US Equities: The S&P 500 ended a 4-day losing streak, rising 0.4% on Monday, while the Nasdaq added 0.5%. Among the mega-cap tech companies, Amazon led the way with a 1.6% gain after announcing plans to invest in Anthropic and collaborate on generative AI, an AI safety and research startup. Nvidia advanced 1.5%.
Fixed income: The 10-year yield surged by 10bps to 4.53%, reaching a new 15-year high. No major headlines triggered this movement. The selling concentrated on the long end, which bear-steepened the yield curve as traders continued to adjust positions in anticipation of a resilient economy and the “higher for longer” stance of the Fed.
China/HK Equities: The Hang Seng Index and CSI300 pulled back from the rally last Friday. The news over the weekend, stating that China Evergrande was unable to meet the regulatory qualifications for the issuance of new notes to replace old debts under the proposed restructuring of offshore debts, dragged down China property stocks. Comments from Liu Shijin, a member of the PBoC’s monetary policy committee that China should seek reform instead of depending on monetary easing or other macroeconomic measures also weighed on market sentiment. The Hang Seng Index plunged 1.8%, while the CSI300 shed 0.7%, closing near the day's lows.
FX: Higher Treasury yields, particularly at the long end, pushed the dollar higher to extend its gains. USDCHF rose to near 4-month highs of 0.9136 with immediate target at 0.9162 which is 0.382 retracement level. EURUSD broke below 1.06 support despite better-than-expected German Ifo. USDJPY attempted a move towards 149 but verbal intervention could get louder again. AUD slipped on China woes while NZD and CAD gained, and the outperformer was SEK with the Riksbank starting their FX hedging.
Commodities: Crude oil hovered near recent highs despite China woes clouding demand outlook but being offset by signs of improvement in the German economy and sustained resilience in the US, as well as the expectation of a Golden Week travel demand bump in China. There was also some relief in the supply situation with Russia making some changes in the fuel-export ban by excluding bunker fuel, gas oils, and some middle distillates from the list. Metals were hurt by China, higher yields, and the dollar, with iron ore down over 4% and Gold slipping below $1920.
- Fed’s Goolsbee (voter) tried to keep the door open for more rate hikes but also emphasized higher-for-longer. He said the Fed will play it by ear whether rates need to move higher, and it feels like rates will have to stay higher for longer than markets had expected.
- Moody’s warned of a protracted government shutdown saying that it could weigh on consumer confidence and markets.
- Meanwhile, after PMIs, Germany’s Ifo also showed a slight improvement in business outlook to 85.7 vs. 85.2 expected, while the previous was revised higher to 85.8.
- There were several ECB speakers once again. Lagarde largely repeated what was said at the ECB Press Conference, noting policy rates have reached levels that, maintained for a sufficiently long duration, will make a substantial contribution to the timely return of inflation to target. Schnabel said there is not yet an all-clear for the inflation problem.
Macro events: US Consumer Confidence (Sep) exp 105.5 vs. prev 106.1 (due 2200 SGT), New Home Sales (Aug) exp 698k vs. prev 714k (due 2200 SGT) and Richmond Fed Manufacturing index (Sep) exp -7 vs. prev -7 (due 2200 SGT).
In the news:
- PBoC advisor sees limited room for further monetary easing (Reuters)
- Wall Street Reacts to the Writers Guild’s Tentative Deal (Hollywood Reporter)
Key company events:
- Amazon to Invest Up to $4 Billion in AI Startup Anthropic (Bloomberg)
For all macro, earnings, and dividend events check Saxo’s calendar.
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