Summary: Atlanta Fed President Bostic's comment, indicating no need for more rate hikes, the temporary return of calm to the crude oil market, and the flight to safety demand, resulted in lower Treasury yields. The fall in bond yields, coupled with a Bloomberg story suggesting China is considering higher fiscal deficit spending, contributed to a rally in US equities for the third consecutive day. Pepsico reported an earnings beat and an upbeat outlook, which boosted sentiment in consumer stocks. The DXY index pushed below the key 106 support.
The Saxo Quick Take is a short, distilled opinion on financial markets with references to key news and events.
US Equities: Dovish Fedspeaks, a fall in bond yields, and a Bloomberg story suggesting China considering higher fiscal deficit spending contributed to a rally in stocks for the third consecutive day. The S&P500 gained 0.5% to 4,358 and the Nasdaq 100 added 0.6% to 15,132. Pepsico rose by 1.9% after an earnings beat and upbeat outlook, which helped sentiment in consumer stocks.
Fixed income: Atlanta Fed President Bostic’s comment, indicating no need for more rate hikes, the temporary return of calm to the crude oil market, and the flight to safety demand, resulted in lower Treasury yields. However, the demand for the 3-year note auction was soft. The 2-year yield finished the session 11bps lower at 4.97% while the 10-year yield was 15bps lower at 4.65%.
China/HK Equities: Hong Kong stocks rallied, driven by Internet stocks. The Hang Seng Tech Index advanced 1.3%. However, the Hang Seng Index trimmed its gains, closing 0.8% higher, as another major property developer, Country Garden, warned it would not be able to fulfil all of its offshore obligations. After the cash market closed, index futures surged due to a Bloomberg story about China considering increasing the central government fiscal deficit to stimulate the economy. Meanwhile, the CSI300 lost 0.8%. Overnight, Chinese ADRs gained, with the Nasdaq Golden Dragon China Index surging 3.1%.
FX: The dollar DXY index pushed below the key 106 support amid Fed rhetoric aligning on higher bond yields substituting for a Fed rate hike, and the catchup in cash Treasuries to Monday’s slide in futures as geopolitical worries ramped up. Yen however stayed weak, and USDJPY trades around 148.60 despite reports that BOJ could mull a 3% inflation target for current fiscal year. EURUSD pushed above 1.06 while GBPUSD is heading for a test of 1.23. AUDUSD seeing a fresh leg up this morning in Asia towards 0.6440 on improved sentiment and China’s expected stimulus announcement.
Commodities: Crude oil prices were in consolidation on Tuesday as oil supply concerns have not materially ramped up, but risks of escalation continue to keep oil traders on edge. Gas prices pushed up further amid Israel’s gas-field halt as well as a leak in a gas pipeline connecting NATO members Finland and Estonia. Gold prices also consolidated despite the plunge in Treasury yields and a weaker USD. Metals in focus today amid speculation of stimulus announcement from China.
Macro:
Macro events: EIA STEO, US PPI (Sep) exp 1.6% YoY vs. 1.6% prior, FOMC Minutes
Earnings:
In the news:
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