After three straight days of selling, US equity futures are higher with tech stocks leading gains as Tesla surged 13% in premarket trading after it posted its biggest quarterly profit in more than a year. Contracts on the S&P 500 rose 0.5% as of 8:00 a.m. in New York, while futures on the Nasdaq 100 advanced 0.8%, setting up the tech index to rebound from its sharpest decline in almost seven weeks as traders look ahead to earnings from the rest of the “Magnificent Seven,” kicked off by Tesla’s strong performance. The benchmark has yet to fully claw back a summer slump. Overnight, NVDA supplier SK Hynix posted record profit amid strong AI demand; BA fell 2.7% as its bid to end strikes fails while IBM slumped after the it posted underwhelming revenue in the third quarter. Bond yields are lower and the USD is weaker; 2-, 5-, 10-year yields are 3bp, 5bp, 5bp lower. Commodities, including oil, metals and Ags, are mostly higher: Oil +1.9%, Silver +1.8%, Aluminum +1.8% but Palladium is the standout, surging 10% on news the US may impose sanctions on Russian palladium exports (the country produces 38% of global palladium). The main data highlight will be the October flash PMIs from around the world. In the US, we’ll also get the weekly initial jobless claims, along with new home sales for September.
In premarket trading, Tesla soared 13%, its biggest post-earnings jump since Q3 2019, after the EV maker reported its biggest quarterly profit in over a year and issued upbeat 2025 targets. IBM slumped 4% after reporting underwhelming revenue in the third quarter. Weakness in the company’s consulting and infrastructure businesses weighed on the results. Boeing slipped 3% as factory workers rejected a new labor contract that would have increased their wages by 35% over four years. NVDA supplier SK Hynix posted record profit amid strong AI demand; NVDA +1.0%. BA fell 2.7% as its bid to end strikes fails. Here are some other notable premarket movers:
- Harley-Davidson (HOG) drops 2% as motorcycle shipments fell in the latest quarter on lower overall demand and fewer sales of its highest-margin bikes.
- Honeywell (HON) falls 3% after the industrial conglomerate lowered its revenue outlook for the year.
- Lam Research (LRCX) rises 6% after the semiconductor equipment maker reported better-than-expected 1Q results. Investors will welcome this report after ASML’s weak report, analysts said.
- Newmont shares (NEM) drops 5% after the gold miner reported 3Q profit that missed amid higher costs.
- Seadrill (SDRL) surges 10% after Bloomberg reported the offshore drilling contractor is in talks to merge with rival Transocean, citing people familiar with the matter.
- T-Mobile (TMUS) advances 2% after reporting more monthly mobile-phone and broadband subscribers that analysts expected.
- United Parcel Service (UPS) jumps 7% after the company returned to sales and profit growth for the first time in nearly two years
Today's market gains mark a resumption of the rally that took the S&P 500 to its 47th record high last week. Traders are bracing for more results from US tech giants, a turbulent US presidential race and the Federal Reserve’s next rate decision. With Alphabet, Amazon.com and Meta reporting next week “I would be hesitant to say we are through this earnings season,” said Colin Graham, head of multi-asset strategies at Robeco. “Earnings expectations have been downgraded more this quarter than in previous quarters and the bar to beat them was really low this time.”
Investors also have a flurry of US economic data to parse Thursday for clues on the Federal Reserves’s next move on interest rates. The latest snapshot of the health of the labor market is likely to get the most attention.
“If today’s initial jobless claims come in much below consensus forecasts of 242,000, that could send a further signal to rate setters not to overdo it on the loosening front,” said Derren Nathan, head of equity research at Hargreaves Lansdown
European stocks rise as good earnings reports from a range of companies boost the market after three days of declines. Retail stocks are the only sector in the red. The travel and leisure sub-sector is the strongest performer, boosted by Evolution which rallied after in-line results lay investor concerns to rest after a major strike. Miners and personal-care stocks also outperform.
Stoxx 600 rises 0.6% to 521.73 with 159 members down, 430 up, and 11 little changed. The purchasing managers’ numbers did little to ease fears that the region’s economy is slipping back into stagnation and the probability of a half-point rate reduction by the European Central Bank in December is now a coin toss. Here are the biggest European movers:
- Hermes shares rise as much as 3.4% after the French maker of high-end goods saw its sales beat estimates, signaling that companies catering to wealthy clients are weathering a luxury slowdown.
- Unilever shares gain as much as 3.1% after the consumer-goods company reported third-quarter underlying sales growth that came ahead of consensus estimates.
- Evolution shares gain as much as 14%, the biggest jump since April 2021, after the gaming firm delivered in-line results in the third quarter, offering relief in the wake of a major strike.
- Danone shares advance as much as 2.6% after the French yogurt maker reported third-quarter like-for-like sales growth that beat consensus expectations.
- Barclays shares jump as much as 4.3% to a 9-year high after it reported a surprise increase in 3Q fixed-income trading and total income that beat estimates, while upgrading guidance for UK NII.
- Orange shares rise as much as 2.3% after the French telecom operator reported revenue that beat expectations in its home market, easing concerns about rising competition.
- Dassault Systemes shares slip as much as 3.2% after the software firm delivered results for the third quarter which came in toward the bottom end of the guided range.
- Michelin shares drop as much as 8.1%, the most since March 2022, after the French tiremaker lowered its full-year segment operating income target, although lifted guidance for free cash flow.
- Kone shares fall as much as 3.9% after the Finnish elevator firm’s 3Q earnings arrived “mixed,” with Jefferies noting weaker demand in China and soft pricing key negatives in the report.
- SEB shares decline as much as 5.6% after missing expectations on the key net interest income (NII) metric, a disappointment following strong prints from its Nordic peers earlier, according to analysts.
- Edenred shares slide as much as 18%, the most on record, after the French payment-service provider said it faces a hit on Ebitda should a proposal to cap commisions in Italy go ahead.
- Hemnet shares slump as much as 14%, the most since August 2022, after the Swedish real estate listings platform saw results come in below analyst expectations in the third quarter.
Earlier in the session, Asian equities headed for a fourth day of declines, dragged down by Chinese stocks. Technology shares slid following few key earnings reports. The MSCI Asia Pacific Index fell 0.2% to its lowest level in a month after swinging between gains and losses earlier in the day. Benchmark heavyweight TSMC erased gains while Alibaba and Tencent declined. Korean memory maker SK Hynix advanced after posting record quarterly profit, while Asian EV stocks were mixed after strong results from Tesla. Key gauges in Hong Kong and China were the region’s worst performers, resuming this month’s losses after September’s big gains. Traders continue to assess Beijing’s commitment to delivering stimulus, with few details so far on its plans to boost the economy and markets.
In FX, Bloomberg gauge of the dollar fell alongside Treasury yields, paring gains seen over the previous three sessions, ahead of claims and PMI releases. The euro edged higher after a slate of mixed PMI figures. The yen outperforms most G-10 peers, rising 0.6% against the greenback after the finance minister warned he is raising the level of urgency for monitoring currency moves.
- EUR/USD rises 0.1% to 1.0796; common currency higher for first day in four
- USD/JPY down 0.5% to 151.97 after Finance Minister Katsunobu Kato warned over “one-sided, rapid moves” in FX after a G-20 meeting in Washington
- GBP/USD rises 0.4% to 1.2977, just above pair’s 100-DMA at 1.2966; Gilt yields rise on report Chancellor Rachel Reeves will give herself an extra £53 billion of borrowing headroom in next week’s budget
In bonds, treasuries hold gains in early US session, paring losses that pushed yields for several tenors to multimonth highs Wednesday. US yields are richer by 3bp-6bp across the curve led by long end, leaving 2s10s spread ~2bp flatter on the day; 10-year, down 5bp at 4.19% near session low, outperforms UK 10-year by 8bp. European government bonds climbed on rate-cut expectations as data showed a downtrend in private-sector activity extended into a second month. German 10-year yields fall 3 bps to 2.27%. Most euro-zone yields also are lower while UK bonds fall after reports Chancellor Rachel Reeves will look to significantly increase borrowing in next week’s budget. UK 10-year yields rise 4 bps to 4.24%; gilts failed to match a rally in their US and European peers following reports Chancellor Rachel Reeves will be looking to significantly increase her ability to borrow in next week’s budget. Bunds extended gains after weak French PMI data as traders increased bets on a 50 bps interest-rate cut by the ECB in December. US session includes weekly jobless claims and S&P Global PMIs, following mixed European PMI readings.
In commodities, oil prices rebounded with WTI rising 1.9% to $72 a barrel as traders continued to await a retaliatory Israeli strike on Iran.. Spot gold rises $22 to around $2,737/oz.
Looking ahead, US economic data calendar includes September Chicago Fed national activity index and weekly initial jobless claims (8:30am), October preliminary S&P Global US manufacturing and services PMIs (9:45am), September new home sales (10am) and October Kansas City Fed manufacturing activity (11am). Fed speaker slate includes Cleveland Fed’s Hammack at 8:45am
Market Snapshot
- S&P 500 futures up 0.5% to 5,865.25
- STOXX Europe 600 up 0.7% to 522.34
- MXAP down 0.2% to 186.97
- MXAPJ down 0.6% to 599.84
- Nikkei up 0.1% to 38,143.29
- Topix little changed at 2,635.57
- Hang Seng Index down 1.3% to 20,489.62
- Shanghai Composite down 0.7% to 3,280.26
- Sensex little changed at 80,013.97
- Australia S&P/ASX 200 down 0.1% to 8,206.26
- Kospi down 0.7% to 2,581.03
- German 10Y yield down 3 bps at 2.27%
- Euro up 0.1% to $1.0798
- Brent Futures up 1.5% to $76.08/bbl
- Gold spot up 0.8% to $2,736.77
- US Dollar Index down 0.22% to 104.20
Top Overnight News
- Japan’s Finance Minister Katsunobu Kato said he is raising the level of urgency for monitoring currency moves, after the yen hit an almost three-month low against the dollar. BBG
- China is pressuring automakers to pause EU expansion plans due to its escalating EV tariff spat with Brussels, people familiar said. That’s already led to Dongfeng halting potential plans to make cars in Italy. BBG
- Eurozone flash PMIs are mixed for Oct, with a shortfall on Services (51.2 vs. the Street 51.5 and down from 51.4 in Sept) and modest beat on Manufacturing (45.9 vs. the Street 45.1 and up from 45 in Sept). RTRS
- Barclays shares climb in European trading after the company reported solid Q3 results, w/upside on pre-tax income (GBP2.2B vs. the Street ~GBP2B), and the company raised its full-year NII guide. RTRS
- BOE Governor Bailey says UK inflation is cooling faster than expected, although he warned that services inflation still needs to come down. FT
- Global bond sales will climb 17% this year to about $9 trillion after robust third quarter activity, S&P Global said, as it raised its previous estimate. Issuance may moderate to a 4% gain next year. BBG
- Trump takes a 2-point lead over Harris in a new WSJ national poll (47-45%), a shift from the last survey in Aug which had Harris up 2 points. WSJ
- Tesla shares jumped on its blowout results, buoyed by a profit-turning Cybertruck, and Elon Musk’s promise of 20% to 30% delivery growth next year. Uber and Lyft stock fell on Musk’s aim to roll out ridesharing in Texas and California in 2025. BBG
- Boeing’s largest union rejected a new labor deal Wednesday, extending a six-week strike that has plunged the jet maker into increasing financial peril. Members of the machinist union voted 64% against a proposed contact that would have delivered a 35% wage increase over four years, union leaders said. WSJ
A more detailed look at global markets courtesy of Newsquawk
APAC stocks traded somewhat cautiously following the losses stateside where the major indices declined as participants digested earnings releases and negative stock-specific updates, while yields also continued to edge higher. ASX 200 initially retreated following a further deterioration in manufacturing PMI data but then gradually clawed back opening losses with the recovery spearheaded by resilience in defensives and tech. Nikkei 225 traded indecisively as participants reflected on recent currency moves and Japanese PMI data contracted. Hang Seng and Shanghai Comp were pressured amid weakness in the tech and property sectors with the latter industry not helped after Moody’s noted that several developers are to feel earnings pain, while macro newsflow remained quiet and a continuation of the firm liquidity efforts by the PBoC also failed to inspire a turnaround.
Top Asian News
- Japanese Finance Minister Kato said no comment on FX levels and intervention but noted it is desirable for currencies to move stably reflecting economic fundamentals and is closely watching FX moves with a sense of urgency, while he added that one-sided, rapid FX moves were recently seen in the FX market.
- BoJ Financial System Report: "Japanese banks have sufficient capital bases and stable funding bases to withstand stress similar to the global financial crisis..."
European bourses, Stoxx 600 (+0.7%) began the session very modestly in positive territory, and sentiment has continued to improve as the morning progressed; as it stands, indices generally reside at session highs. The complex was generally unreactive to the French/German/EZ. European sectors hold a strong positive bias; Travel & Leisure tops the pile, lifted by post-earnings gains in Evolution (+12.8%) and Sodexo (+4.5%). Autos were initially towards the middle of the pile, but moved up the gears amid Bloomberg reports that China is pressuring automakers to pause expansion in the EU due to the escalating trade conflict. US Equity Futures (ES +0.5% NQ +0.5% RTY +0.5%) are broadly on a firmer footing, in tandem with strength seen across European indices, and in an attempt to reclaim some of the pressure seen in prior session. Notable European earnings: Kering (+2%, rev. miss & guidance cut), Hermes (+1.9%, Sales beat), Barclays (+3.8%, strong results), Unilever (+3.9%, Sales beat).
Top European News
- ECB's Holzmann said a quarter-point rate cut is probable in December and they are unlikely to have a 50bps cut in December but such a move is possible, while another option is a hold due to the October move, according to Bloomberg.
- ECB's Vasle says no urgency in talking about undershooting inflation target and cutting rates below neutral; should keep cutting rated in "measured" increments.
FX
- USD is softer vs. peers with the recent rally in DXY pausing for breath. Fresh macro drivers for the US have been on the light side, but will pick-up in the form of jobless claims and PMIs, later today. DXY remains on a 104 handle and within Wednesday's 104.09-104.57 range.
- EUR is firmer vs. the USD but to a lesser extent than peers in the wake of this morning's PMI data. EUR/USD was nudged lower in early trade following soft French PMI metrics; thereafter, the pair was granted some reprieve following slightly more encouraging German figures before the final EZ release printed mixed but underscored the complex growth picture for the region. EUR/USD currently sits around 1.08.
- GBP was top of the G10 leaderboard early doors following a Reeves-induced jump in UK yields before upside for the pound was tempered by a softer outturn for UK PMI data. Cable is currently contained within yesterday's 1.2908-95 range and below its 100DMA at 1.2964.
- JPY is clawing back some ground vs. the USD in an attempt to reverse the recent trend which saw USD/JPY print a fresh multi-month peak at 153.18 yesterday. By way of comparison, yesterday's low is still some way of at 150.97. Japanese Finance Minister Kato attempted to jawbone the currency overnight.
- Antipodeans are both firmer vs. the USD as markets trade in a more pro-risk environment. AUD/USD has managed to move back above its 200DMA at 0.6628; NZD/USD is currently tucked within yesterday's 0.5991-0.6053 range.
- PBoC set USD/CNY mid-point at 7.1286 vs exp. 7.1284 (prev. 7.1245).
Fixed Income
- Bunds are on a firmer footing and were heading higher into the French PMI metrics, which were weak and sparked some modest upside to a 133.27 peak. Thereafter, a strong (relatively speaking) set of data from Germany saw EGBs essentially pare this move to current levels of around 133.11. EZ PMIs were mixed and ultimately had little impact on price action.
- Gilts gapped lower by 41 ticks and then extended lower by another 14 to a 95.70 base. Pressure which came on the back of a Guardian report that Chancellor Reeves will today confirm she will change the figure underpinning the existing fiscal rule to a broader measure, something she is expected to announce to the IMF later today. UK Flash PMIs were soft across the board with the outlook tepid and weighed on by numerous points of uncertainty; metrics which lifted Gilts modestly into the green, to a short-lived 96.31 peak. As it stands, Gilts are currently trading around 96.09.
- USTs are firmer and pulled around alongside the above Flash PMIs ahead of its own release and weekly jobs data. Holding towards the 111-12 session high with the curve modestly flatter though with action across it a touch mixed at points as the belly finds itself the marginal laggard from a yield perspective.
Commodities
- Crude is on a firmer footing, initially catching a bid following unconfirmed reports which indicated a fire in proximity to a Iranian nuclear facility in Karaj; this move ultimately proved fleeting given the lack of details. Soon after, upside returned alongside a pickup in broader sentiment with Brent Dec currently near highs at around USD 76.34/bbl.
- Spot gold is firmer, bolstered by the softer USD and yield environment in the US and EZ. At a USD 2737/oz peak, which is the lowest daily-high for the week thus far.
- Base metals are generally in positive territory, given the encouraging risk tone which has emerged despite a cautious APAC handover.
- Iraq's Kerbala (140,000bpd) refinery to operate at around 50% capacity in the coming days.
Geopolitics
- "An Iranian opposition organisation reports a fire at the nuclear power plant in the city of Kharaj; There are no reports from official Iranian media", via N12 News. Note, original N12 report on X has since been deleted.
- Israel Broadcasting Corporation announced IDF's readiness to respond to the Iranian missile attack. Thereafter, Israeli Broadcasting Authority, via Sky News Arabia, reports "Israel on the verge of launching an attack on Iran despite US pressure"
- Explosions were heard in Syria's capital Damascus as a result of Israeli aggression, according to Syrian state TV.
- Iraqi armed factions loyal to Iran announced the targeting of a vital target in the Golan with drones.
- Pentagon said US Secretary of Defense Austin expressed concern in a call with his Israeli counterpart about reports of strikes against the Lebanese army, according to Sky News Arabia.
- Turkey hit PKK targets in Northern Iraq and Syria after a deadly attack in Ankara, according to Turkish security sources.
- US President Biden said the US is announcing today that it will provide USD 20bln in loans to Ukraine.
- US asked G7 to consider sanctions on Russian palladium and titanium, according to Bloomberg.
US Event Calendar
- 08:30: Oct. Initial Jobless Claims, est. 242,000, prior 241,000
- Continuing Claims, est. 1.88m, prior 1.87m
- 08:30: Sept. Chicago Fed Nat Activity Index, est. 0.50, prior 0.12
- 09:45: Oct. S&P Global US Manufacturing PM, est. 47.5, prior 47.3
- Oct. S&P Global US Services PMI, est. 55.0, prior 55.2
- Oct. S&P Global US Composite PMI, est. 53.8, prior 54.0
- 10:00: Sept. New Home Sales, est. 720,000, prior 716,000
- Sept. New Home Sales MoM, est. 0.6%, prior -4.7%
- 11:00: Oct. Kansas City Fed Manf. Activity, est. -7, prior -8
DB's Jim Reid concludes the overnight wrap
What started out as a one off vague curiosity 3 years ago has now seemingly become a permanent October half-term long weekend fixture, without me necessarily agreeing to it. Yes, we're off to Center Parcs tomorrow and my wife has signed me up to do Kayaking and a high zipwire across a lake amongst many other things that aren't golf. Happy days!
Markets continued to slide down the wire yesterday, with bonds and equities both losing ground for a third day running. Maybe the long awaited close election sell-off is arriving, albeit after 6 successive weeks of rallying. Binky Chadha and Parag Thatte have talked about it in their recent piece here. Basically the vol premium for the day after the election is currently moving progressively higher in the same way it did ahead of close elections in 2016 and 2020. In both these years it got ever higher as the election day approached as investors basically bought protection, thus putting downward pressure on the cash market. In 2016 and 2020, once the event passed and life moved on that protection either rolled off or was in the money, leading to buying of the market and starting the post-election rally. The irony is that at the moment, the election looks close, but if the current polling and prediction markets momentum around Trump continues its possible that the pre-election trends of 2016 and 2020 won’t reoccur as it will appear less close. But for now it’s starting to move to the 2016/2020 script. See Binky and Parag’s piece for more about the equity market as we head into the election and into year-end.
Against that pre-election backdrop, the S&P 500 (-0.92%) was down for a third consecutive day. It did partially recover after trading down -1.5% a couple of hours before the close, but this still marks its worst 3-day run since early September (-1.15%). The reversal was led by a sharp loss for the Magnificent 7 (-2.15%), with Nvidia (-2.81%), Amazon (-2.63%) and Meta (-3.15%) all seeing sizeable declines.
After the close however, the mood turned a bit more positive as Tesla delivered a strong set of Q3 results. The automaker is now projecting a slight increase in deliveries for the current year, despite the earlier slump in the first half of the year, and with CEO Elon Musk forecasting a 20-30% growth in vehicle deliveries in 2025. Tesla’s share price jumped by 12% in post-market trading after sliding by -1.98% during the regular session yesterday. If that rise materialises today, it would largely erase Tesla’s -14% YTD decline. In turn, that’s helped to lift US equity futures this morning, with those on the S&P 500 (+0.19%) and the NASDAQ 100 (+0.48%) both pointing higher.
With just 12 days until the US election, yesterday also saw “Trump trades” continue to outperform. That comes as forecast models and prediction markets have continued to move in Trump’s direction, with the RealClearPolitics average of betting markets now giving him a 59% chance of victory. In terms of market moves, that saw Trump Media & Technology Group (+4.42%) reach a three-month high, whilst the recent rise in Treasury yields has also been connected to a growing probability of a Trump victory. Conversely, solar energy firms continued to lose ground given the perception they’d do better under a Democratic administration, including losses for First Solar (-4.46%) and SolarEdge Technologies (-14.99%).
Earlier in Europe, equities posted modest declines, with the STOXX 600 (-0.30%) losing ground for a third consecutive day, alongside losses for the DAX (-0.23%) and the CAC 40 (-0.50%).
The US sell-off yesterday was probably also influenced by investors dialling back the likelihood of aggressive rate cuts from the Fed. In fact, by the close yesterday, futures were pricing in the most hawkish rate path since the market turmoil back in the summer. So with fewer rate cuts priced in, and post-election fiscal concerns edging up, US Treasury yields continued to move higher yesterday, and the 10yr yield was up +3.8bps to 4.25%. That’s its highest level in almost three months, and marks a decent comeback from its intraday low of 3.60% back on September 17. Yesterday’s move wasn’t helped by a soft 20yr Treasury auction that saw bonds issued 1.6bp above the when-issued yield, their largest tail since May.
In terms of that rate path for the Fed, the rate priced in by the Fed’s December 2025 meeting was up another +6.3bps yesterday to 3.49%, meaning that it’s now up by more than 70bps from its recent low on September 16th. Or in other words, investors have gone from expecting 256bps of rate cuts by the end of next year (including the 50bps last month), to just 183bps by the close yesterday.
It was a different story in Europe however, as speculation mounted about the ECB delivering a larger 50bp rate cut. That was supported by comments from several officials, and ECB President Lagarde said they were “rather satisfied” with how inflation has moved lower. In the meantime, Portugal’s Centeno said that “50 basis points can be on the table”, whilst Bundesbank President Nagel said that “we keep our flexibility in every direction”. Later on, we heard Italy’s Panetta comment that “I would not take for granted, given the weakness of the economy, that we have to stop at the neutral rate”, echoing the tone of a Reuters report early in the day that some ECB policymakers have begun to debate whether rates will have to go below neutral. So that backdrop meant that yields on 10yr bunds (-1.3bps), OATs (-2.4bps) and BTPs (-4.2bps) all fell back, in contrast to the moves among US Treasuries.
That speculation about a 50bp rate cut then got a further boost from the Bank of Canada, who delivered their first 50bp cut of this cycle, taking their policy rate down to 3.75%. In the press conference, Governor Macklem said that their focus was “to maintain low, stable inflation. We need to stick the landing.” Moreover, he said that they “anticipate cutting our policy rate further to support demand and keep inflation on target”. So with the Fed and the Bank of Canada having now cut by 50bps at their recent meetings, that contributed to speculation that the ECB could soon follow as well.
Elsewhere, the mixture of US rates underperformance and the broader risk-off tone saw the dollar index (+0.34%) advance to its highest level since the start of August. It’s now risen for 15 of the past 18 sessions, with the euro falling to its weakest against the dollar since early July. The risk-off tone wasn’t helped by the Fed’s Beige Book either, which painted a more cautious picture on the US economy, suggesting that “...economic activity was little changed in nearly all Districts”.
Events in the Middle East continue to lurk in the background, particularly in terms of how Israel might retaliate against Iran’s missile strikes earlier this month. So far there’s still no news on that, and Brent crude oil prices (-1.42%) fell back to $74.96/bbl yesterday, while WTI (-1.83% to $70.77/bbl) posted a larger decline as EIA data showed a larger than expected increase in US crude inventories. However, that’s mostly reversed overnight, with Brent crude oil prices up +1.13% this morning to $75.81/bbl. Separately, gold prices (-1.22%) also came off their record high on Tuesday as US real yields continued to move higher and concerns about inflation slipped back slightly.
Overnight in Asia, the major equity indices are trading lower this morning, which comes against the backdrop of weaker economic data overnight. For instance, we’re starting to get the October flash PMIs now, and Japan’s composite PMI was down to 49.4, which is the weakest reading since November 2022. Moreover, both the manufacturing (49.0) and services (49.3) prints were also beneath the 50 mark that separates expansion from contraction. Meanwhile in South Korea, Q3 GDP growth came in softer-than-expected, at just +0.1% (vs. +0.4% expected), after contracting by -0.2% in Q2.
With that in mind, equities are struggling in Asia this morning, with the Hang Seng (-0.99%) as the biggest underperformer overnight. That’s been echoed elsewhere, with losses for the CSI 300 (-0.80%), the Shanghai Comp (-0.50%), the KOSPI (-0.37%) and the Nikkei (-0.11%). Australia is the one exception however, as the S&P/ASX 200 (+0.02%) has just about managed to post a modest gain.
There wasn’t too much data yesterday, although US existing home sales slowed to an annualised rate of 3.84m in September (vs. 3.88m expected), which is their lowest level since October 2010. In the meantime, the European Commission’s consumer confidence reading for the Euro Area ticked up to -12.5 in October, which is its highest level since February 2022.
To the day ahead now, and the main data highlight will be the October flash PMIs from around the world. In the US, we’ll also get the weekly initial jobless claims, along with new home sales for September. From central banks, we’ll hear from BoE Governor Bailey, the BoE’s Mann, the ECB’s Kazaks and Lane, and the Fed’s Hammack.
After three straight days of selling, US equity futures are higher with tech stocks leading gains as Tesla surged 13% in premarket trading after it posted its biggest quarterly profit in more than a year. Contracts on the S&P 500 rose 0.5% as of 8:00 a.m. in New York, while futures on the Nasdaq 100 advanced 0.8%, setting up the tech index to rebound from its sharpest decline in almost seven weeks as traders look ahead to earnings from the rest of the “Magnificent Seven,” kicked off by Tesla’s strong performance. The benchmark has yet to fully claw back a summer slump. Overnight, NVDA supplier SK Hynix posted record profit amid strong AI demand; BA fell 2.7% as its bid to end strikes fails while IBM slumped after the it posted underwhelming revenue in the third quarter. Bond yields are lower and the USD is weaker; 2-, 5-, 10-year yields are 3bp, 5bp, 5bp lower. Commodities, including oil, metals and Ags, are mostly higher: Oil +1.9%, Silver +1.8%, Aluminum +1.8% but Palladium is the standout, surging 10% on news the US may impose sanctions on Russian palladium exports (the country produces 38% of global palladium). The main data highlight will be the October flash PMIs from around the world. In the US, we’ll also get the weekly initial jobless claims, along with new home sales for September.
In premarket trading, Tesla soared 13%, its biggest post-earnings jump since Q3 2019, after the EV maker reported its biggest quarterly profit in over a year and issued upbeat 2025 targets. IBM slumped 4% after reporting underwhelming revenue in the third quarter. Weakness in the company’s consulting and infrastructure businesses weighed on the results. Boeing slipped 3% as factory workers rejected a new labor contract that would have increased their wages by 35% over four years. NVDA supplier SK Hynix posted record profit amid strong AI demand; NVDA +1.0%. BA fell 2.7% as its bid to end strikes fails. Here are some other notable premarket movers:
- Harley-Davidson (HOG) drops 2% as motorcycle shipments fell in the latest quarter on lower overall demand and fewer sales of its highest-margin bikes.
- Honeywell (HON) falls 3% after the industrial conglomerate lowered its revenue outlook for the year.
- Lam Research (LRCX) rises 6% after the semiconductor equipment maker reported better-than-expected 1Q results. Investors will welcome this report after ASML’s weak report, analysts said.
- Newmont shares (NEM) drops 5% after the gold miner reported 3Q profit that missed amid higher costs.
- Seadrill (SDRL) surges 10% after Bloomberg reported the offshore drilling contractor is in talks to merge with rival Transocean, citing people familiar with the matter.
- T-Mobile (TMUS) advances 2% after reporting more monthly mobile-phone and broadband subscribers that analysts expected.
- United Parcel Service (UPS) jumps 7% after the company returned to sales and profit growth for the first time in nearly two years
Today's market gains mark a resumption of the rally that took the S&P 500 to its 47th record high last week. Traders are bracing for more results from US tech giants, a turbulent US presidential race and the Federal Reserve’s next rate decision. With Alphabet, Amazon.com and Meta reporting next week “I would be hesitant to say we are through this earnings season,” said Colin Graham, head of multi-asset strategies at Robeco. “Earnings expectations have been downgraded more this quarter than in previous quarters and the bar to beat them was really low this time.”
Investors also have a flurry of US economic data to parse Thursday for clues on the Federal Reserves’s next move on interest rates. The latest snapshot of the health of the labor market is likely to get the most attention.
“If today’s initial jobless claims come in much below consensus forecasts of 242,000, that could send a further signal to rate setters not to overdo it on the loosening front,” said Derren Nathan, head of equity research at Hargreaves Lansdown
European stocks rise as good earnings reports from a range of companies boost the market after three days of declines. Retail stocks are the only sector in the red. The travel and leisure sub-sector is the strongest performer, boosted by Evolution which rallied after in-line results lay investor concerns to rest after a major strike. Miners and personal-care stocks also outperform.
Stoxx 600 rises 0.6% to 521.73 with 159 members down, 430 up, and 11 little changed. The purchasing managers’ numbers did little to ease fears that the region’s economy is slipping back into stagnation and the probability of a half-point rate reduction by the European Central Bank in December is now a coin toss. Here are the biggest European movers:
- Hermes shares rise as much as 3.4% after the French maker of high-end goods saw its sales beat estimates, signaling that companies catering to wealthy clients are weathering a luxury slowdown.
- Unilever shares gain as much as 3.1% after the consumer-goods company reported third-quarter underlying sales growth that came ahead of consensus estimates.
- Evolution shares gain as much as 14%, the biggest jump since April 2021, after the gaming firm delivered in-line results in the third quarter, offering relief in the wake of a major strike.
- Danone shares advance as much as 2.6% after the French yogurt maker reported third-quarter like-for-like sales growth that beat consensus expectations.
- Barclays shares jump as much as 4.3% to a 9-year high after it reported a surprise increase in 3Q fixed-income trading and total income that beat estimates, while upgrading guidance for UK NII.
- Orange shares rise as much as 2.3% after the French telecom operator reported revenue that beat expectations in its home market, easing concerns about rising competition.
- Dassault Systemes shares slip as much as 3.2% after the software firm delivered results for the third quarter which came in toward the bottom end of the guided range.
- Michelin shares drop as much as 8.1%, the most since March 2022, after the French tiremaker lowered its full-year segment operating income target, although lifted guidance for free cash flow.
- Kone shares fall as much as 3.9% after the Finnish elevator firm’s 3Q earnings arrived “mixed,” with Jefferies noting weaker demand in China and soft pricing key negatives in the report.
- SEB shares decline as much as 5.6% after missing expectations on the key net interest income (NII) metric, a disappointment following strong prints from its Nordic peers earlier, according to analysts.
- Edenred shares slide as much as 18%, the most on record, after the French payment-service provider said it faces a hit on Ebitda should a proposal to cap commisions in Italy go ahead.
- Hemnet shares slump as much as 14%, the most since August 2022, after the Swedish real estate listings platform saw results come in below analyst expectations in the third quarter.
Earlier in the session, Asian equities headed for a fourth day of declines, dragged down by Chinese stocks. Technology shares slid following few key earnings reports. The MSCI Asia Pacific Index fell 0.2% to its lowest level in a month after swinging between gains and losses earlier in the day. Benchmark heavyweight TSMC erased gains while Alibaba and Tencent declined. Korean memory maker SK Hynix advanced after posting record quarterly profit, while Asian EV stocks were mixed after strong results from Tesla. Key gauges in Hong Kong and China were the region’s worst performers, resuming this month’s losses after September’s big gains. Traders continue to assess Beijing’s commitment to delivering stimulus, with few details so far on its plans to boost the economy and markets.
In FX, Bloomberg gauge of the dollar fell alongside Treasury yields, paring gains seen over the previous three sessions, ahead of claims and PMI releases. The euro edged higher after a slate of mixed PMI figures. The yen outperforms most G-10 peers, rising 0.6% against the greenback after the finance minister warned he is raising the level of urgency for monitoring currency moves.
- EUR/USD rises 0.1% to 1.0796; common currency higher for first day in four
- USD/JPY down 0.5% to 151.97 after Finance Minister Katsunobu Kato warned over “one-sided, rapid moves” in FX after a G-20 meeting in Washington
- GBP/USD rises 0.4% to 1.2977, just above pair’s 100-DMA at 1.2966; Gilt yields rise on report Chancellor Rachel Reeves will give herself an extra £53 billion of borrowing headroom in next week’s budget
In bonds, treasuries hold gains in early US session, paring losses that pushed yields for several tenors to multimonth highs Wednesday. US yields are richer by 3bp-6bp across the curve led by long end, leaving 2s10s spread ~2bp flatter on the day; 10-year, down 5bp at 4.19% near session low, outperforms UK 10-year by 8bp. European government bonds climbed on rate-cut expectations as data showed a downtrend in private-sector activity extended into a second month. German 10-year yields fall 3 bps to 2.27%. Most euro-zone yields also are lower while UK bonds fall after reports Chancellor Rachel Reeves will look to significantly increase borrowing in next week’s budget. UK 10-year yields rise 4 bps to 4.24%; gilts failed to match a rally in their US and European peers following reports Chancellor Rachel Reeves will be looking to significantly increase her ability to borrow in next week’s budget. Bunds extended gains after weak French PMI data as traders increased bets on a 50 bps interest-rate cut by the ECB in December. US session includes weekly jobless claims and S&P Global PMIs, following mixed European PMI readings.
In commodities, oil prices rebounded with WTI rising 1.9% to $72 a barrel as traders continued to await a retaliatory Israeli strike on Iran.. Spot gold rises $22 to around $2,737/oz.
Looking ahead, US economic data calendar includes September Chicago Fed national activity index and weekly initial jobless claims (8:30am), October preliminary S&P Global US manufacturing and services PMIs (9:45am), September new home sales (10am) and October Kansas City Fed manufacturing activity (11am). Fed speaker slate includes Cleveland Fed’s Hammack at 8:45am
Market Snapshot
- S&P 500 futures up 0.5% to 5,865.25
- STOXX Europe 600 up 0.7% to 522.34
- MXAP down 0.2% to 186.97
- MXAPJ down 0.6% to 599.84
- Nikkei up 0.1% to 38,143.29
- Topix little changed at 2,635.57
- Hang Seng Index down 1.3% to 20,489.62
- Shanghai Composite down 0.7% to 3,280.26
- Sensex little changed at 80,013.97
- Australia S&P/ASX 200 down 0.1% to 8,206.26
- Kospi down 0.7% to 2,581.03
- German 10Y yield down 3 bps at 2.27%
- Euro up 0.1% to $1.0798
- Brent Futures up 1.5% to $76.08/bbl
- Gold spot up 0.8% to $2,736.77
- US Dollar Index down 0.22% to 104.20
Top Overnight News
- Japan’s Finance Minister Katsunobu Kato said he is raising the level of urgency for monitoring currency moves, after the yen hit an almost three-month low against the dollar. BBG
- China is pressuring automakers to pause EU expansion plans due to its escalating EV tariff spat with Brussels, people familiar said. That’s already led to Dongfeng halting potential plans to make cars in Italy. BBG
- Eurozone flash PMIs are mixed for Oct, with a shortfall on Services (51.2 vs. the Street 51.5 and down from 51.4 in Sept) and modest beat on Manufacturing (45.9 vs. the Street 45.1 and up from 45 in Sept). RTRS
- Barclays shares climb in European trading after the company reported solid Q3 results, w/upside on pre-tax income (GBP2.2B vs. the Street ~GBP2B), and the company raised its full-year NII guide. RTRS
- BOE Governor Bailey says UK inflation is cooling faster than expected, although he warned that services inflation still needs to come down. FT
- Global bond sales will climb 17% this year to about $9 trillion after robust third quarter activity, S&P Global said, as it raised its previous estimate. Issuance may moderate to a 4% gain next year. BBG
- Trump takes a 2-point lead over Harris in a new WSJ national poll (47-45%), a shift from the last survey in Aug which had Harris up 2 points. WSJ
- Tesla shares jumped on its blowout results, buoyed by a profit-turning Cybertruck, and Elon Musk’s promise of 20% to 30% delivery growth next year. Uber and Lyft stock fell on Musk’s aim to roll out ridesharing in Texas and California in 2025. BBG
- Boeing’s largest union rejected a new labor deal Wednesday, extending a six-week strike that has plunged the jet maker into increasing financial peril. Members of the machinist union voted 64% against a proposed contact that would have delivered a 35% wage increase over four years, union leaders said. WSJ
A more detailed look at global markets courtesy of Newsquawk
APAC stocks traded somewhat cautiously following the losses stateside where the major indices declined as participants digested earnings releases and negative stock-specific updates, while yields also continued to edge higher. ASX 200 initially retreated following a further deterioration in manufacturing PMI data but then gradually clawed back opening losses with the recovery spearheaded by resilience in defensives and tech. Nikkei 225 traded indecisively as participants reflected on recent currency moves and Japanese PMI data contracted. Hang Seng and Shanghai Comp were pressured amid weakness in the tech and property sectors with the latter industry not helped after Moody’s noted that several developers are to feel earnings pain, while macro newsflow remained quiet and a continuation of the firm liquidity efforts by the PBoC also failed to inspire a turnaround.
Top Asian News
- Japanese Finance Minister Kato said no comment on FX levels and intervention but noted it is desirable for currencies to move stably reflecting economic fundamentals and is closely watching FX moves with a sense of urgency, while he added that one-sided, rapid FX moves were recently seen in the FX market.
- BoJ Financial System Report: "Japanese banks have sufficient capital bases and stable funding bases to withstand stress similar to the global financial crisis..."
European bourses, Stoxx 600 (+0.7%) began the session very modestly in positive territory, and sentiment has continued to improve as the morning progressed; as it stands, indices generally reside at session highs. The complex was generally unreactive to the French/German/EZ. European sectors hold a strong positive bias; Travel & Leisure tops the pile, lifted by post-earnings gains in Evolution (+12.8%) and Sodexo (+4.5%). Autos were initially towards the middle of the pile, but moved up the gears amid Bloomberg reports that China is pressuring automakers to pause expansion in the EU due to the escalating trade conflict. US Equity Futures (ES +0.5% NQ +0.5% RTY +0.5%) are broadly on a firmer footing, in tandem with strength seen across European indices, and in an attempt to reclaim some of the pressure seen in prior session. Notable European earnings: Kering (+2%, rev. miss & guidance cut), Hermes (+1.9%, Sales beat), Barclays (+3.8%, strong results), Unilever (+3.9%, Sales beat).
Top European News
- ECB's Holzmann said a quarter-point rate cut is probable in December and they are unlikely to have a 50bps cut in December but such a move is possible, while another option is a hold due to the October move, according to Bloomberg.
- ECB's Vasle says no urgency in talking about undershooting inflation target and cutting rates below neutral; should keep cutting rated in "measured" increments.
FX
- USD is softer vs. peers with the recent rally in DXY pausing for breath. Fresh macro drivers for the US have been on the light side, but will pick-up in the form of jobless claims and PMIs, later today. DXY remains on a 104 handle and within Wednesday's 104.09-104.57 range.
- EUR is firmer vs. the USD but to a lesser extent than peers in the wake of this morning's PMI data. EUR/USD was nudged lower in early trade following soft French PMI metrics; thereafter, the pair was granted some reprieve following slightly more encouraging German figures before the final EZ release printed mixed but underscored the complex growth picture for the region. EUR/USD currently sits around 1.08.
- GBP was top of the G10 leaderboard early doors following a Reeves-induced jump in UK yields before upside for the pound was tempered by a softer outturn for UK PMI data. Cable is currently contained within yesterday's 1.2908-95 range and below its 100DMA at 1.2964.
- JPY is clawing back some ground vs. the USD in an attempt to reverse the recent trend which saw USD/JPY print a fresh multi-month peak at 153.18 yesterday. By way of comparison, yesterday's low is still some way of at 150.97. Japanese Finance Minister Kato attempted to jawbone the currency overnight.
- Antipodeans are both firmer vs. the USD as markets trade in a more pro-risk environment. AUD/USD has managed to move back above its 200DMA at 0.6628; NZD/USD is currently tucked within yesterday's 0.5991-0.6053 range.
- PBoC set USD/CNY mid-point at 7.1286 vs exp. 7.1284 (prev. 7.1245).
Fixed Income
- Bunds are on a firmer footing and were heading higher into the French PMI metrics, which were weak and sparked some modest upside to a 133.27 peak. Thereafter, a strong (relatively speaking) set of data from Germany saw EGBs essentially pare this move to current levels of around 133.11. EZ PMIs were mixed and ultimately had little impact on price action.
- Gilts gapped lower by 41 ticks and then extended lower by another 14 to a 95.70 base. Pressure which came on the back of a Guardian report that Chancellor Reeves will today confirm she will change the figure underpinning the existing fiscal rule to a broader measure, something she is expected to announce to the IMF later today. UK Flash PMIs were soft across the board with the outlook tepid and weighed on by numerous points of uncertainty; metrics which lifted Gilts modestly into the green, to a short-lived 96.31 peak. As it stands, Gilts are currently trading around 96.09.
- USTs are firmer and pulled around alongside the above Flash PMIs ahead of its own release and weekly jobs data. Holding towards the 111-12 session high with the curve modestly flatter though with action across it a touch mixed at points as the belly finds itself the marginal laggard from a yield perspective.
Commodities
- Crude is on a firmer footing, initially catching a bid following unconfirmed reports which indicated a fire in proximity to a Iranian nuclear facility in Karaj; this move ultimately proved fleeting given the lack of details. Soon after, upside returned alongside a pickup in broader sentiment with Brent Dec currently near highs at around USD 76.34/bbl.
- Spot gold is firmer, bolstered by the softer USD and yield environment in the US and EZ. At a USD 2737/oz peak, which is the lowest daily-high for the week thus far.
- Base metals are generally in positive territory, given the encouraging risk tone which has emerged despite a cautious APAC handover.
- Iraq's Kerbala (140,000bpd) refinery to operate at around 50% capacity in the coming days.
Geopolitics
- "An Iranian opposition organisation reports a fire at the nuclear power plant in the city of Kharaj; There are no reports from official Iranian media", via N12 News. Note, original N12 report on X has since been deleted.
- Israel Broadcasting Corporation announced IDF's readiness to respond to the Iranian missile attack. Thereafter, Israeli Broadcasting Authority, via Sky News Arabia, reports "Israel on the verge of launching an attack on Iran despite US pressure"
- Explosions were heard in Syria's capital Damascus as a result of Israeli aggression, according to Syrian state TV.
- Iraqi armed factions loyal to Iran announced the targeting of a vital target in the Golan with drones.
- Pentagon said US Secretary of Defense Austin expressed concern in a call with his Israeli counterpart about reports of strikes against the Lebanese army, according to Sky News Arabia.
- Turkey hit PKK targets in Northern Iraq and Syria after a deadly attack in Ankara, according to Turkish security sources.
- US President Biden said the US is announcing today that it will provide USD 20bln in loans to Ukraine.
- US asked G7 to consider sanctions on Russian palladium and titanium, according to Bloomberg.
US Event Calendar
- 08:30: Oct. Initial Jobless Claims, est. 242,000, prior 241,000
- Continuing Claims, est. 1.88m, prior 1.87m
- 08:30: Sept. Chicago Fed Nat Activity Index, est. 0.50, prior 0.12
- 09:45: Oct. S&P Global US Manufacturing PM, est. 47.5, prior 47.3
- Oct. S&P Global US Services PMI, est. 55.0, prior 55.2
- Oct. S&P Global US Composite PMI, est. 53.8, prior 54.0
- 10:00: Sept. New Home Sales, est. 720,000, prior 716,000
- Sept. New Home Sales MoM, est. 0.6%, prior -4.7%
- 11:00: Oct. Kansas City Fed Manf. Activity, est. -7, prior -8
DB's Jim Reid concludes the overnight wrap
What started out as a one off vague curiosity 3 years ago has now seemingly become a permanent October half-term long weekend fixture, without me necessarily agreeing to it. Yes, we're off to Center Parcs tomorrow and my wife has signed me up to do Kayaking and a high zipwire across a lake amongst many other things that aren't golf. Happy days!
Markets continued to slide down the wire yesterday, with bonds and equities both losing ground for a third day running. Maybe the long awaited close election sell-off is arriving, albeit after 6 successive weeks of rallying. Binky Chadha and Parag Thatte have talked about it in their recent piece here. Basically the vol premium for the day after the election is currently moving progressively higher in the same way it did ahead of close elections in 2016 and 2020. In both these years it got ever higher as the election day approached as investors basically bought protection, thus putting downward pressure on the cash market. In 2016 and 2020, once the event passed and life moved on that protection either rolled off or was in the money, leading to buying of the market and starting the post-election rally. The irony is that at the moment, the election looks close, but if the current polling and prediction markets momentum around Trump continues its possible that the pre-election trends of 2016 and 2020 won’t reoccur as it will appear less close. But for now it’s starting to move to the 2016/2020 script. See Binky and Parag’s piece for more about the equity market as we head into the election and into year-end.
Against that pre-election backdrop, the S&P 500 (-0.92%) was down for a third consecutive day. It did partially recover after trading down -1.5% a couple of hours before the close, but this still marks its worst 3-day run since early September (-1.15%). The reversal was led by a sharp loss for the Magnificent 7 (-2.15%), with Nvidia (-2.81%), Amazon (-2.63%) and Meta (-3.15%) all seeing sizeable declines.
After the close however, the mood turned a bit more positive as Tesla delivered a strong set of Q3 results. The automaker is now projecting a slight increase in deliveries for the current year, despite the earlier slump in the first half of the year, and with CEO Elon Musk forecasting a 20-30% growth in vehicle deliveries in 2025. Tesla’s share price jumped by 12% in post-market trading after sliding by -1.98% during the regular session yesterday. If that rise materialises today, it would largely erase Tesla’s -14% YTD decline. In turn, that’s helped to lift US equity futures this morning, with those on the S&P 500 (+0.19%) and the NASDAQ 100 (+0.48%) both pointing higher.
With just 12 days until the US election, yesterday also saw “Trump trades” continue to outperform. That comes as forecast models and prediction markets have continued to move in Trump’s direction, with the RealClearPolitics average of betting markets now giving him a 59% chance of victory. In terms of market moves, that saw Trump Media & Technology Group (+4.42%) reach a three-month high, whilst the recent rise in Treasury yields has also been connected to a growing probability of a Trump victory. Conversely, solar energy firms continued to lose ground given the perception they’d do better under a Democratic administration, including losses for First Solar (-4.46%) and SolarEdge Technologies (-14.99%).
Earlier in Europe, equities posted modest declines, with the STOXX 600 (-0.30%) losing ground for a third consecutive day, alongside losses for the DAX (-0.23%) and the CAC 40 (-0.50%).
The US sell-off yesterday was probably also influenced by investors dialling back the likelihood of aggressive rate cuts from the Fed. In fact, by the close yesterday, futures were pricing in the most hawkish rate path since the market turmoil back in the summer. So with fewer rate cuts priced in, and post-election fiscal concerns edging up, US Treasury yields continued to move higher yesterday, and the 10yr yield was up +3.8bps to 4.25%. That’s its highest level in almost three months, and marks a decent comeback from its intraday low of 3.60% back on September 17. Yesterday’s move wasn’t helped by a soft 20yr Treasury auction that saw bonds issued 1.6bp above the when-issued yield, their largest tail since May.
In terms of that rate path for the Fed, the rate priced in by the Fed’s December 2025 meeting was up another +6.3bps yesterday to 3.49%, meaning that it’s now up by more than 70bps from its recent low on September 16th. Or in other words, investors have gone from expecting 256bps of rate cuts by the end of next year (including the 50bps last month), to just 183bps by the close yesterday.
It was a different story in Europe however, as speculation mounted about the ECB delivering a larger 50bp rate cut. That was supported by comments from several officials, and ECB President Lagarde said they were “rather satisfied” with how inflation has moved lower. In the meantime, Portugal’s Centeno said that “50 basis points can be on the table”, whilst Bundesbank President Nagel said that “we keep our flexibility in every direction”. Later on, we heard Italy’s Panetta comment that “I would not take for granted, given the weakness of the economy, that we have to stop at the neutral rate”, echoing the tone of a Reuters report early in the day that some ECB policymakers have begun to debate whether rates will have to go below neutral. So that backdrop meant that yields on 10yr bunds (-1.3bps), OATs (-2.4bps) and BTPs (-4.2bps) all fell back, in contrast to the moves among US Treasuries.
That speculation about a 50bp rate cut then got a further boost from the Bank of Canada, who delivered their first 50bp cut of this cycle, taking their policy rate down to 3.75%. In the press conference, Governor Macklem said that their focus was “to maintain low, stable inflation. We need to stick the landing.” Moreover, he said that they “anticipate cutting our policy rate further to support demand and keep inflation on target”. So with the Fed and the Bank of Canada having now cut by 50bps at their recent meetings, that contributed to speculation that the ECB could soon follow as well.
Elsewhere, the mixture of US rates underperformance and the broader risk-off tone saw the dollar index (+0.34%) advance to its highest level since the start of August. It’s now risen for 15 of the past 18 sessions, with the euro falling to its weakest against the dollar since early July. The risk-off tone wasn’t helped by the Fed’s Beige Book either, which painted a more cautious picture on the US economy, suggesting that “...economic activity was little changed in nearly all Districts”.
Events in the Middle East continue to lurk in the background, particularly in terms of how Israel might retaliate against Iran’s missile strikes earlier this month. So far there’s still no news on that, and Brent crude oil prices (-1.42%) fell back to $74.96/bbl yesterday, while WTI (-1.83% to $70.77/bbl) posted a larger decline as EIA data showed a larger than expected increase in US crude inventories. However, that’s mostly reversed overnight, with Brent crude oil prices up +1.13% this morning to $75.81/bbl. Separately, gold prices (-1.22%) also came off their record high on Tuesday as US real yields continued to move higher and concerns about inflation slipped back slightly.
Overnight in Asia, the major equity indices are trading lower this morning, which comes against the backdrop of weaker economic data overnight. For instance, we’re starting to get the October flash PMIs now, and Japan’s composite PMI was down to 49.4, which is the weakest reading since November 2022. Moreover, both the manufacturing (49.0) and services (49.3) prints were also beneath the 50 mark that separates expansion from contraction. Meanwhile in South Korea, Q3 GDP growth came in softer-than-expected, at just +0.1% (vs. +0.4% expected), after contracting by -0.2% in Q2.
With that in mind, equities are struggling in Asia this morning, with the Hang Seng (-0.99%) as the biggest underperformer overnight. That’s been echoed elsewhere, with losses for the CSI 300 (-0.80%), the Shanghai Comp (-0.50%), the KOSPI (-0.37%) and the Nikkei (-0.11%). Australia is the one exception however, as the S&P/ASX 200 (+0.02%) has just about managed to post a modest gain.
There wasn’t too much data yesterday, although US existing home sales slowed to an annualised rate of 3.84m in September (vs. 3.88m expected), which is their lowest level since October 2010. In the meantime, the European Commission’s consumer confidence reading for the Euro Area ticked up to -12.5 in October, which is its highest level since February 2022.
To the day ahead now, and the main data highlight will be the October flash PMIs from around the world. In the US, we’ll also get the weekly initial jobless claims, along with new home sales for September. From central banks, we’ll hear from BoE Governor Bailey, the BoE’s Mann, the ECB’s Kazaks and Lane, and the Fed’s Hammack.