US Equities: Markets rebounded, driven by advances in mega-cap technology names. Amazon added 3.9%, and Microsoft gained 2.3%. The lower-than-expected Treasury borrowing estimates for Q4, GM's deal with the UAW to end strikes, and the diminishing fear of an escalation in the Middle East conflict boosted sentiment. McDonald's gained 1.7% after reporting revenue and earnings that beat estimates. Regarding earnings, all eyes are now on Apple's results scheduled for Thursday.
Fixed income: Treasuries started weak, with yields rising early in the session after Nikkei reported that the BoJ is considering allowing 10-year JGB yields to exceed 1%. The long end led the market to pare losses when the Treasury announced a lower estimate for its Q4 borrowing at $776 billion, which is below the consensus of $800 billion and the Treasury's July projection of $852 billion. The 2-year yield ended the day 5bps higher at 5.05%, and the 10-year yield climbed 6bps to 4.89%. All eyes are now on the FOMC meeting and the quarterly refunding announcement of 3, 10, and 30-year auction sizes, scheduled for Wednesday.
China/HK Equities: While the broader Hang Seng Index finished unchanged, strong gains in hardware technology stocks boosted the Hang Seng Tech Index, leading to a 1.3% increase. Xiaomi, Sunny Optical, and AAC Technologies surged by approximately 6%. On the other hand, Chinese banks saw a decline of 2-4% after reporting earnings that indicated a contraction in net interest margins. HSBC lost 1.5% following its earnings report, which included setting aside additional provisions for credit losses arising from commercial real estate lending in mainland China.
FX: Dollar was weaker amid a strong risk sentiment to start the week, but month-end flows could be key. AUD led the gains again on the G10 board, as AUDUSD rose to 0.6380 with RBA rate hike still in play. AUDNZD has also broken above 1.09 but 1.10 is key for upwards momentum. EURUSD rose above 1.06 despite both Spanish and German CPI coming in cooler than expected and focus will be on GDP and CPI data out today. GBPUSD also moved above 1.216. BOJ decision is key today and could have repercussions on global markets. USDJPY dropped 1 big figure to 148.80 on Nikkei report overnight, and now trades around 149.
Commodities: As Israel’s ground operation into Gaza remained more cautious that expected, oil markets unwound gains from Friday and both WTI and Brent were down over 3%. Lack of a serious regional impact led to war premium being erased, and central bank meetings from BoJ, Fed and BOE will be in focus this week. Gold also weakened after touching highs above $2000 as safe have bid retreated and US yields rose, but the decline was modest.
- Germany slipped into contraction in Q3 with preliminary GDP data showing a decline of 0.1% QoQ, but better than -0.2% expected. October HICP slowed to 3.0% YoY from 4.3% a month earlier and 3.3% expected. Euro-are Q3 prelim GDP and October CPI on watch today.
- A Nikkei report came out saying that the Bank of Japan is set to consider a further adjustment to its YCC framework at Tuesday's monetary policy meeting, potentially allowing 10-year Japanese government bond yields to rise above 1%.
- BOJ Preview: There is growing speculation about a tweak from BOJ today, and markets are seemingly underpricing the risks of an early normalization. Markets have been increasingly testing the patience of BOJ with JGB yields edging close to 1% ceiling and USDJPY hovering above 150 last week. But simply raising the 10-year yield ceiling further from 1% may prove to be a costly and short-term fix, and may only bring modest gains for JPY. USDJPY could move towards 145, as upward pressure from USD strength and higher US yields remains. On the other hand, a complete removal of YCC and setting the stage to move from NIRP to ZIRP will be a gradual process and wage pressures will be key for that. The most effective hint for that could come from upward revision of FY2024 inflation forecast and that can bring more durable gains in yen. Biggest risk to yen is if BOJ maintains policy stance and keeps inflation update muted, with 150 not seen as line in the sand now, USDJPY could move towards 155 on such an outcome.
Macro events: BoJ Announcement and Outlook Report, Chinese Official PMIs (Oct) Manufacturing exp. 50.2 vs 50.2 prior and Services exp. 52.0 from 51.7 prior, EZ Flash CPI (Sep) Core exp. 4.2% YoY vs. 4.5% prior and GDP (Q3) exp 0.2% YoY vs. 0.5% prior, US Employment Cost Index (Q3) exp. 1.0% vs. 1.0% prior
Earnings: Pfizer, AMD, Amgen, Caterpillar
In the news:
- Netanyahu Rules Out Cease-Fire (Bloomberg)
- Treasury to borrow $776 billion in the final three months of the year (CNBC)
- Oil prices could hit $150 if Israel-Hamas conflict intensifies, World Bank warns (FT)
- US carworkers suspend strike after reaching tentative deal with GM (FT)
- Tesla shares drop 5% on Panasonic battery warning, down 18% since Q3 earnings report (CNBC)
- McDonald's gets lift from diners turning to cheaper menu, new launches (Reuters)
- ON Semiconductor Stock Plummets After Offering Bleak Fourth-Quarter Outlook (WSJ)
For all macro, earnings, and dividend events check Saxo’s calendar.
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