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London Quick Take - 5 Things to Know in Markets Today - 11 Nov
5 to Know in Markets Today
1.Hot US inflation and hawkish Fed sends bond yields higher
Hot US inflation report and hawkish comments from Fed governor Christopher Waller drove bond yields sharply higher and checked a two-day rally on Wall Street after Thursday's capitulation, while Nvidia fell another 5% to weigh on the broader indices' recovery efforts.
The US CPI index for October grew 0.4% on last month, more than the 0.3% expected, though down from +0.6% in September. Core CPI gained +0.3% vs the +0.2% expected, thereby crossing what's I've dubbed the 'Waller Line' – if core CPI is running at +0.2% MoM then inflation is trending down just about enough for the Fed to stay on the sidelines, but above this level means it must act.
Coincidentally or likely uncoincidentally, earlier Fed Governor Waller said he would support “more robust action” if inflation readings are higher than expected, adding that "I believe a 50-basis point hike in the policy rate should be considered at the December meeting ... Hiking only 25 basis points would put our credibility at risk, a risk I am not eager to take.” Dallas Fed President Lorie Logan said they need at least two more quarter-point rate increases to tame inflation.
The US 10yr Treasury yield advanced ~14bps to kiss the 5% level while the 2yr advanced around 20bps to 4.748%. Markets are now fully priced for a December rate hike – the question now is whether the Fed goes big with a 50bps move. US bond markets are closed today for Veterans Day. Higher Treasury yields put a strong bid under the dollar, with DXY rallying to a one-month high this morning.
Why did Waller feel the need to say this unless it's being expressly considered now after the Fed stood pat in November and probably knows it shouldn't have waited?
The US CPI index for October grew 0.4% on last month, more than the 0.3% expected, though down from +0.6% in September. Core CPI gained +0.3% vs the +0.2% expected, thereby crossing what's I've dubbed the 'Waller Line' – if core CPI is running at +0.2% MoM then inflation is trending down just about enough for the Fed to stay on the sidelines, but above this level means it must act.
Coincidentally or likely uncoincidentally, earlier Fed Governor Waller said he would support “more robust action” if inflation readings are higher than expected, adding that "I believe a 50-basis point hike in the policy rate should be considered at the December meeting ... Hiking only 25 basis points would put our credibility at risk, a risk I am not eager to take.” Dallas Fed President Lorie Logan said they need at least two more quarter-point rate increases to tame inflation.
The US 10yr Treasury yield advanced ~14bps to kiss the 5% level while the 2yr advanced around 20bps to 4.748%. Markets are now fully priced for a December rate hike – the question now is whether the Fed goes big with a 50bps move. US bond markets are closed today for Veterans Day. Higher Treasury yields put a strong bid under the dollar, with DXY rallying to a one-month high this morning.
Why did Waller feel the need to say this unless it's being expressly considered now after the Fed stood pat in November and probably knows it shouldn't have waited?
2.Wall Street rally checked
The hot inflation report and Waller's remarks combined with another big down day for Nvidia for, er, idiosyncratic reasons, put a block on the two-day rally extending into a third day, as stock markets look to recover from Thursday's capitulation event. Stock futures had looked solid through the morning in Europe before turning lower and Wall Street opened in the red. The Nasdaq-10 fell –0.6%, Nasdaq Composite down more by -0.74%, while the S&P 500 fell –0.38%. For each Nvidia the big drag, down –5.47% as investors pulled long positions for a second day in the wake of the China spygate fiasco. The Dow Jones was off a more modest –0.3%.
However, futures have turned sharply higher on CoreWeave's strong earnings update, which is driving further recovery across the tech space. Nasdaq-100 futures traded about +1.4% higher while the S&P 500 was set to open around the high point of the week so far around 7,576. If futures can hold this we might call up 7,700 as the next leg in the recovery. Overnight, Taiwan rose +3% and the Kospi was +2.6% higher with SK Hynix +5.4% and Samsung Electronics +3.5%. Nvidia was up about 1% pre-mkt.
However, futures have turned sharply higher on CoreWeave's strong earnings update, which is driving further recovery across the tech space. Nasdaq-100 futures traded about +1.4% higher while the S&P 500 was set to open around the high point of the week so far around 7,576. If futures can hold this we might call up 7,700 as the next leg in the recovery. Overnight, Taiwan rose +3% and the Kospi was +2.6% higher with SK Hynix +5.4% and Samsung Electronics +3.5%. Nvidia was up about 1% pre-mkt.
3.CoreWeave earnings boost tech and AI trades
A lot was hanging on results from probably the best neocloud stock, CoreWeave, and it's delivered what bulls were asking for. The company beat on revenue and lifted its guidance, which has helped to further put some bid under AI stocks. Shares rose +8% in pre-market but it's down 40% in the last month as the stock and peers like Nebius and IREN have been at the epicentre of the AI selloff. CoreWeave’s revenue jumped 168% from about $1.36 billion to $3.66bn, beating the $3.55bn expected, and while the loss per share widened it was not as much as expected. The solid performance in the quarter allowed management to lift full-year guidance to between $1.275bn and $1.375 bn in adjusted operating income on $13bn to $13.3bn in revenue. The results eased some of the more grievous concerns about financing and credit risk, with the company saying it won't need to issue more unsecured debt through 2027, with most capital coming from pre-payments and financing from hardware partners. Nebius reports on Thursday.
4.Oil tumbles below $90, Europe stays risk-on
Brent crude oil tumbled below $90, down 25% from its 30 Oct peak, before retracing some of the move back to $92 this morning. The tone from the US administration seems a lot more conciliatory than before the midterm losses. President Trump has declared the US–Israel war on Iran militarily "effectively over" and said further attacks by the US were "highly unlikely". The question is now one of flows and refining margins, and underlying geopolitical risk premia that could be harder to shake.
Despite the bump higher for oil the tone for European markets remains very much risk-on, with solid advances across the major bourses on Wednesday morning. The DAX rose around +1%, while the CAC was up +0.8%, building on more modest advances on Tuesday, a reflection of the weaker session on Wall Street as much as anything.
Despite the bump higher for oil the tone for European markets remains very much risk-on, with solid advances across the major bourses on Wednesday morning. The DAX rose around +1%, while the CAC was up +0.8%, building on more modest advances on Tuesday, a reflection of the weaker session on Wall Street as much as anything.
5.FTSE movers - Spirax and ICG
The FTSE 100 climbed +0.8% in early trade Wednesday, taking it back towards the 10,850 area, not far off its all-time high. Most stocks rose though there was a bit of softness in some of the consumer staples with risk bid. Banks rose and miners were higher with copper advancing along with silver and gold. The modest recovery in oil prices back above the $90 handle lifted the oil majors. Spirax shares rose +3.5% after a decent earnings update that reaffirmed full-year guidance for mid-single-digit organic revenue growth and adjusted operating profit margin to beat last year on an organic basis. ICG was also +3.5% higher as it beat in key areas with fee-related earnings of £199mn ~8% ahead of consensus and up 18% on last year. Investors warmed to the capital allocation plans for zero net debt with excess capital to be returned to shareholders.