US Equities: The pause in the surge in bond yields helped stocks to find their feet and rally, led by consumer discretionary and information tech. The Nasdaq 100 surged 1.5% to 14,776 while the S&P500 added 0.8% to 4,264. Alphabet gained 2.1% after the tech giant launched Pixel 8 and 8 Pro mobile phones.
Fixed income: US Treasuries took a pause in the recent selloff following a softer ADP private sector employment report, a decline in the employment component in the ISM Services report, and an over 5% decline in crude oil. The short end gained the most, with the 2-year yield finishing 10bps lower at 5.05%. The 10-year yield fell by 6bps to 4.73%. For a discussion on the dynamics driving the spike in Treasury yields, read Saxo CIO Steen Jakobsen’s article. Additionally, this other Saxo article delves into the impact of term structure on bond yields.
China/HK Equities: Hong Kong stocks continued to slide but remained relatively calm compared to other bourses in the APAC region, such as Japan and South Korea, while the mainland market remained closed. High-frequency traffic and booking data were upbeat in China over the Golden Week, but investors were not impressed. The Hang Seng Index slid by 0.8%.
FX: The relief in bonds brought a sell-off in dollar, with GBP and CHF posting the biggest gains on the G-10 board. GBPUSD rose to 1.2177 from lows of 1.2037 while EURUSD rose just above 1.05. The respite in US yields did not however bring much of a relief to JPY, with USDJPY still trading close to 149. AUDUSD also bounced higher from 0.63 with NZD just above 0.59, but the bounce remains underwhelming. CAD and NOK underperformed due to the sharp plunge in oil prices.
Commodities: Crude oil prices saw a sharp plunge, down 5% in its biggest slide in a year, bringing WTI below $85 and Brent below $85. Demand risks were back in the focus as US labor data showed cooling, and inventory data also signalled weak seasonal demand for gasoline. EIA data showed 2.2mln barrels crude stock draw offset by a net 5.2mln barrel build in the products. Meanwhile, the OPEC+ JMMC meeting affirmed no change to the group's output policy, as heavily touted. The drop came despite Saudi confirming it would continue its voluntary 1mln barrels/day supply cut until the end of 2023.
- US ADP employment data came in significantly below expectations with headline jobs at 89k (lowest since January 2021) from 180k and below 150k expected. Median pay rose 5.9%, the smallest gain in two years. Focus turns to jobless claims today before NFP tomorrow were consensus is for +170k gain from +187k in August.
- US Services ISM was broadly in line with consensus, falling to 53.6 from 54.5. The contrast to the S&P Global Services PMI remains, the latter coming in at 50.1 in September (from the 50.2 preliminary read).
- The RBNZ left the Official Cash Rate unchanged at 5.5% at the Monetary Policy Review yesterday, and the message on higher-for-longer was repeated.
Macro events: US Initial Jobless Claims (Sep 30) exp 210k vs. 204k prior.
In the news:
- UAW, automakers signal progress after days of stalemate (Reuters)
- Biden announces $9 billion more in student debt relief (Reuters)
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