Financial Markets Today: Quick Take – October 25, 2022
Saxo Strategy Team
Summary: Equity markets managed a comeback from an intraday sell-off yesterday as treasury yields eased back lower after briefly threatening to challenge the cycle highs. Today is the first day of the blitz of earnings releases this week and will include Microsoft and Google-parent Alphabet reporting after the close of trading today. In Asia, even while the US dollar treads water, the Chinese yuan slipped to a new cycle low versus the greenback after a weak official fixing.
What is our trading focus?
Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I)
US equities are continuing to climb ahead of key earnings tonight with S&P 500 futures trading around the 3,811 level this morning and potentially could reach for the 50-day moving average around the 3,876 level if we get better than expected Q3 earnings over the coming days.
Euro STOXX 50 (EU50.I)
Momentum is extending this morning with STOXX 50 futures trading around the 3,542 level with yesterday’s high at the 3,551 level being the key resistance level on the upside. The key drivers are lower energy prices caused by recently very mild weather in Europe. If flows into EUR continues, European Q3 earnings surprises, and energy prices remain in easing stance then the 3,600 level could be the next big level to be tested.
FX: USD treads water, CNH continues broad plunge
The continued local softness in US yields and resilient risk sentiment here have kept the US dollar trading sideways and kept USDJPY out of the headlines. But USDCNH extended sharply higher after a surprising weak fix for the onshore CNY last night, and USDCNH spiked all the way to 7.368 before the move was cut about in half by later in the session. China is clearly happy to allow the CNH to weaken broadly, with EURCNH, for example, rallying hard since earlier this month and trading near the range high of the last year close to 7.30.
Crude oil (CLZ2 & LCOZ2)
Crude oil has settled into a relatively tight range, in Brent between $90 and $95 per barrel, while the market assesses the overall impact on demand from the global economic slowdown against a tight supply situation, especially in the distillate market, which is likely to worsen once OPEC producers in the Middle East reduce production of high yielding middle distillate crude oil from next month. In addition, EU sanctions against Russia starting in December is already having an impact on supplies reaching the region. Overall, the oil market judging from the bullish curve structure remains tight and may tighten even further during the coming months. Focus this week on earnings from Exxon, Shell and their Big Oil peers.
US treasuries (TLT, IEF)
US treasury yields threatened back higher toward the cycle highs yesterday, but the move was tamed as treasuries found support. The 10-year yield has been almost unchanged on a daily close basis for the last three days running (near 4.22%). The circulation of an article from “Fed whisperer” Nick Timiraos suggesting that the Fed will consider slowing the pace of hikes after the November 2 FOMC meeting saw no follow-on drop in short yields. The treasury will auction 2-year t-notes today, 5-year notes tomorrow and 7-year notes on Thursday.
What is going on?
EU gas (TTFMX2) traded below €100/MWh on Monday
for the first time since June with the “Next hour” contract briefly trading negative following a warm start to the heating season, a development that looks set to continue in the next couple of weeks, thereby leaving storage sites near full. While a great deal of weather-related volatility, and potentially even lower prices, can be expected at the front of the curve, it is important to watch TTFMG3, the peak winter demand contract for February, which remains anchored above €140/MWh. However, the longer the warm spell continues, and LNG arrivals remain strong the worry about next winter will fade, thereby providing a much-needed boost to industries trying to navigate through the current crisis. EU energy ministers meet today to discuss the emergency actions proposed by the Commision last week.
Ugly flash Eurozone PMI for October
There is nothing new here. As expected, activity weakened more quickly in October. The eurozone October business activity is down at 47.1 versus prior 48.1 and expected at 47.6. It looks increasingly clear that the Eurozone economy is set to contract in the fourth quarter. The factors driving the contraction in activity are well-known: fears of a recession, widespread and higher inflation (especially in the services sector), worries about high inventories, weaker than expected sales etc. We all know the next step: companies will start to cut costs, reduce their employment expectations for 2023 and ultimately cut their labor force. All of this even before we enter winter. This is a high-risk period for the Eurozone due to the energy crisis and potential energy disruptions in some countries.
DSV lifts outlook
Europe’s largest logistics company is raising its EBIT outlook this morning as Q3 results are better than estimated with revenue at DKK 60.6bn vs est. DKK 56.3bn and adjusted net income of DKK 4.8bn vs est. DKK 4.7bn. The company also says that it expects a gradual decline in profitability as logistics prices are coming down from their high prices reached during pandemic bottlenecks in the global supply chain.
SAP beats on revenue in Q3
Europe’s largest software company reports Q3 revenue of €7.8bn vs €7.6bn driven by strong performance in its cloud business.
HSBC Q3 results beat estimates
The bank reports this morning Q3 adjusted revenue of $14.3bn vs est. $13.5bn and adjusted pre-tax profits of $6.5bn vs est. $6.1bn. The bank is also lifting its outlook and announcing the replacement of its CFO.
What are we watching next?
Orpea could get a bailout by the French government
The French retirement home group Orpea is facing a rough time since allegations of systematic mistreatment and patient abuse were discovered earlier this year. Yesterday, the stock was suspended by the French regulator AMF on rumors that the French government could step in to save the company. The stock is down 80 % year-to-date. Orpea is facing a mountain of debt (around €9.5bn). The group operates nearly 1,200 homes worldwide, with around 350 of them in France. It used to be one of the best performing stocks in the French stock market.
Rishi Sunak set to become next UK Prime Minister, October 31 budget statement on tap
Sunak is said to be keeping Jeremy Hunt on as Chancellor and is expected to proceed with prudence in keeping the UK’s fiscal deficits on a more sustainable path, with the austerity likely to mean a harder landing for the UK economy and the Bank of England possibly unwilling to hike interest rates as much as the market expects (or forced to do so because inflation remains stubborn and the currency weak). EURGBP jumped back higher toward 0.8750 yesterday after selling off on the news that Boris Johnson would not run for the leadership.
Earnings to watch
Today’s US earnings focus is on Microsoft, Alphabet, Visa, UPS, General Electric, Halliburton, and Enphase Energy. Microsoft’s business model is robust due to its large market share and dependency for its software, but the company is facing rising input costs on wages and energy cost for running its datacenters. Alphabet could post Q3 weakness as Snap’s Q3 results last week showed advertising weakness. UPS earnings are important for insights into the global economic slowdown.
- Today: First Quantum Minerals, Canadian National Railway, DSV, UPM-Kymmene, SAP, HSBC, ASM International, Norsk Hydro, Novartis, UBS, Kuhne + Nagel, Microsoft, Alphabet, Visa, Coca-Cola, Texas Instruments, UPS, Raytheon Technologies, General Electric, 3M, General Motors, Valero Energy, Biogen, Enphase Energy, Halliburton, Spotify Technology
- Wednesday: Dassault Systemes, Mercedes-Benz, BASF, Deutsche Bank, PingAn Insurance, CGN Power, UniCredit, Canon, Barclays, Standard Chartered, Heineken, Aker BP, Iberdrola, Banco Santander, SEB, Meta Platforms, Thermo Fisher Scientific, Bristol-Myers Squibb, ADP, Boeing, ServiceNow, Ford Motor, Twitter
- Thursday: ANZ, Anheuser-Busch InBev, Argenx, Shopify, Teck Resources, Neste, Kone, TotalEnergies, EDF, STMicroelectronics, PetroChina, China Life Insurance, CNOOC, Oriental Land, Shin-Etsu Chemical, Takeda Pharmaceuticals, Hoya, FANUC, Shell, Lloyds Banking Group, Universal Music Group, Repsol, Ferrovial, Hexagon, Evolution, Credit Suisse, Apple, Amazon, Mastercard, Merck & Co, McDonald’s, Linde, Intel, Honeywell, Caterpillar, Gilead Sciences, Pioneer Natural Resources
- Friday: Macquarie Group, OMV, ICBC, China Merchants Bank, LONGi Green Energy Technology, Midea Group, Imperial Oil, Danske Bank, Sanofi, Airbus, Volkswagen, China Construction Bank, Agricultural Bank of China, Bank of China, BYD, China Shenhua Energy, Eni, Keyence, Hitachi, Denso, Equinor, CaixaBank, Wilmar International, Swiss Re, Exxon Mobil, Chevron, AbbVie, NextEra Energy, Colgate-Palmolive, Royal Caribbean Cruises
Economic calendar highlights for today (times GMT)
- 0800 – Germany Oct. IFO Business Climate survey
- 0855 – UK Bank of England Chief Economist Huw Pill to speak
- 1200 – Hungary Central Bank Decision
- 1300 – US Aug. S&P CoreLogic Home Price Index
- 1400 – US Oct. Consumer Confidence
- 1400 – US Oct. Richmond Fed Manufacturing Index
- 1700 – US Treasury to auction 2-year notes
- 1755 – US Fed’s Waller (Voter) to speak
- 2030 – API Weekly Oil and Fuel Stocks Report
- 0000 – New Zealand Oct. ANZ Business Confidence
- 0030 – Australia Q3 and Sep. CPI
Latest Market Insights
Q4 Outlook 2022: Winter is coming
- Winter is coming to the financial markets as central banks are tightening their grip. How spring will look is still a question.
European energy crisis: it will get worse before it gets betterThe winter in Europe will be tough, but whether the result is political chaos or sustainable, innovative solutions is still undecided.
A difficult and volatile quarter awaitsAs the year draws to an end, commodities continue to be at centre stage of the world with growth pockets political uncertainty.
The bright side: crises drive innovationThe positive spin on crises is that they come with solutions. It is worrisome that deglobalisation may be a response to this crisis.
Green transformation in China: renewable energy and beyondGoing green, China needs to span numerous energy sources to ensure stability, as every source comes with a challenge.
Asia: Intermittent solutions, but a faster renewable adoption curveAsian energy supply is being squeezed. This and the adoption of renewables may change the investment sentiment in the region.
FX: A Fed thaw needed to deliver a sustained USD turn lowerThe US Dollar can keep momentum when the Federal Reserve continues to tighten, leaving the rest to play to their drum.
Autumn can become ugly for equities and bond holders. Comfort for Dollar longsTechnical analysis suggests that equities could face a tough Q4 as could fixed income. US Dollar positions could provide some upside.
The next stock market sector to watch, with stocks going nuclearAs the world scrambles to find affordable, sustainable energy, nuclear is getting attention from politicians and investors alike.
The crypto space is getting cold when the hype disappearsCryptocurrencies face a winter of their own as retail investors and governments are asking tough questions.