US Equities: Stocks pared initial losses and went steadily higher in the afternoon with all sectors within the S&P500 finished higher. The S&P 500 added 0.7% to 4,194 and the Nasdaq 100 rose 0.5% to 14,410. Despite beating revenue and earnings estimates, Caterpillar plunged 6.7% after the heavy machinery maker noted a shrinking backlog.
Fixed income: Treasury yields reversed the London hour decline to edge up higher, after a larger-than-expected increase in the Q3 employment cost index driven by a sharp rise in state and local government employee wages. The smaller-than-expected fall in the Conference Board consumer confidence index added further to the selling pressures on the long end of the curve. The OIS curve is pricing in almost zero probability of a rate hike at today’s FOMC and a 25% chance of an increase in the policy rate in December. Additionally, the Treasury is set to announce the Quarterly Refunding 3, 10 and 30-year auction sizes on Wednesday.
China/HK Equities: The Hang Seng Index dropped by 1.7% and the CSI300 slid by 0.3% after China’s Oct PMI data came in notably weaker, causing investor concerns about the fragility of the Chinese economic recovery. Internet stocks and EV names were under pressure and weighed down the Hang Seng Tech Index which plunged 2.5%.
FX: The Dollar rose back higher after retreating earlier as there remained no alternative in the FX markets. JPY slumped following BOJ’s usual dovish note disappointing those waiting for normalization, USDJPY rose back above 151 and EURJPY broke above 160 to fresh highs since 2008. EURUSD saw some momentum earlier to break above 1.0650 but disappointing GDP and a sharp drop in CPI hinted that the ECB tightening cycle has ended, bringing EURUSD back below 1.06. AUDUSD is down as well amid China PMI miss but still finding support at 0.63.
Commodities: Energy markets are the underperformer in the commodity space in October despite the Middle East crisis fears. Crude oil prices rose slightly yesterday after over 3% drop at the start of the week. China’s miss in PMIs and Eurozone and Canada’s GDP prints however continued to highlight the demand weakness. Gold attempted another break of the $2000 level as a strong dollar weighed. Copper was resilient despite the miss in China PMIs.
- Bank of Japan surprised dovish yet again, despite a Nikkei report last night suggesting that the 10-year yield target could be revised higher. The central bank introduced flexibility in its YCC program, saying that the 1% cap will be a reference rather than a strict ceiling. The inflation outlook was raised, but fiscal 2025 core inflation expectations are still below 2% suggesting BOJ is still of the view that inflation is transitory. Read the full review and implications for JPY in yesterday’s Macro/FX note.
- Eurozone Q3 GDP growth fell into negative territory at -0.1% QoQ from 0.2% previously, suggesting there may be a risk of a technical recession in H2. October CPI also came in below expectations, with headline at 2.9% YoY vs. 4.3% previously and 3.1% expected and core as-expected at 4.2% YoY vs. 4.5% previously. Data is a clear sign that the ECB rate hike cycle may have ended.
- US consumer confidence dropped to 5-month lows as it came in at 102.6 for October, from 104.3 last month (above 100.5 expected). Both the present situation and expectations eased from September, but September data was revised higher. Data suggests US consumer is weakening but the pace remains modest.
- The US Employment Cost Index rose 1.1% Q/Q in Q3, surpassing the median forecast of 1.0% and the prior quarter’s 1.0%.
- China’s manufacturing PMI slid below the expansion/contraction threshold once again to 49.5 in October. Likewise, the new orders sub-index declined to 49.5 from 50.5 and the new export orders sub-index slid to 47.5 from 47.6. Output price sub-index tumbled to 47.7 from 53.6, Non-manufacturing PMI also decelerated to 50.6 from 51.7, below the Bloomberg consensus of 52.0, with deceleration in the construction sector to 53.5 from 56.2 as well as in the service sector to 50.1 from 50.9. The weaker-than-expected report signified the fragility of China’s economic recovery.
- China concluded a 2-day Central Financial Work Conference (previously known as the National Financial Work Conference) held on Oct 30 and 31. The readout of the conference emphasized preventing financial risks and deepening supply-side structural reforms.
- Hong Kong’s Q3 GDP growth rose to 4.1% Y/Y from 1.5% in Q2 but significantly below the median forecast of 5.2%.
Macro events: FOMC rate decision exp. Fed Fund Target remains at 5.25%-5.50%, ADP Employment Change (Oct) exp. +150k vs +89k prior; JOLTS Job Openings (Sep) exp. 9,400k vs 9,610k prior; US ISM Manufacturing (Oct) exp. 49.0 vs 49.0 prior; US Quarterly Refunding announcement, China Caixin manufacturing PMI (Oct) exp. 50.8 vs 50.6 prior.
Earnings: Qualcomm, CVS Health, Airbnb, Humana, PayPal
In the news:
- Caterpillar's shares fall on fears demand may have peaked (Reuters)
- Pfizer swings to quarterly loss due to Paxlovid, Covid vaccine write-offs (CNBC)
- AMD’s AI Optimism Helps Investors Look Past Tepid Forecast (Bloomberg)
- Nvidia’s $5 Billion of China Orders in Limbo After Latest U.S. Curbs (WSJ)
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