Summary: The 10-year Treasury yield dropped by 20bps to 4.73% after weaker ISM manufacturing data, a smaller-than-expected supply in notes and bonds next week, and the Fed’s acknowledgement of tighter financial conditions in its post-FOMC statement. The fall in Treasury yields propelled equities higher, with the S&P 500 rising 1.1% and the Nasdaq 100 surging 1.8%. The dollar weakened. AUDUSD shot up above the 50DMA at 0.6390. Yen also recovered, with USDJPY back below 151. On Thursday, all eyes are on Apple’s earnings announcement and BOE’s policy decision.
The Saxo Quick Take is a short, distilled opinion on financial markets with references to key news and events.
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.
Macro:
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:
For all macro, earnings, and dividend events check Saxo’s calendar.
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