US Equities: A rally in Treasury yields weighed on US stocks, especially smaller caps, with the Russell 2000 reversing and sinking 1.3%. The strength in mega-cap technology and pharmaceutical stocks helped the S&P500 and Nasdaq 100 to continue to extend gains, rising 0.2% to 4,366 and 0.4% to 15,155 respectively. Eli Lilly surged 4.8% as the drug maker’s chief scientific officer said he was ‘extremely optimistic’ about breakthroughs in its pipelines. On Tuesday, investors’ focus is likely to turn to Uber’s earnings announcement.
Fixed income: Treasuries sold off and unwound most of the post-nonfarm-payrolls gains last Friday, with the 10-year yield surging 7bps to 4.64%. The 2-year yield climbed 10bps, reaching 4.93%, bear-flattening the curve. The issuance of around $25 billion in corporate bonds on Monday, coupled with the upcoming $48 billion 3-year Treasury notes on Tuesday followed the 10-year and 30-year auctions on Wednesday and Thursday had investors cautious about taking up additional duration.
China/HK Equities: Hong Kong and China markets rallied for the third day in a row following the improvement of sentiment towards risk assets globally on the prospect of the Fed is done for hiking rates. Additionally, the Central Financial Work Conference held early last week refrained from mentioning “deleveraging” which had been the driving theme since 2017. On Monday, the Shenzhen State-owned Assets Supervision and Administration Commission of the State Council (Shenzhen SASAC) said that it had the resources to provide support to Vanke, a leading Chinese developer. Chinese brokerage stocks rose sharply after the CSRC planned to ease capital requirements for some assets of brokerage firms. EV, technology hardware, and internet names also outperformed. The Hang Seng Index gained 1.7% and the Hang Seng Tech Index surged 4.1%. The market sentiment has improved amid above-average turnover. The CSI300 added 1.4%.
FX: Choppy trading session but the dollar managed to move higher slightly, erasing some of the losses from Friday. Kiwi was the weakest currency, after it failed to pierce through the 0.60 handle and reversed lower to 0.5960. USDJPY moved back to 150 from lows of 149.21 seen on Friday as BOJ Governor Ueda reaffirmed dovish policy. AUDUSD back below 0.65 with stakes high for today’s RBA meeting. EURUSD still holding above 1.07 with services PMI unrevised. Chinese yuan stayed below 7.30 with PBOC’s strong fixings continuing to underpin.
Commodities: Supply concerns were back on the forefront as Saudi Arabia and Russia reaffirmed cuts until year-end. That helped crude oil prices start the week with some gains despite fading geopolitical risks. Meanwhile, the surge higher in Treasury yields again brought Gold lower, while Copper continued to rally further amid optimism on demand and more stimulus measures in China and the end of the Fed rate hike cycle.
- Fed’s Senior Loan Officer Opinion Survey (SLOOS) remained short of showing any immediate escalation in concerns on tightening of bank lending standards. Overall, the survey showed the expected tightening in lending conditions or weakening in demand for all loan types in Q3.
- Fed’s Cook (voter) said expectations of near-term policy rates do not appear to be driving the climb in long-term rates, while ahead of the SLOOS the Governor said banking sectors remain "sound and resilient overall" and acute stresses have abated.
Macro events: RBA Policy Announcement exp 4.35% vs. 4.10% prior – read more in yesterday’s FX note, EIA STEO; China Trade Balance (Oct) exp $82bn vs. $77.83bn prior, US International Trade (Sep) exp -$59.8bn vs. -$58.3bn
Earnings: Uber, Gilead, UBS, Occidental
In the news:
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