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.
- More Fed speakers struck a less hawkish chord much like their peers from the day before. Kashkari (voter) said it is possible that higher bond yields could leave less for the Fed to do. Bostic (2024 voter) was clearly dovish and said that the Fed does not need to raise rates. Waller (voter) stayed on the message of achieving 2% inflation while Daly also said that the Fed has more work to do. Fed whisperer Timiraos, in a WSJ piece, also said higher bond yields are likely to extend the Fed rate pause and officials are signaling that a run-up in long-term interest rates might substitute for a further central bank rate hike.
- US NFIB survey (Small Business Optimism) slipped to 90.8 from 91.2, coming in a notch below expectations (91.0).
- Updated IMF global forecasts showed little revision to its global growth outlook, with GDP projected to slow from 3.5% last year to 3.0% in 2023 and 2.9% in 2024. These projections stay well below the 2000-2019 average of 3.8%. Meanwhile, inflation outlook was upgraded to 6.9% in 2023 and 5.8% in 2024, an increase of 0.1%pts for 2023 and 0.6%pts for 2024. Inflation is not expected to return to target to 2025 in most countries, underscoring the need of central banks to keep policy tight.
Macro events: EIA STEO, US PPI (Sep) exp 1.6% YoY vs. 1.6% prior, FOMC Minutes
- PepsiCo reported robust Q3 revenue and earnings, beating street estimates. The company raised its core constant currency EPS growth to 13% from the previous guidance of 12%.
In the news:
- Israel prepares ground offensive; Biden pledges support after Hamas attacks (Reuters)
- Damage to gas pipeline, telecom cable connecting Finland and Estonia caused by ‘external activity’ (AP)
- BOJ mulls raising inflation outlook to near 3% for FY 2023 (Kyodo)
- European Central Bank policymakers consider a spike in Italy's bond yields to be justified by the government's projection of higher deficits, but see it as a warning sign that should cool talk of ending a bond-buying scheme early (Reuters)
- China Mulls New Stimulus, Higher Deficit to Meet Growth Goal (Bloomberg)
- PepsiCo beats Wall Street estimates, raises earnings outlook (CNBC)
- Country Garden fails to repay a loan and warns that it is unlikely to pay off all its international debt obligations (WSJ)
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