US Equities: As Treasury yields surged, the S&P 500 and Nasdaq 100 ended their 8th and 9th straight day of gains respectively to both finished 0.8% lower at the close of the Thursday session. Small-cap stocks continued to lag, with the Russel 2000 losing 1.6%. Tesla tumbled 5.5% amid analyst downgrades and unionization concerns. Eli Lilly declined by 4.5% on profit takings after an FDA approval of the company’s diabetes drug to market for obesity treatment as well.
Fixed income: A notably weak 30-year auction, along with hawkish remarks from Fed Chair Powell during an IMF conference, led to a significant uptick in Treasury yields. The $24 billion 30-year Treasury bonds were awarded at a yield 5.1bps higher than the when-issued level at the auction deadline, accompanied by a lower bid-to-cover ratio of 2.24 (compared to 2.35 previously). In response, longer-term Treasuries sold off. Following Powell's comments, which were more hawkish than his comments during the post-FOMC press conference last week, yields on short-end and 5-year notes surged, partially reversing the earlier steepening trend in the session. Notably, there were large block trades of 5-year T-note vs ultra-bond futures flattener following Powell's remarks. At the close, the 2-year yield rose by 9bps to 5.02% while the 5-year, 10-year, and 30-year yields increased by 14bps to 4.65%, 13bps to 4.62% and 15bps to 4.76% respectively.
China/HK Equities: The markets closed with mixed results: the Hang Seng Index pulled back by 0.3%, whereas the Hang Seng Tech Index climbed 0.1%. The CSI 300 showed a 0.1% increase. China’s PPI and CPI figures came in weaker than anticipated. Sectors such as property, healthcare, and consumer goods experienced declines, while EV and solar sectors outperformed. Longi and Trina both gained around 3% following a meeting between the Ministry of Industry and Information Technology and several solar companies. Xiaomi continued its upward trend, adding 2.3% and reaching its highest point in over 20 months. After the Hong Kong market close, Li Auto reported a 271% Y/Y and 21% Q/Q growth in revenue and a 23% Q/Q increase in net income.
FX: Powell’s hawkish remarks and a poor 30yr Treasury auction colluded to lift the US dollar overnight. Money markets pushed back the probability of the first rate cut being fully priced back to July from June previously. AUD was the underperformer, with RBA’s dovish tilt last week still underpinning and China data still uncompelling. AUDUSD broke below 0.64 decisively and slid to lows of 0.6358. GBP closed below the 50DMA and is now testing the 1.22 handle following a second day of dovish remarks from BOE’s Pill. EURUSD moved higher to 1.0725 earlier with some hawkish ECB commentary but Powell’s remarks brought a break below 1.07 to lows of 1.0659. Higher Treasury yields brought USDJPY back higher to test 151.40, heightening verbal intervention risks.
Commodities: Oil prices found some stability on Thursday with Brent closing at $80 after hitting three-month lows earlier. Some support came from comments from Saudi Arabia energy minister, Prince Abdulaziz bin Salman, who said that oil demand is healthy and blamed the recent drop in prices on speculators. This could mean risks of more production cuts, but market’s immediate focus remains on pricing out war premium and demand cuts amid central bank’s hawkish stance. Gold saw a rally to $1965 on some dovish remarks from Fed members earlier but eased later on Powell’s hawkishness.
- Fed Chair Powell’s comments at the IMF conference struck a hawkish tone as expected, in an attempt to pushback on the dovish repricing seen following the FOMC meeting and NFP miss last week. He said that the Fed is not confident they have achieved a sufficiently restrictive stance, and that if it becomes appropriate to tighten policy further they will not hesitate. Powell is attentive to risks that stronger growth could undermine its inflation progress, which he said could warrant a monetary response. He also said in the post-speech remarks that Fed is still trying to judge if they need to do more, then they will consider how long the Fed needs to keep rates high, adding the bigger mistake is not getting rates high enough.
- Other Fed members were still mixed. Barkin (2024 voter) said he is not yet convinced about inflation sliding back to 2% and he believed that they will need a slowdown. Bostic (2024 voter) said Fed policy stance is likely sufficiently restrictive, but will remain restrictive until the Fed is sure it will hit its 2% target.
- China’s CPI contracted by 0.2% Y/Y and 0.1% M/M in October, primarily due to a significant drop in food prices, especially pork prices. The 0.1% M/M decrease in service prices is disappointing, reflecting a deceleration in demand within the service sector. Additionally, China's PPI contracted by 2.6% YoY in October as deflation in downstream industries intensified.
- US initial jobless claims were close to consensus at 217k vs. 218k expected, and consistent with a still tight and resilient labour market.
- There was commentary from BoE Pill again, who said to assume rates are to stay restrictive for an extensive period while adding they do not need to raise rates to bear down on inflation.
Macro events: UK GDP (Sep/Q3), Norwegian CPI (Oct), US Uni. of Michigan Prelim. (Nov), Chinese M2/New Yuan Loans (Oct)
Earnings: Allianz, NIO, SATS
In the news:
- US says Israel agrees to daily pauses in Gaza attacks but fighting rages on (Reuters)
- Russian fuel export ban to be lifted next week (Reuters)
- Apple Risks $14 Billion Tax Bill in Setback at Top EU Court (Bloomberg)
- Ransomware attack on China's ICBC disrupts Treasury market trades (Reuters)
- Nvidia develops AI chips for China in latest bid to avoid US restrictions (FT)
- Illumina cuts annual profit forecast for second straight quarter (Reuters)
- OCBC Profit Beats on Growing Fees From Wealth, Lending (Bloomberg)
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