M estimate

• JOLTs Job openings for August 2024

• Prior month 7.673M revised to 7.711M
• Job openings 8.040M.
• Vacancy rate 4.8% versus 4.6% last month
• Quits rate 1.9% versus 2.0% last month (revised from 2.1%)
• Separations rate 3.1% versus 3.2% last month

Details:

• 1.3 million fewer openings than the previous year
• Increases in construction (+138,000) and local government (+78,000) job openings
• Decrease in other services (-93,000) job openings

US Hires in August:

• 5.3 million hires (no significant change)
• Hire rate remained at 3.3% (no significant change)

The hiring market remained stable in August.

Total Separations:

• 5.0 million (no significant change)
• Rate decreased to 3.1%
• Increased in professional/business services (+149,000)
• Decreased in accommodation/food services (-111,000) and state/local government (-25,000)

Quits:

• 3.1 million (-159,000)
• Rate remained at 1.9%
• Decreased in transportation/warehousing/utilities (-45,000); arts/entertainment/recreation (-18,000); and private education (-11,000)

Layoffs/Discharges:

• 1.6 million (no significant change)
• Rate remained at 1.0%
• Decreased in healthcare/social assistance (-52,000)

Other Separations:

• 304,000 (no significant change)

US August construction spending -0.1% vs +0.1% expected

• US construction spending for August 2024

• Prior month -0.3%
• Seasonally adjusted annual rate $2,131.9 billion vs $2,162.7 billion prior
• Construction spending +4.1% y/y in August
• Private construction -0.2% m/m
• Public construction +0.3% m/m
• Residential -0.3% m/m, +2.7% y/y
• Nonresidential +0.1% m/m, +5.2% y/y

Dallas Fed September service sector outlook index -2.6 vs -7.7 prior

• The services sector outlook from the Dallas Fed for Sept 2024

• Prior was -7.7
• Revenue index +10.1 vs +8.7 prior (highest in 13 months)
• Employment +2.0 vs +0.6 prior
• Company outlook +1.2 vs -3.1 prior
• Six month index +17.4vs +12.4 prior

Comments in the report:

Utilities

• I feel the economy is getting better.

Professional, scientific and technical services

• Our employees are very overworked. We have had a very difficult time finding qualified engineers. Our main emphasis for the next six months will be to fill some key positions.
• The shortage in the experienced professional workforce continues. We’re in a medium market, and there is staff poaching going on. Competitors are throwing money and flex-hour options to entice employees to change jobs.
• The anticipated rate decrease may improve business activity in the fourth quarter.
• The recent rate decrease will ease some of the trepidation of the upcoming fiscal year. Hopefully, in the coming months, this will translate into available funding for business expansion.
• The November election is the determiner of how things will improve or not.
• The overall business activity has increased slightly in the commercial real estate market but has slowed in the residential real estate. We are encouraged by the increase in the commercial sector and feel the residential sector will see some improvement in the months to come. A decrease in the interest rate is much needed.
• The rate cut will help our clients’ cash flow and thus create more spending/revenue.

Management of companies and enterprises

• Uncertainty is high. We are putting capital into our company for the first time since its inception to keep the operations afloat. A lot of our workers are contractors, and they’re really suffering.

Administrative and support services

• The rising cost of living in Dallas has impacted both our employees’ financial situations and the labor costs required to retain them in an increasingly competitive market. High housing prices in particular have hindered our ability to attract and retain skilled technicians from across the U.S.
• Expectation of lower interest rates is driving most of the behavior currently.
• Our issues include new employees passing drug tests. Hiring quality employees is becoming more and more difficult.
• For more than 20 years we have seen the market soften in October of a federal election year. It has not proven to be outcome-dependent, but it forces an earlier slowdown than is typical in the fourth quarter, which is already soft due to the impacts of the holidays.
• Interest rates going down could spark a lot of home purchases. In general, that would help us, as more of our clients want to sell property than buy. The uncertainty is up because we do not know if that will happen.

Educational services

• Demographic shifts and international issues are starting to impact college enrollment in Texas. We had been immune to these in the last few years, but we’re now feeling the effects.
• We feel strongly that inflationary pressures are moving in the right direction, and the employment picture seems to be more favorable to a full-employment scenario.

Nursing and residential care facilities

• The cost of services has increased specifically in the area of electric utility charges, which have increased 100 percent over the past contract period. The company outlook has worsened based on the challenge to our nonprofit status by the county.

Accommodation

• The number of employees going back to school/college lessened our hours for those employees, and part-time employee hours increased as a result.
• We are in a very unclear moment in terms of the economy and where consumers’ minds are. There is still a perception of high prices, but it looks like inflation may be easing. It may level out if the Fed reduces interest rates and more economic data show we are back in the 2-3 percent range for inflation.

Rental and leasing services

• The two biggest policy factors that worry us are immigration demagoguery choking off the much-needed labor supply and tariffs fouling up our smooth and cost-efficient supply chain from Korea.

Real estate

• In our multifamily property management business, we are finding greater success working with lenders. As high interest rates continue to catch up to borrowers with floating-rate debt, lenders are being forced to step in and take control, either through foreclosure or accepting deeds in lieu of. They seem to be increasingly accepting the fact that they will have to support assets financially for the next year or so until the market catches up enough for them to unload the collateral at a price that keeps them mostly whole. Rate cuts aren’t going to save them at this point (unless the cuts are huge), but rate cuts will help the cycle begin anew.
• Lower permanent mortgage rates are one precursor to improved commercial real estate activity.

Specialty trade contractors

• Our business is weather dependent. Summer was milder, so revenue decreased.

Support activities for transportation

• The new judicial reform in Mexico has increased the level of uncertainty for all companies doing business on both sides of the border. Our legal team in Mexico City suggested caution in relation to future investment.
• Houston port strikes are a week away, adding to the uncertainty. The trucking industry is still in the throes of a recession due to excess trucking capacity in the market. Many, if not most, carriers are running at cost.

Warehousing and storage

• The rate cut had a calming impact in the medium term. That’s balanced by the impending strike at container ports, which we believe will have an outsized impact on economic conditions over the next several months.

Credit intermediation and related activities

• The interest rate environment may change and would benefit financial institutions, but regulation continues to increase substantially. The election could change the current administration’s approach to regulation depending on which party wins it. Excessive regulations have been an extreme burden for the banking industry with the greatest impact to community banks.
• Commercial real estate financing related to investment sales remains very low. However, there are expectations the cost of debt capital will go down following an anticipated reduction in short-term interest rates.

Securities, commodity contracts and other financial investments and related activities

• The recent Fed reduction in interest rates has improved business confidence and outlook.
• Capital cost is prohibitive for business growth.

Insurance carriers and related activities

• We think once the presidential election is behind us and current insured property losses are lower than last year, the economy should improve. We are having more qualified candidates for hire coming into focus for us lately.

Texas Retail Outlook Survey

Nonstore retailers

• We are very worried about our labor situation and business environment in the long term.

Electronics and appliance stores

• We are only selling single-piece, unplanned purchases with extreme price pressure. Positive cash flow is not sustainable at this time.

Motor vehicle and parts dealers

• Affordability remains low. The interest rate drop will make little difference in the near term. The cost of doing business is increasing as margins decline. Year-over-year profit is down 20 percent.
• Retail traffic has slowed down noticeably in the last couple of months.

Merchant wholesalers, nondurable goods

• The Fed decreasing rates will be well received. That said, we have been a big fan of raising rates. Money has been too cheap, and it finally caught up in the form of inflation.

Food services and drinking places

• The energy industry continues to see more and more mergers and acquisitions, which will impact our community. With all that said, we believe as rates drop, energy activity and home sales will increase.

Q3 Tesla deliveries

• Whisper numbers were higher than the consensus

The analysts consensus for Q3 deliveries was 463,310 but the whisper number was 472K based on VIN numbers. Tesla reported deliveries of 443,956 and production of 410,831 for Q2.

The likely bigger market mover for Tesla will be the robotaxi event on October 10 and shares have risen 20% in the past month in anticipation.

US dock worker union rejects latest pay offer

• Ray of hope snuffed out

News crosses that the Union says ‘Nope’. Says the wage offer was not acceptable. The strike begins at 12.01 am if no agreement is reached.

Chief economists in the US say a 2025 recession is only a 30% chance

• Fed seen cutting rates by additional 150bps through end-2025

The American Bankers Association’s Economic Advisory Committee brings together 15 chief economists from some of North America’s largest banks.

• Fed seen cutting rates by additional 150bps through end-2025
• Sees solid 2% growth in H2 2024 and 2025
• Recession risk steady at 30% for 2025
• Unemployment expected to peak at 4.4% in H1 2025
• PCE inflation forecast to hit Fed’s 2% target by Q2 2025
• Credit availability expected to expand, quality to remain stable
• Bank consumer delinquency rates projected at 2.7% in 2025

Fed’s Cook predicts AI-fueled productivity gains

• Comments from Cook:

• Hopes AI will serve as a counterweight to inflation
• Productivity improvements from AI will come with long and variable lags

Canada September S&P Global manufacturing PMI 50.4 vs 49.5 prior

• Canadian S&P global manufacturing PMI for September 2024

• First reading above 50 since April 2023
• Prior was 49.5
• New orders increase slightly, but export orders continue to decline
• Input cost inflation accelerates to 17-month high
• Output nearly stabilizes, employment rises marginally
• Firms more optimistic on outlook, citing hopes for post-US election stability and lower interest rates
• Employment increased marginally

Commenting on the latest survey results, Paul Smith, Economics Director at S&P Global Market Intelligence said:

“The latest PMI data provided some encouraging signs for the health of the manufacturing economy, with new orders, employment and confidence in the outlook all improving since August. Panelists pointed to slightly better market demand at home as a factor underpinning growth, which served to offset a further deterioration in foreign sales.

“Indeed, global demand remains subdued, in part linked to geopolitical uncertainties and this continues to bear down on production and buying activity. Firms are therefore looking towards the forthcoming US elections as an opportunity to see some much-needed stability, whilst also noting that falling interest rates should help to stimulate growth in the year ahead.”

Canadian private sector job vacancy rate plummets to lowest level since 2016

• Canadian private sector job market continues to cool – NBF

National Bank highlights the dim prospects in the Canadian jobs market:

• Private sector job growth anemic at just 0.2% in first 8 months of 2024
• Labour force grew 2.0% in same period – largest gap outside of recession
• Private sector job vacancy rate plummets to lowest level since 2016
• CFIB data shows SMEs less concerned about labour shortages
• NBF economists expect unemployment to rise above 7% in next 6 months
• Public sector hiring in 2024 prevented even worse damage to labour market

Commodities

Gold Climbs Over 1% Amid Heightened Middle East Tensions

Gold prices have rallied more than 1% following Iran’s missile attacks on Israel, heightening geopolitical uncertainties and boosting demand for safe-haven assets. The yellow metal currently trades at $2,662, rebounding from a daily low of $2,632.

Market Dynamics

• Geopolitical Drivers: The recent escalation, including Iran’s launch of approximately 240-250 missiles at Israel in retaliation for Israel’s strikes on Hezbollah, has shifted market sentiment towards risk aversion.
• Bullish Momentum: Analysts suggest that if tensions continue to escalate, gold could see new record highs. A daily close below $2,665, however, may trigger a pullback in prices.

Market Movers

• US Economic Data: Investors have shifted their focus from strong US job data, with the Job Openings & Labor Turnover Survey (JOLTS) exceeding estimates, to ongoing geopolitical risks that are fueling safe-haven demand for gold.
• Dollar Impact: The US Dollar Index (DXY) rose 0.43% to 101.19, which typically exerts pressure on gold prices, although current geopolitical concerns are overriding this effect.

As the situation develops, market participants will closely watch both geopolitical tensions and economic indicators for their potential impacts on gold and other precious metals.

Crude oil futures settles at $69.83

• Up $1.66 or 2.44%

Crude oil futures are settling at $69.83. That’s up $1.66 or 2.44%. The high price extended to $71.91. The low price that $66.36.

Keep in mind that Libya is preparing to restart oil production after recent disruptions. 

Technically, the price of crude oil extended above its 100 and 200-hour moving averages on its way to the high for the day, but has since come off and is back down retesting the 200-hour moving average. Stay above that 200 hour moving average would be more bullish technically.

Conversely, move below it and its 100-hour moving average at $68.45 would disappoint the buyers.

Oil private survey of inventory shows a headline crude oil draw

• This is from the privately surveyed oil stock data ahead of official government data tomorrow morning out of the US.

API Details:

• Crude -1.5 million (exp. -2.1 million)
• Gasoline +900,000
• Distillates -2.7 million
• Cushing +700,000
• SPR +0.7 million

Egypt: LNG pressures drive FX liquidity concerns – Standard Chartered

Market focus has shifted from tourism, Suez Canal revenues to declining FX proceeds from LNG exports. Hydrocarbon exports fell by 60% y/y in FY24; we estimate foregone revenue at USD 1bn a month. We revise our C/A deficit forecasts as the hydrocarbon trade balance has swung to a deficit, Standard Chartered economists Carla Slim and Bader Al Sarraf note.

FX liquidity concerns persist, notwithstanding improvement

“Egypt went from being a net hydrocarbon importer to a net hydrocarbon exporter in 2020-23. This was driven by a sharp rise in LNG exports (largely to Europe) on expanded domestic LNG output from its Al Zohr field on the East Mediterranean. Still, Egypt relies on hydrocarbon imports, including from Israel, for domestic consumption, and exports any remainder after meeting domestic demand.”

“We estimate foregone LNG export revenue at USD 1bn per month this year, as the regional conflict exacerbates the pressure on Egypt’s LNG trade, via more volatile pipeline imports from Israel. LNG exports began declining in early 2023 (see Figure 2) and have come under further pressure in 2024. Hydrocarbon exports were down by 60% y/y to USD 5.7bn in FY24 (year ending June 2024), turning the hydrocarbon trade balance to a USD 7.6bn deficit from a USD 0.4bn surplus a year earlier. Lower LNG exports and a recovery in imports on improved FX availability led to a widening of the current account (C/A) deficit to USD 20.8bn in FY24 from USD 4.7bn in FY23. As such, we raise our FY24 and FY25 C/A deficit forecasts to 7.0% (-3.0%) and 4.5% of GDP (-3.0%), respectively.”

“Market concerns related to Egypt’s FX liquidity have turned to its widening hydrocarbon trade deficit, in addition to losses in Suez Canal revenues (-24.3% y/y in FY24), although tourism revenue has held up (+5.5% y/y). Tourism revenues reached USD 14.4bn in FY24, from the prior peak of USD 13.6bn; however, the widening of the conflict in the Middle East in recent days could still pose downside risk to tourism. Suez Canal revenues are also likely to decline further (down to USD 6.6bn in FY24 from a peak of USD 8.7bn in FY23); President Sisi recently stated Egypt faces Suez Canal losses of up to USD 6bn YTD.”

EU News

Eurozone September preliminary CPI +1.8% vs +1.8% y/y expected

• Latest data released by Eurostat – 1 October 2024

• Prior +2.2%
• Core CPI +2.7% vs +2.7% y/y expected
• Prior +2.8%

Eurozone September final manufacturing PMI 45.0 vs 44.8 prelim

• Latest data released by HCOB – 1 October 2024

• Prior 45.8

The manufacturing sector woes continue in the euro area, largely thanks to Germany. The region’s backbone continues to see its industry suffer and that is weighing further on overall sentiment. Both new orders and output were seen declining at their fastest pace for the year, highlighting the issues plaguing the Eurozone at the end of Q3. HCOB notes that:

“It is a real shame that Spain is only the fourth-largest economy in the eurozone. While handling the global manufacturing downturn surprisingly well, Spain just does not have enough weight to lift the rest of the eurozone with it. The worsening industrial slump in Germany, for example, is too big for Spain’s momentum in September to make much of a difference. According to our nowcast model, eurozone industrial production will likely drop by around 1% in the third quarter compared to the last one. With incoming orders plummeting fast, we can expect another dip in production by year-end.

“The ECB will be pleased to see that purchase prices fell in September, especially after three months of rising prices. The drop in oil and natural gas prices helped bring down input costs, and companies passed some of that savings on to their customers. But let’s not get too comfortable – these price declines might not last. With the situation in the Middle East heating up, there’s always the chance that energy prices could spike again.

“What started as a slow trickle of job cuts in the middle of last year has now turned into a pretty significant reduction in employment. This will probably show up soon in the less timely official unemployment statistics, which have been fairly stable so far.

“It is not just falling demand that is hitting companies – they are also dealing with supply-chain headaches. This combination is pretty rare and, over the last 30 years, we’ve only really seen it during the pandemic. Typically, when demand drops, delivery problems tend to ease up. But this time, since June, the index tracking delivery issues has been dropping alongside new orders and for the first time since February, businesses are saying they are having to wait even longer for goods than they did in the previous month. The ongoing geopolitical tensions are obviously taking their toll here.”

Germany September final manufacturing PMI 40.6 vs 40.3 prelim

• Final data released by HCOB – 1 October 2024

• Final Manufacturing PMI 40.6 vs. 40.3 expected and 42.4 prior.

Key findings:

• HCOB Germany Manufacturing PMI at 40.6 (Aug: 42.4). 12-month low.
• HCOB Germany Manufacturing PMI Output Index at 41.3 (Aug: 42.8). 11-month low.
• Expectations turn negative as confidence deteriorates sharply.

Comment:

Commenting on the PMI data, Dr. Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, said:

“These figures are adding fuel to the debate around deindustrialisation. With orders drying up at an alarming rate, it is hard to picture any kind of recovery happening soon. What is particularly troubling, looking back over the last 30 years, is how long this slump in export orders has dragged on – it is unprecedented.

We attribute this to the “China shock”. Many companies, especially in the automotive and mechanical engineering sectors, have not yet found convincing answers to the sudden intensification of competition. Data showed the steepest decline in new orders since October 2023, with the downturn being widespread across intermediate, capital and consumer goods sectors. This aligns with the broader observation that global demand for manufactured goods remains under pressure.

For over a year-and-a-half, companies have been running down their inventories of intermediate inputs. Normally, you would expect them to start restocking at some point, but instead, in September, they slashed inventories even more than we have seen in this current cycle. It highlights how pessimistic manufacturers are feeling.

On the bright side, the significant drop in oil and natural gas prices – down around 7% in September compared to the previous month – is giving companies some breathing room. Lower energy costs have helped push purchase prices down much faster than sales prices, which in turn is good for profit margins. So, at least on that front, there’s some relief.”

France September final manufacturing PMI 44.6 vs 44.0 prelim

• Latest data released by HCOB – 1 October 2024
• Prior 43.9

There is a slight revision higher to the initial estimate but it still points to a downturn in France’s industrial sector at the end of Q3. Both output and new orders continue to show deep declines but at least the pace of that is easing. HCOB notes that:

“The French industrial sector remains mired in a deep recession. Despite a slight improvement in the HCOB PMI for manufacturing in September, the index only edged up to 44.6, keeping it firmly in contraction territory. Output continues to shrink significantly. Notably, the consumer goods sector came close to stabilizing at the sub-sector level, while intermediate and capital goods remain in steep decline. Survey respondents cited persistently weak demand as the main cause of sluggish production.

“The French industrial sector remains under pressure as weak demand collides with rising prices. Industrial companies did not reap the benefits of discounting strategies in late-2023 and early this year, and higher costs forced them to raise charges again since the summer. One positive note is that input price inflation in manufacturing is now below the historical average, thanks to a significant drop compared to the previous month. Some firms reported lower costs from suppliers and for metals. However, the key challenge persists: rising input costs cannot be entirely passed on to end customers due to stagnant demand, meaning a squeeze to profit margins.

“French industrial companies are increasingly pessimistic about the future, perhaps unsettled by the ongoing political uncertainty in the country. Despite a slight recovery compared to the previous month, both domestic and international orders remain in decline, leading to further cuts in employment. Surveyed firms cited political instability at home and weakening demand from North America and parts of the Eurozone as the main reasons for the weak order intake. Particularly worrying is that businesses see no improvement on the horizon, with the index for future activity remaining firmly in negative territory.”

Italy September manufacturing PMI 48.3 vs. 49.0 expected

• Latest data released by HCOB – 1 October 2024

• Manufacturing PMI 48.3 vs. 49.0 expected and 49.4 prior.

Key findings:

• Sharper decline in production volumes in September.
• Total new orders down markedly, with exports falling sharply.
• Cost pressures cool notably, while charges discounted slightly.

Comment:

Commenting on the PMI data, Jonas Feldhusen, Junior Economist at Hamburg Commercial Bank, said:

“The situation in Italy’s manufacturing sector remains grim. While the headline index saw a slight improvement in August, it has now dropped again in September, remaining firmly in recessionary territory. The global downturn in manufacturing activity, which has worsened in the third quarter, is clearly impacting Italian manufacturers.

Competition from abroad, political uncertainty in Germany and France, along with high interest rates and cautious consumers due to elevated prices, seem to be dampening demand. In accordance with this, incoming orders from both the domestic and international markets have fallen significantly. With new orders falling by a greater margin than output, factories saw a build-up of inventories for the first time in months.

Italian manufacturing businesses are becoming more cautious about their future prospects. The weak demand environment is pressuring the industrial sector, as reflected in future business expectations, which have dropped below their historical average. However, there are some positive developments. Despite lower backlogs of work, Italy’s manufacturers accelerated hiring in September. Price pressures are easing.

While raw materials still present some cost challenges, input price inflation has cooled down. This trend, along with weakening demand, appears to be influencing prices charged. As a result, companies attempted to reduce prices slightly in order to stay competitive. This closes the gap between input and output prices somewhat.”

Spain September manufacturing PMI 53.0 vs 50.2 expected

• Latest data released by HCOB – 1 October 2024

• Manufacturing PMI 53.0 vs. 50.2 expected and 50.5 prior.

Key findings:

• Solid gains in both output and new orders signaled.
• Return to growth in employment.
• First cut in output charges since April.

Comment:

Commenting on the PMI data, Jonas Feldhusen, Junior Economist at Hamburg Commercial Bank, said:

“Spain is and remains the outlier among the major Eurozone countries. The sentiment in Spain’s manufacturing sector has surged, with an index of 53.0 points indicating accelerated growth in September. These are indeed surprising developments, as the trend in previous months had clearly pointed towards stagnation.

However, both orders and production have notably improved this month—contrary to my August forecast. While industrial sentiment in Germany and France remains poor, anecdotal evidence suggests that order growth stems from increased demand from the UK. Cost pressures in Spain’s manufacturing sector has eased significantly.

Input inflation was modest in September, reaching its lowest level since February. The slowing momentum of input costs, combined with rising inventories and heightened competition, has led to a marked drop in selling prices. Business confidence has brightened significantly in September. After falling below the historical average in August, future expectations have seen a strong rebound.

Key reasons for this improvement include new product launches and the hope for more stable political conditions. With expanded production and rising optimism, Spanish manufacturers have also increased their staffing levels. This positive trend indicates that companies are now approaching the coming months with greater confidence.”

UK September final manufacturing PMI 51.5 vs. 51.5 prelim

• Latest data released by S&P Global – 1 October 2024

• Final Manufacturing PMI 51.5 vs. 51.5 expected and 52.5 prior.

Key findings:

• Growth of output and new orders ease slightly.
• Business confidence down to nine-month low.

Comment:

Rob Dobson, Director at S&P Global Market Intelligence:

“The UK manufacturing sector is still expanding at a solid, albeit slightly slower, pace. Output rose for the fifth successive month in September, underpinned by a resilient domestic market. However, manufacturers have become more nervous about the outlook, suggesting that the current spell of impressive growth is fading, with business optimism about the year-ahead slumping to a nine-month low.

The extent of the drop in confidence was striking, beaten only by that seen in March 2020 prior to COVID lockdowns. Uncertainty about the direction of government policy ahead of the coming Autumn Budget was a clear cause of the loss of confidence, especially given recent gloomy messaging, though firms are also worried about wider global geopolitical issues and economic growth risks.

Price pressures are also becoming a more prominent feature of the survey and a reminder that the inflation genie is not yet back in the bottle. Input cost inflation accelerated to a 20-month high, leading manufacturers to further push up their selling prices. Freight cost rises are a big factor underlying the resurgence in the price measures, as supply chains continue to feel the strain of the Red Sea crisis and global conflicts.”

Data shows that prices in UK shops fell at the fastest pace in more than three years in September

• British Retail Consortium (BRC) Retail Shop Price Index -0.6% y/y (expected -0.3%, prior -0.3%)

British Retail Consortium (BRC) Retail Shop Price Index in September -0.6% y/y

• expected -0.3%, prior -0.3%
• shop prices fall by the most since August 2021
• seventh time in nine months that the pace of price growth has weakened

Switzerland September manufacturing PMI 49.9 vs 48.0 expected

• Latest data released by Procure – 1 October 2024
• Prior 49.0

France’s Barnier: I plan to reduce deficit to 5% of GDP in 2025

• Comments from the incoming French PM

• Will reduce deficit to 3% in 2029
• First remedy to bring down debt is to reduce spending
• In 2025, two-thirds of effort will focus on cuts
• Budget situation also requires targeted measures on tax policy
• We will ask large companies and richest part of population to contribute to effort around finances

SNB’s Schlegel: Reason for last week’s rate cut was lower inflationary pressure

• Comments from Schlegel

• The services sector is solid and the industrial sector subdued
• Expect Swiss growth to be subdued in coming quarters
• The biggest risk for the Swiss economy is developments abroad
• Our main tool is interest rates but we don’t rule out being active in FX
• Have respect for all exporters, I know the strong Frank makes situation difficult for them.
• The main problem first was exporters is the lower demand abroad.
• Last week we did not rule out further interest rate cuts.
• Cannot rule out any measures, but nobody likes negative interest rates.
• The SNB cannot rule out negative interest rates. We rule nothing out.

ECBs Kazaks: Very much agree with market pricing on ECB’s October interest-rate decision

• Latvia’s central bank governor, Kazaks, agrees with market pricing on ECB’s October rate decision due to weak economic recovery and impending risks. Potential for 25-basis-point cut to address inflation and growth concerns.

ECBs Kazaks says:

• The European Central Bank (ECB) has a “clear-cut” case for cutting interest rates at its next meeting, as the euro zone’s economy nears a tipping point
• Investors have already priced in a rate cut for the ECB’s October 17 meeting, driven by lower-than-expected inflation and growth data, and messaging from ECB officials like President Christine Lagarde.
• Kazaks, Latvia’s central bank governor, noted that economic recovery is still weak in parts of the eurozone, with wage growth moderating and profit margins shrinking.
• Kazaks agrees that the decision to cut rates in October is clear and suggests that key risks need to be addressed.
• After battling high inflation for two years, the ECB cut rates in June and September, with inflation nearing the 2% target (1.8% in September).
• Growth is also weak, particularly in the manufacturing sector in Germany.
• Kazaks warned that euro zone companies could begin shedding workers, creating a snowball effect that could further slow growth.
• Despite a potential 25-basis-point cut, Kazaks noted that the ECB’s rate on deposits, at 3.25%, would still dampen economic activity and help control inflation in the services sector.
• Kazaks indicated no immediate need for a larger rate cut, as the ECB has time to make further moves if necessary.

ECB’s Rehn: Direction of monetary policy is clear

• Remarks by ECB policymaker, Olli Rehn

• Our monetary policy stance is becoming less restrictive
• Policy direction is clear as rate cuts have already begun
• Pace and scale of rate cuts will be decided meeting by meeting
• Sees inflation stabilising at 2% target during 2025
• Slowing inflation means more reasons to justify October rate cut in my view
• Recent weakening in growth outlook also tips the scale in the direction of October
• But should closely monitor data and perform comprehensive analysis before deciding

Deutsche see ECB cutting rates in October with potential for a 50 bps move in December

• The calls for an October rate cut continue to pile in

Deutsche is the latest to revise their call and sees the ECB cutting rates in October now. However, they’re going a little further than others in factoring in the potential for a 50 bps rate cut in December. The firm says that it could be a close call if recent weaker growth and inflation trends are to continue.

In the bigger picture, they see ECB rates falling to 2% to 2.5% by the middle of 2025.

Asia-Pacific-World News

Markets in China and Hong Kong were closed today

• Stock Connect is closed, Northern- and Southbound until Tuesday October 8

US, China reportedly set to hold talks on trade and economic ties

• The talks are said to take place “in the near future” though

The report is via China’s Xinhua news agency, which says that China commerce minister Wang Wentao will be holding a call with his US counterpart some time in the near future. The call is said to involve discussing trade and economic ties, according to people familiar with the matter.

ByteDance (TikTok owner) plans new AI model trained with Huawei chips

• Shunning Nvidia chips

An interesting snippet from Reuters ICYMI:

• TikTok’s Chinese parent ByteDance plans to develop an AI model trained primarily with chips from compatriot Huawei Technologies
• ByteDance has diversified to domestic suppliers of chips used in artificial intelligence and accelerated development of its own since the U.S. in 2022 started restricting exports of advanced AI chips such as from market leader Nvidia

More at the Reuters piece here.

Australian August retail sales +0.7% m/m (expected +0.4%)

• Upside surprise for retail sales
• Retail sales in Australia bouncing in August, well above estimates
• Retail sales in August +3.1% y/y

Australian weekly consumer sentiment survey slipped marginally to 82.0 (prior 84.9)

• ANZ-Roy Morgan Australian Consumer Confidence

ANZ-Roy Morgan Australian Consumer Confidence is not generally an AUD mover.

It dribbled a little lower in the week, ANZ citing the RBA on hold decision. Inflation expectations eased 0.3ppt to 4.6%, their lowest since September 2021.

Australian final September manufacturing PMI 46.7 (prior 48.5)

• Judo Bank / S&P Global manufacturing PMI for Australia in September 2024

Judo Bank / S&P Global for September 2024

• prior 48.7
• flash was 46.7

In summary from the report:

• Manufacturing sector weakened to cyclical lows through September.
• Demand is soft, with elevated business cost pressures.
• Manufacturing PMI index at lowest since 2016, excluding the pandemic start.
• Output and new orders are significantly below the neutral level of 50.
• Sector has been in contraction for eight months, with reduced employment (index averaging 47.9).
• Input and output price pressures back to pre-pandemic averages, but margin pressures remain significant.
• Supply chain issues persist, with delivery times below pre-pandemic levels for three months.
• Business expectations for the next 12 months remain optimistic but below pre-pandemic averages.
• Challenging conditions in late 2024, influenced by weak construction activity and soft consumer markets.
• Some improvement may come from household stimulus and population growth, but overall conditions remain subdued.

New Zealand GDT price index +1.2%

• The latest dairy auction results
• Prior was +0.8%
• Whole milk prices +3.0%

New Zealand data – Q3 business confidence -1% (prior was -44%)

• NZIER QSBO

Business confidence comes in at -1% in Q3

• prior -44%

Net 5% expect a deterioration in general economic conditions over the coming months

• prior was 40% expecting deterioration

Firms’ own trading activity, net 31% reporting a decline in activity in their own business in Q3, but only net 2% are expecting weaker activity in Q4.

On inflation pressure:

• slight increase in the proportion of firms reporting higher costs in Q3
• only a net 3% of firms were able to raise prices to pass on costs (from 23% in Q2)
• “The change in firms’ price-setting behaviour was highlighted by the RBNZ as a key factor providing them the comfort that inflation was easing enough to warrant them in commencing an easing cycle in the OCR.

On the employment front:

• easing in capacity pressures
• significant proportions of firms now reporting it easy to find skilled and unskilled labour
• Many firms also reduced their staff numbers in the September quarter
• results point to increased slack in the labour market

New Zealand Treasury don’t expect activity to have picked up much in the latest quarter

• The most recent economic update from New Zealand Treasury

Treasury says that while the June quarter GDP fell, more recent evidence suggests we are at or near the bottom of the economic cycle:

• June quarter GDP fell by 0.2%, less than expected, with population growth masking economic weakness.
• With a significant amount of data due in the next fortnight, we should know more about where we are at in the cycle.

Other points:

• Consumer and business expectations are improving, indicating a potential economic bottoming.
• The current account deficit remained high at 6.7% of GDP due to slow recovery in service exports and strong import volumes.
• OECD forecasts stable global growth, with easing inflation and supportive policies in China and the U.S.
• U.S. and China implemented policy easing to support their economies

BNZ forecast a 50bp interest rate cut from Reserve Bank of New Zealand next week

• Reserve Bank of New Zealand meeting is October 9

BNZ:

• BNZ forecast a 50bp interest rate cut from Reserve Bank of New Zealand next week
• QSBO just awful
• CPI headed sub 2.0%
• Soft labour market to subdue non-tradables
• Rate settings need to move quickly towards neutral
• 50 basis point cut at October meeting warranted

“In our opinion, we think the disinflationary information that we have received will dominate and that this will, ultimately, encourage the RBNZ to accelerate the easing process.”

BNZ also outline the arguments against a 50bp rate cut:

• the strength in the ANZ survey
• the fact that Q2 GDP surprised to the upside with activity levels now 0.2% higher than anticipated and private consumption 1.3% above expectations
• ongoing elevation in non-tradables inflation
• an increase in confidence in the housing market
• concern that an acceleration might be criticised by some as another RBNZ change in view
• concern that current market pricing for future rate cuts is overdone

New Japan PM Ishiba: Japan on the cusp of making complete exit from deflation

• Comments from Ishiba

• Will consider delivering payouts to low-income households hit by rising living costs
• Will carry over, steadily push through growth strategy of former PM Kishida to achieve growth driven by higher wages, investment
• Will pursue fiscal policy that puts highest priority on ending deflation
• I hope BOJ maintains easy monetary policy as a trend

Japan top FX diplomat says yen shorts that had been built up until July have been unwound

• Remarks by Japan top FX diplomat, Atsushi Mimura

• It is desirable for currencies to move in stable manner, reflecting fundamentals
• No comment on current FX moves
• Hopes that FX will reflect changing phase of Japan economy as it moves out of deflation
• Will respond appropriately if needed

Japan Jibun Bank September Manufacturing PMI (final): 49.7 (prior was 49.8)

• Japan S&P Global / Jibun Bank final manufacturing PMI for September 2024

Manufacturing PMI from Japan for September 2024, the final from S&P Global / Jibun Bank.

The key points in the report:

• Output levels fall for second time in three months
• Slowest rise in employment levels in current seven month sequence
• Output charge inflation reaches lowest since June 2021

Bank of Japan September meeting ‘Summary of opinions’

• the September meeting was a bit of a placeholder until a further rate rise, expected later this year

In brief, the main points from the meeting:

• Japan’s economy has been recovering moderately, with steady price rises.
• Economic activity and prices are generally on track, with moderate growth expected.
• Concerns exist regarding the impact of U.S. economic uncertainties on Japan, including exchange rates and corporate profits.
• The Bank will maintain its current accommodative stance but will adjust if economic conditions improve.
• There are no immediate plans for further rate hikes, emphasizing stability and careful communication.

Bank of Japan tankan report shows firms expect 2.4% inflation a year from how

The Bank of Japan polls firms as part of its quarterly Tankan survey.

The Price Expectations survey shows:

• Japan firms expect CPI to rise 2.4% a year from now, the same rate as the survey 3 months ago.
• expect consumer prices to rise an annual 2.3% three years from now and an annual 2.2% five years from now

Japan August unemployment rate 2.5% vs. 2.6% expected

• Japan labour market news
• The unemployment rate in Japan remains low.

Japanese PM Ishida a positive for yen says Abrdn

• Abrdn is an Asset Management firm.
• We see prime minister Ishiba’s appointment as a positive.
• Endorsement of the Bank of Japan’s (BoJ) policy normalisation is a key benefit for markets, in addition to a pro competition and reduced fiscal stance.
• “Together, this should support the yen and enable a continued modest shift higher in front end JGB yields.
• As ever, political support remains the risk, and we are mindful of the significant effort required to regain the public’s trust following the slump in LDP approval under prime minister Kishida.

Cryptocurrency News

Ethereum Faces Over 4% Decline Amid Rising Middle East Tensions

Ethereum is experiencing a significant downturn, dropping over 4% as escalating geopolitical tensions in the Middle East raise caution among investors. The cryptocurrency has fallen below the crucial $2,595 support level, with analysts warning that it could plummet to $2,207 if bearish sentiment continues.

Key Market Movers

• Geopolitical Impact: The market reacted sharply to reports of Iran’s missile attack on Israel, prompting fears of further retaliation and leading investors to adopt a more risk-averse posture.
• Exchange Reserves Surge: Ethereum exchange reserves have increased by over 144K ETH in the past 24 hours, indicating heightened selling pressure and potential for further price declines.

ETF Dynamics

• Mixed Flows: Ethereum ETFs recorded a net outflow of $0.8 million on Monday, with Grayscale’s ETHE seeing significant negative flows that outweighed BlackRock ETHA’s inflow of $11 million. In contrast, Bitcoin ETFs enjoyed a robust net inflow of $61.3 million.
• Investment Narrative Challenges: A BlackRock executive highlighted that the narrative around Ethereum investments remains complex for traditional investors, which may hinder ETF performance compared to Bitcoin.

As the situation unfolds, investors will be closely monitoring both geopolitical developments and market trends for potential impacts on Ethereum and the broader crypto landscape.

Breaking: XRP ETF Potential on the Horizon Following Bitwise Filing

The US is poised to welcome an XRP ETF, thanks to a recent filing by asset manager Bitwise with the Delaware Division of Corporations. This filing indicates that Bitwise has established a trust as a preliminary step toward submitting an XRP ETF proposal to the Securities and Exchange Commission (SEC).

Key Developments

• Bitwise Filing: The company’s filing marks a significant move in the ongoing evolution of crypto ETFs in the US.
• Legal Context: This development follows the conclusion of the SEC’s case against Ripple in August, where the judge reduced Ripple’s penalty from a proposed $2 billion to $125 million and affirmed that XRP sales on public exchanges do not constitute securities law violations.

With the legal barriers lifted, the landscape for launching crypto ETFs is becoming increasingly favorable, and asset managers are now setting their sights on XRP as a promising candidate for new investment opportunities.

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