Summary: US and European equity futures point to continued weakness after US stocks ended lower on Thursday following a volatile session pivoting around Fed Chair Powell’s speech. While sending a signal the Fed is done hiking rates, his claim that monetary policy was not causing a recession saw US 10-year Treasury yields hit a fresh cycle peak at 4.99%. The war premium in crude oil jumped again as the Mideast crisis deepened while gold and the Swiss Franc continue to attract haven demand. China and Hong Kong stocks plunged further as concerns over the property sector and local government debt weighed on sentiment. Another risk off day probably awaits with Mideast tensions and a weak earnings calendar unlikely to attract buyers ahead of the weekend.
The Saxo Quick Take is a short, distilled opinion on financial markets with references to key news and events.
Equities: Stocks had a choppy ride around Powell’s speech, initially higher but sinking to close 0.9% down for both the S&P 500 and the Nasdaq 100. This came after the Fed Chair stated that monetary policy wasn't causing a recession, and the 10-year Treasury yield surged toward 5%. In the realm of individual stocks, Tesla tumbled 9.3% due to disappointing Q3 results, while Netflix soared by 16.1% on the back of strong subscriber gains. AT&T also surged by 6.4% after reporting Q3 results that surpassed estimates and raising its free cash flow guidance.
FX: Dollar pushed lower on Thursday ahead of Powell’s speech, and his cautious message caused some wobbles before focus shifted back to geopolitical worries with Israeli defense chief warning of an invasion and reports of drone attacks in Iran and Syria. Safe haven CHF was the biggest gainer on the G10 board, with USDCHF below 0.8930 and EURCHF below 0.9440. EURUSD attempted another break above 1.06 but failed, and AUDUSD also still getting supported at 0.63. USDJPY very close to 150 and verbal jawboning from authorities has picked up.
Commodities: Oil prices raced higher on Thursday as deepening Middle East tensions puts market on edge, while demand concerns eased as Chair Powell did not clearly signal any more rate hikes. Gold’s impressive performance continues and with silver and platinum being left behind this rally is not only driven by a haven and speculative momentum bid, but also rising concerns the rapid rise in US Treasury yields may cause something to brake, especially as unrealised losses on “held to maturity” positions continue to explode. Focus on $1885/90 area of resistance next. Meanwhile, US agricultural futures have seen a strong week with gains being led by wheat and corn.
Fixed Income: US Treasuries are rebounding this morning; however, yields remain at a multi-decade high. Bond futures pushed back on interest rate cuts for next year and expect the Federal Reserve to cut rates only to 5% by the end of 2024. Powell speech reiterated the higher-for-longer message, but alluded to the fact that we might be already at the peak of the hiking cycle, and there might not be need for further hikes if rates continue to rise. Overall, we remain defensive, favour short-term maturities and quality.
Volatility: Powell’s speech on Thursday caused wild swings on the stock market, initially boosting the S&P 500 and Nasdaq but ultimately sending them lower to close negative on the day. VIX passed the important $20 mark, ending at 21.40. Vix Volatility (VVIX) rose to 116.47, a 7-month high, suggesting that market volatility is here to stay and could even get worse. Tesla options volume surged to 3.6 million contracts after earnings, with a put/call ratio near 1, suggesting a neutral market outlook after the sharp drop in its share price.
Technical analysis highlights: S&P 500 downtrend, support at 4,195. Nasdaq 100 downtrend support at 14,254. DAX is likely to test 14,933 support. USDJPY uptrend intact. EURUSD could test resistance at 1.0635. Gold testing resistance 1,985. WTI Crude oil resumed uptrend, could test previous peak. US 10-year yields expect setback after reaching 5%
Macro:
In the news:
Macro events (all times are GMT): UK Retail Sales (Sep) exp –0.4% MoM & -0.2% YoY inc Auto Fuel vs 0.4% & -1.4% prior (0600)
Earnings events: American Express, Shlumberger
For all macro, earnings, and dividend events check Saxo’s calendar and Peter Garnry’s earnings update here
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