US equity futures are higher for the second day in a row, trimming their weekly drop to less than 1.0%, and led by small caps as investors looked past a jump in borrowing costs that cooled market sentiment earlier in the week. As of 8:00am ET, S&P futures are up 0.3% with Nasdaq futures up 0.2%. Megacap tech are mostly mixed: META +1.0% and AMZN +0.7%, while TSLA -1.7% after its second biggest one day gain in history following blowout earnings, and AAPL is down 1% after China Q3 smartphone sales decline. Treasury yields drop for a second day, down 1-2bps, and leaving the rate on the 10-year note up about one tenth of a percentage point in the week at 4.18%; the USD is flat. Commodities are mixed with oil higher, base metals mixed, and precious metals lower. Today, the macro focus will be Durable/Cap Goods Orders, as well as the final revision to Mich. Sentiment.
In premarket trading, Capri crashed 46%, the most ever, after a federal judge blocked a planned takeover by Tapestry due to handbag-market competition concerns. New York Community Bancorp fell 6% after reporting a provision for credit losses for the 3Q that missed the average analyst estimate. Western Digital gains 11% after the computer hardware firm posted 1Q profit that beat, with some analysts noting that the NAND flash memory segment is holding up better than feared. Here are some other notable premarket movers:
Traders’ attention is turning to US economic data next week, including a monthly payrolls report, for fresh clues on the scope for Federal Reserve interest-rate cuts. With the Nov. 5 presidential vote approaching, some analysts are predicting a stock market boost should Donald Trump win, while others warn it may reignite inflation and slow the pace of Fed easing.
“The markets at least are sniffing out a Republican sweep, and perhaps an electoral/Senate landslide,” Stephen Auth, chief investment officer for equities at Federated Hermes, wrote in a note. “Should this occur, and we think it very well might, we’d expect the modest rally we’ve experienced since July to pick up steam. A Trump win would likely favor the old economy financial, industrial, energy and small cap stocks.”
BofA strategist Michael Hartnett highlighted other pre-election trades. Investors are continuing to load up on gold as a hedge against inflation and populism, while other popular themes — like selling bonds and buying artificial intelligence stocks, are holding up. More in a follow up article later. Gold hit a record high on Wednesday and gold funds recorded their biggest weekly inflow since July 2020, according to the BofA strategists. The yield on US 10-year government bonds briefly breached 4.2% this week, the highest level since July, while shares of US chip company Nvidia Corp. touched an all-time high.
Meanwhile, Europe’s Stoxx 600 index retreated on Friday after lackluster results from companies including French Cognac maker Remy Cointreau SA and Mercedes-Benz Group AG. Gains in banks and energy shares offset losses in travel and personal care. The regional stocks measure is headed for a more than 1% drop in the week. Here are the biggest European movers:
“It’s been volatile,” said Vidya Anant, senior portfolio manager and head of sustainable equity funds Europe at DWS Asset Management. “We’re seeing a little bit of a risk-off behaviour, nobody’s willing to take the move into equities at this point especially just before the elections.”
Earlier in the session, a key gauge of Asian equities was little changed, set to cap a fourth-straight week of losses, as selling in Japan was countered by gains in China and Taiwan. The MSCI Asia Pacific Index swung in a narrow range, heading for a weekly loss of 2.4%. Japanese stocks were the biggest drags on the Asian gauge, slumping amid speculation the nation’s ruling coalition may lose its majority in the election this weekend. Stocks rose in mainland China and Hong Kong in early trading, as traders look for further stimulus to help restart a recently stalled market rally. Benchmarks also advanced in Taiwan and South Korea.A lack of details or a smaller-than-expected fiscal package could slow the positive momentum in Chinese stocks, May Yan, an analyst at UBS Global Asset Management, told Bloomberg Television. But “as we get more details on the policy side, the rally can continue into next year,” she said. Asian stocks more broadly have tailed off this month as well on concerns over Beijing’s measures will be enough to rescue the property sector and boost consumer spending. China’s central bank kept its one-year policy rate unchanged, after slashing funding costs by the most on record a month ago, suggesting authorities are cautiously pacing monetary stimulus to support the economy.
In FX, the Bloomberg Dollar Spot Index steadied, while Treasury yields ticked 1-2bp lower across the curve. The New Zealand dollar and Swedish krona led Group-of-10 losses against the greenback, while the Canadian dollar and British pound led gains. EUR/USD steadied at 1.0825, after data showed Germany’s business outlook improved in October. The yen was stuck in a range against the dollar, trading unchanged around 151.90 ahead of the weekend election that may see Japan’s ruling coalition lose its majority in the lower house of parliament for the first time since 2009. Such an outcome would weaken the yen and Japanese stocks, according to strategists.
Treasuries are marginally richer with gains led by the front-end, re-steepening curve spreads following Thursday’s sharp flattening move. US front-end yields are richer by 1bp-2bp with curve spreads slightly steeper. 10-year is 2bps lower on the day near 4.19% and 3bp richer vs bunds in the sector. German government bonds fall on a combination of better-than-expected data and slightly hawkish ECB speak. The expectations gauge of the German IFO survey rose to the highest since June while the business climate and current assessment readings topped even the highest estimates. Soon after, ECB’s Simkus said he couldn’t justify a 50-bp interest-rate cut at present. Shorter-dated bonds have bore the brunt of the selling with German two-year yields rising 3 bps to 2.10%.
In commodities, oil resumed its advance after a two-day drop, with traders keeping their focus on geopolitical developments in the Middle East and the supply outlook.WTI rose 0.5% to $70.50. Spot gold falls $17 to around $2,719/oz.
Today's US economic data calendar includes September preliminary durable goods orders (8:30am), October final University of Michigan sentiment (10am) and October Kansas City Fed services activity (11am). Fed speaker slate includes Collins at 11am
Market Snapshot
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A more detailed look at global markets courtesy of Newsquawk
APAC stocks were mostly higher following a similar handover from Wall St albeit with upside capped in a somewhat cautious session amid ongoing geopolitical concerns and heading into next month's key events. ASX 200 marginally gained and was led by notable strength in tech after WiseTech's CEO and founder stepped down due to a secret affairs and payments scandal, although the upside in the index was limited by weakness in consumer stocks. Nikkei 225 underperformed following recent yen strength and amid uncertainty ahead of Sunday's election. Hang Seng and Shanghai Comp rebounded from yesterday's selling with the help of strength in tech and automakers, while the PBoC conducted an MLF operation and kept the 1-year MLF rate unchanged at 2.00%, as expected.
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European bourses, Stoxx 600 (-0.2%) began the session very modestly in negative territory, but have clambered off worst levels in recent trade and now generally reside near session highs. European sectors hold a strong negative bias, with only a handful of sectors managing to hold afloat; Banks is lifted by post-earning strength in NatWest (+4.7%). Travel & Leisure is at the foot of the pile, hampered by losses in Accor. Autos are not quiet underperforming, but remain subdued after Mercedes-Benz (-2.6%) cut guidance. US Equity Futures (ES +0.2%, NQ +0.3%, RTY +0.5%) are entirely, albeit modestly so, in the green; continuing the upside seen in the prior session.
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Fixed Income
Commodities
Geopolitics: Middle East
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US Event Calendar
DB's Jim Reid concludes the overnight wrap
Risk assets began to stabilise over the last 24 hours, with the S&P 500 up +0.21% after 3 consecutive declines. Multiple factors helped to lift sentiment, including some decent earnings reports, upside US data surprises, as well as mounting speculation about faster rate cuts. But even with the modest gain, investors are still very cautious as we approach a pivotal couple of weeks, which will include a raft of earnings reports, the US jobs report next Friday, and then the US election in just 11 days’ time. So there’s been a reluctance to push the rally much further before we get some clarity on those, all of which will play a crucial role in shaping the outlook as we move into next year.
Several stories were driving markets yesterday, but one of the biggest moves was a significant bond rally across the Euro Area. That followed some weak data in the latest flash PMIs for October, which showed that business activity was still subdued at the start of Q4. The Euro Area composite PMI was little changed at 49.7 (vs. 49.6 previous), so still beneath the 50 mark that separates expansion from contraction. And the details leant on the dovish side with Euro Area composite output prices down to their lowest since early 2021, while Germany’s composite employment PMI fell further into contractionary territory at 45.8 (vs 46.3 prev.).
All that meant investors continued to speculate that the ECB might speed up their rate cuts, not least as both the Fed and the Bank of Canada have now done so. Indeed, a larger 50bp cut at the ECB’s next meeting in December was priced in as a 42% probability by last night’s close. Moreover, comments from several officials seemed to leave that open as an option, with Latvia’s Kazaks saying that “everything should be on the table”. From the dovish side of the Governing Council, Portugal’s Centeno said that “we need to consider the possibility of moving in bigger steps”, while from the hawkish side the Austria’s Holzmann said that a 50bp cut is “unlikely though not impossible”. In turn, that led yields to fall across all maturities, including those on 10yr bunds (-3.8bps), OATs (-4.3bps) and BTPs (-4.7bps).
In the meantime, investors have remained closely focused on the US election, which is continuing to influence markets. There weren’t a great deal of new political headlines over the last 24 hours, but the polls in the battleground states have remained very tight and within the margin of error. For instance, an Emerson poll of several swing states yesterday had Trump very marginally ahead, including a 1pt lead in Pennsylvania and Wisconsin, and a 2pt lead in North Carolina. But given the margin of error is just over three points for those polls, this remains a very tight race, as reflected in various prediction markets and forecast models. For instance, the RealClearPolitics average of betting markets gives Trump a 59.5% chance of victory this morning, whilst FiveThirtyEight’s model sees Trump as a 51% chance to win.
Ahead of that, US Treasuries rallied yesterday alongside their European counterparts, which unwound a notable move higher for yields over recent sessions. In fact by the close, the 10yr yield was down -3.4bps on the day to 4.21%, and overnight they’ve seen a further -2.4bps decline to 4.19%. Lower yields also received support from the latest decline in oil prices, with Brent crude down –0.59% on the day to $74.52/bbl.
Here in the UK however, gilts underperformed yesterday, with the 10yr yield up +3.6bps on the day to 4.24%. It also meant that the UK-German 10yr yield spread widened to 197bps, which is the widest it’s been since August 2023. The moves come ahead of the new government’s first Budget next week, with Chancellor Rachel Reeves confirming yesterday that the government would change the way it measures debt, in order to fund extra investment.
For equities, it was a fairly subdued day on both sides of the Atlantic, but the major indices did manage to post modest gains for the most part. That included the S&P 500 (+0.21%), which came back from a run of three consecutive declines, with Tesla (+21.92%) seeing the biggest gain in the entire index following its earnings results after the previous day’s close. This marked Tesla’s largest daily rise since 2013, back when the company was worth only around 2% of its current $836bn market cap. So the move left the Magnificent 7 group up +3.26%, closing at its highest level since mid-July, and less than -4% beneath its all-time closing high. Nevertheless, some areas posted a weaker performance, with around half of the S&P 500’s constituents lower on the day as materials (-1.42%) and industrials (-0.71%) sectors led on the downside. Meanwhile in Europe, the main indices only just managed to eke out some gains, with the STOXX 600 up +0.03%.
One factor supporting US equities was upbeat economic data, which continued a run of positive data surprises out of the US. For instance, the weekly initial jobless claims fell back to 227k (vs. 242k expected) over the week ending October 19, moving back down to their levels before the recent hurricanes impacted the figures. In addition, the flash PMIs from the US were also decent, with the services PMI at 55.3 (vs. 55.0 expected), while the manufacturing PMI was also on the upside of expectations at 47.8 (vs. 47.5 expected). Also supporting a soft landing narrative, the composite PMI output price series fell to its lowest since 2020. Finally, the new home sales data for September came in at an annualised rate of 738k (vs. 720k expected), the highest in over a year.
Overnight in Asia, there’s been a divergent performance across the region this morning. In Japan, the Nikkei is down -0.98%, which comes ahead of the country’s general election on Sunday. Moreover, the Tokyo CPI data for October overnight was marginally stronger than expected, with core-core CPI picking up to +1.8% (vs. +1.6% expected). But elsewhere there’ve been stronger gains, and the Hang Seng (+1.13%), CSI 300 (+1.06%), Shanghai Comp (+0.82%) and the KOSPI (+0.33%) have all risen this morning. Otherwise, US equity futures are struggling to gain traction, with those on the S&P 500 (-0.04%) and the NASDAQ 100 (-0.03%) both pointing very slightly lower.
To the day ahead now, and data releases from the US include preliminary durable goods orders for September, along with the University of Michigan’s final consumer sentiment index for October. Elsewhere, we’ll get the ECB’s Consumer Expectations Survey for September, and in Germany there’s also the Ifo’s business climate indicator for October. Central bank speakers include the Fed’s Collins and the ECB’s Villeroy.
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