US Equities: Stocks rallied on sharp declines in Treasury yields after the FOMC statement that acknowledged financial conditions had tightened. The S&P 500 gained 1.1%, reaching 4,238, and the Nasdaq 100 surged 1.8% to 14,665. Information technology and communication services led the market’s advance. AMD gained 9.7% on an upbeat AI chip sales outlook despite a below-expectations Q4 guidance. Today, eyes will be on the earnings from Apple. The street consensus as surveyed by Bloomberg is looking for an increase in revenue to $89.3 billion and EPS to $1.39.
Fixed income: Treasury yields fell after a larger-than-expected decrease in the ISM manufacturing index with weak underlying composition and a smaller-than-expected job gain in the ADP report. The market rallied further following the Treasury announced $112 billion in supply ($48 billion 3-year notes, $40 billion 10-year notes, and $24 billion 30-year bonds) for next week, which was below $114 billion expected. After the Fed left rates unchanged and noted “tighter financial and credit conditions” in its statement, Treasury yields fell further. The word “financial” was newly added as the language last time mentioned only “credit conditions”. The 2-year yield declined 14bps to 4.94% while the 5-year and 10-year yields were sharply lower by 20bps to 4.65% and 4.73% respectively.
China/HK Equities: Markets’ reactions to the slide of the Caixin China Manufacturing PMI back into contraction and the news coming out from the top-level strategic Central Financial Work Conference were muted. The Hang Seng Index ticked down 0.1% and the CSI300 was nearly unchanged. Technology names traded mixed while sportswear stocks outperformed. Chinese food and beverage names listed in the Hong Kong bourse plunged but Kewichow Moutai A-share surged 5.7% on price increases.
FX: While Powell tried to signal a hawkish hold, there was a sense that the Fed has come to an end of its rate hike cycle with little being read out of the strong Q3 GDP report or the blowout September jobs numbers. This saw the dollar weakening after Powell’s presser as Treasury yields slumped, and once again, AUD proved the most sensitive to the US yields. AUDUSD shot up above 50DMA at 0.6390 which has provided an upside barrier for over a month, and tested a break of 0.64 at last look. Yen also recovered, with USDJPY back below 151 amid lower US yields and a ramp-up in verbal intervention. EUR recovered back above 1.0550 but still remains sub-1.06. GBPUSD is the focus today as it moves above 1.2160 and BOE announces a policy decision and vote split or language suggesting dovishness could bring a test of recent lows around 1.2070 again.
Commodities: Crude oil struggled to find direction with the Israel-Hamas overhang remaining but risks not accelerating rapidly, and the Fed’s less hawkish message supports a growth outlook while China’s economic numbers paint a less supportive picture for now. A rise in inventories in the US also weighed on sentiment. Commercial stockpiles of crude gained 773k bbl last week, according to EIA data. Meanwhile, Gold gyrated around recent levels, surprisingly not finding a bid despite a run lower in dollar and Treasury yields as risks of a credit event possibly pared with the Fed message sounding less hawkish.
- The Fed left rates unchanged at 5.25-5.50%, in line with expectations and market pricing while there were only slight changes to the FOMC statement and the door for further rate hikes was left open. Growth expectation was changed from ‘solid’ to ‘strong’ and there was some acknowledgement of higher longer-end yields, with tighter financial conditions mentioned alongside tighter credit conditions. However, Powell was clear that the Fed was not thinking about rate cuts yet.
- US ADP private payrolls rose by 113k in October, less than the 150k expected by the consensus. Job openings increased 56k to 9.55m from a downwardly revised August, though were a little above the 9.4mn expected. The ratio of job openings to unemployed was steady at 1.5, well down form the peak of 2 but remaining above prepandemic levels near 1.2. In contrast, the quits rate held steady at 2.3%, in line with pre-pandemic levels, and the hiring rate held at 3.7%, a little below its 2019 average. Labor market loosening trends remain slow.
- US ISM manufacturing fell to 46.7, coming in below the expected and prior 49. Looking at the internals, new orders fell to 45.5 (prev. 49.2) while employment declined back into contractionary territory at 46.8 from 51.2. Prices rose to 45.1 from 43.8.
- Caixin China Manufacturing PMI fell to 49.5 in October from 50.6 in September, being notably weaker than the median forecast of 50.8 and re-entering the contraction territory.
Macro events: BoE and Norges Bank Policy Announcements, EZ Final Manufacturing PMI (Oct) exp 43 vs. 43 prior, US Factory Orders (Sep) exp 2.3% MoM vs. 1.2% prior, US jobless claims exp 210k vs. 210k prior
Earnings: Apple, Eli Lilly, Novo Nordisk, Shell, ConocoPhillips, Starbucks
In the news:
- FOMC statement
- Treasury quarterly refunding announcement
- Nick Timiraos - Fed Extends Pause on Rate Hikes but Keeps Door Open to Moving Higher (WSJ)
- DuPont cuts revenue view on sluggish demand, flags restructuring (Reuters)
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