Access both platforms from your single Saxo account.
London Quick Take - 5 Things to Know in Markets Today - 20 Oct
Note: This is marketing material. This article is not investment advice, capital is at risk.
5 things to know in markets today
1.Pound rallies on stronger-than-expected labour market data
Sterling rallied after official figures showed the jobless rate fell and wage growth was stronger than expected last month, pointing to a surprising resilience in the UK labour market. The jobless rate fell to 4.7% from 4.9% from the month before, and average earnings rose 3.7% from 3.6%. Both had been expected to remain steady. Market odds for a rate hike by the Bank of England shortened as the data a) builds on the better-than-expected GDP data showing the economy is doing actually ok; b) the labour market, which was the chief reason to hold off raising rates despite building inflation, is doing better than we thought; and c) because wage data indicates we may be starting to see second-order effects from prolonged higher energy prices.
The data has somewhat surprised sterling shorts and we are seeing something of a short-covering rally in cable, with GBPUSD north of 1.3358, near its best in a month. The euro has also advanced against the dollar as USD gets offered, DXY testing 20-day SMA support around 101.60.
The data has somewhat surprised sterling shorts and we are seeing something of a short-covering rally in cable, with GBPUSD north of 1.3358, near its best in a month. The euro has also advanced against the dollar as USD gets offered, DXY testing 20-day SMA support around 101.60.
2.Risk sentiment remains pressured
Despite a bounce in US tech the follow-through to Asia has been weak and Europe remains exposed to French worries. The FTSE 100 slipped around 0.5%, extending the decline of more than 1% notched on Monday as miners and banks led a retracement of last week’s counter-trend rally. Anglo American led early gainers on Tuesday after this morning’s production report eased some concerns following a 4% decline Monday, though banks and miners remain generally under pressure. Bunzl led the fallers early doors after reporting underlying revenue growth at +3.7% and stuck to its upgraded full-year guidance from the half-year report.
3.Unrest underscores France's Fiscal Fragility
French unrest continues to be a factor weighing on sentiment and particularly on European equities, with the main bourses coming off some bruising losses on Monday with further declines early on Tuesday. The Stoxx 600 fell around 0.8% and France’s CAC 40 lost 1.1% and is down another -0.5% this morning, while the DAX is down almost -1% today and Euro Stoxx 50 -1% lower on ASML, the largest weighting, down more than 3% after Asian tech slid overnight. Unrest has magnified existing concerns about additional government spending and the difficulty of repairing France’s finances. Whether France is heading to some kind of fiscal crisis or not, investors are demanding a premium to own French debt. The Franco–German 10-year yield spread widened to about 148bps, levels last seen during the eurozone debt crisis. French presidential election risks will keep this one on the radar for a long time and the 10yr OAT yield has risen a couple more bps in early trade to 4.925%.
4.US tech bounces
Tech found buyers yesterday on Wall Street, but breadth remained poor. Nvidia gained 1.4%, while most stocks outside technology and AI fell. Semis snapped an 8-day losing streak to rally 1.6%. CoreWeave illustrated the fragility however: an early gain above 7% evaporated, leaving it down 0.4%. Goldman Sachs upgraded CoreWeave to a buy from hold, with a $106 price target, saying that "contract economics are likely to be more positive than the market expects”. MoffettNathanson agreed the stock is “not circling the drain” but did slash its price target to $89 from $107. Investors remain tentative about neoclouds after the selloff.
It looked more like a tentative recovery in some corners of tech after heavy selling than renewed strong conviction in the AI trade. The Nasdaq gained 1.1% with a big help from a 5% pop for Amazon after Morgan Stanley named the stock its top pick and set a price target of $350, implying about 40% upside. Morgan Stanley also went to $820 from $775 on Meta ahead of earnings this week and kept its buy rating. With pressure on healthcare, energy, financials and industrials the broader S&P 500 rose a more modest 0.4% and the Dow Jones ended marginally lower.
And that fragility was betrayed overnight in Asia with the Kospi heading down almost 4% with market dominants SK Hynix down –4% and Samsung Electronics –3%. Tokyo and Hong Kong were both down more than 1%. Bonds offered little relief although we are well off the cycle highs for yields. The US 10-year yield rose to roughly 5.14%, from 5.09% on Friday. Brent settled at $109.55, down 0.3%, after a volatile session but retains a bullish bias this morning back above $110 as of send time.
It looked more like a tentative recovery in some corners of tech after heavy selling than renewed strong conviction in the AI trade. The Nasdaq gained 1.1% with a big help from a 5% pop for Amazon after Morgan Stanley named the stock its top pick and set a price target of $350, implying about 40% upside. Morgan Stanley also went to $820 from $775 on Meta ahead of earnings this week and kept its buy rating. With pressure on healthcare, energy, financials and industrials the broader S&P 500 rose a more modest 0.4% and the Dow Jones ended marginally lower.
And that fragility was betrayed overnight in Asia with the Kospi heading down almost 4% with market dominants SK Hynix down –4% and Samsung Electronics –3%. Tokyo and Hong Kong were both down more than 1%. Bonds offered little relief although we are well off the cycle highs for yields. The US 10-year yield rose to roughly 5.14%, from 5.09% on Friday. Brent settled at $109.55, down 0.3%, after a volatile session but retains a bullish bias this morning back above $110 as of send time.
5.Countdown to SpaceX earnings
SpaceX reports earnings after the close tonight, in what’s becoming an increasingly important component for index-level sentiment around AI. Short notice on the earnings update suggests maybe management wish to get updated financials out of the way before further financing rounds and give the market a bit of grace to absorb the 1.3bn shares of lockup releases coming two days after earnings. Reports indicate SpaceX will tap investors for $40bn in financing to fund purchases of Nvidia chips for its data centres. And the earnings update will be largely about AI rather than rockets. SpaceX is expected to report third-quarter revenue of $12.74 billion, up sequentially from $7.8bn in Q2, which was +92% YoY, and a return to profitability at 14 cents earnings per share, vs the loss of 9 cents in Q2. Look to the AI unit (SpaceXSI) which posted an operating loss of $1.26bn last quarter vs estimates from a loss of $2.39bn. AI revenues were up 213% sequentially and 247% year-over-year to $2.6bn in Q2.
The pace of capex will be an important metric - AI spend jumped to $15.8bn in Q3 from $7.7bn in the prior quarter. This will be an important tell on the requirement for financing, which remains an overhang for the stock, particularly following the crash for neocloud stocks. The other metric will be annual recurring revenue (ARR) that may include fresh AI compute deals – CFO Bret Johnsen signalled last month that SpaceX would hit $100bn ARR by the end of the year. In Connectivity, which includes Starlink, the Street expects a $1.6bn operating profit and revenues rising to $4.45bn, implying big slowdown in the 66% YoY growth pace in Q2. Space revenues grew 55% sequentially and 29% year-over-year to $962 million in Q2.
The pace of capex will be an important metric - AI spend jumped to $15.8bn in Q3 from $7.7bn in the prior quarter. This will be an important tell on the requirement for financing, which remains an overhang for the stock, particularly following the crash for neocloud stocks. The other metric will be annual recurring revenue (ARR) that may include fresh AI compute deals – CFO Bret Johnsen signalled last month that SpaceX would hit $100bn ARR by the end of the year. In Connectivity, which includes Starlink, the Street expects a $1.6bn operating profit and revenues rising to $4.45bn, implying big slowdown in the 66% YoY growth pace in Q2. Space revenues grew 55% sequentially and 29% year-over-year to $962 million in Q2.
Netflix is also on deck later today, while Tesla reports tomorrow.