US equity futures are lower for the third day in a row on a busy earnings day with yield and the dollar both extending gains as the prospect of a Trump presidency sparking more inflation and leading to less aggressive rate cuts continued to weigh on markets. As of 8:00am ET S&P and Nasdaq futures are down 0.3%, with megacap tech names mostly lower: NVDA -0.4% and TSLA -0.6%. SBUX fell -5.3% as it missed revenue expectation; MCD is -6.0% lower given the E. Coli headlines. Global stocks trade mostly lower ex China with attention remaining on the micro before NFP next week and the Election/FOMC the week after. Bond yields are 2bp higher pushing the 10Y as high as 4.24%, the highest since July 26. USD surges while the yen plunges as low as 153 as yields on Japan’s 40-year notes reached the highest in 16 years. Commodities are mixed: base metals are higher, oil and precious metals are lower: oil fell 1.0%. Today, key macro data includes Existing Home Sales and Fed Beige Book. We will have a busy earnings schedule across sectors, including BA, IBM, KO, T, TMUS, TSLA, and VRT.
In premarket trading, Tesla was down 0.6% ahead of earnings this afternoon, while Boeing shares were trading marginally higher after another disastrous quarter. In other single stocks, Enphase Energy was down more than 12% as the solar equipment maker forecast disappointing revenue for the fourth quarter. McDonald’s (MCD) drops 6% after a severe E. coli outbreak tied to the restaurant chain’s Quarter Pounders sickened dozens of people in the US and killed one. Vertiv (VRT) fall 7% after the electrical power equipment company issued a fourth-quarter sales forecast that trailed Wall Street expectations. The company also reported a slowdown in order growth from the previous quarter. Starbucks (SBUX) drops 4% after pulling guidance for 2025 after sales plunged for a third consecutive quarter. Here are the other notable premarket movers:
The broader risk-off tone comes as investors pare back bets on rapid policy easing, given signs that the US economy remains robust and concerns about higher inflation as a Republican sweep looks increasingly likely. Most Fed officials speaking earlier this week signaled they favor a slower tempo of rate reductions.
The bond moves have made earnings seem like a “bit of a sideshow,” said James Athey, a portfolio manager at Marlborough. “Shifting growth, the Fed and election expectations have created a bit of a perfect storm for a Treasury market which was a little over its skis in terms of rate cut expectations just a month or so ago.”
The debate about the speed and scale of the Fed’s monetary easing continued, with Bank of America Corp. Chief Executive Officer Brian Moynihan urging Fed policymakers to be measured in the magnitude of interest-rate reductions.
The International Monetary Fund, meanwhile, lowered its global growth forecast for next year and warned of accelerating risks ranging from wars to trade protectionism, even as it credited central banks for taming inflation without sending nations into recession.
“Of course Tesla is still one of those stocks which has the potential to get people off their seats,” Athey said. “Discounting any volatility even at the index level after they report would be foolish. Boeing remains in a bad way and so it’s hard to see material good news coming there.”
In Europe, the Stoxx 600 was down 0.2% as losses in consumer products and basic resources are offset by gains in autos and personal care names. Personal care stocks outperform, led by Reckitt Benckiser’s gains after reporting a smaller drop in like-for-like sales than feared. Consumer products are among lagging sectors, weighed down by L’Oreal’s post-earnings rout which tumbled on lower organic sales growth/China challenges. Among individual moves, Deutsche Bank dropped as analysts noted higher-than-expected provisions. Volvo Cars (-3.5%) beat but cut guide and Heineken (+2%) organic sales in-line w/ Americas region o/p. Here are the other notable European movers:
Earlier in the session, Asian stocks hit their lowest level in a month as a weakness in tech heavyweight TSMC and the dollar’s strength offset a rally in Hong Kong shares. The MSCI Asia Pacific Index moved in a narrow range before retreating 0.4%, as TSMC dragged while Meituan and Toyota advanced. The cautious trade comes as some key US companies’ downbeat news led to flat trading in US stocks and the prospect of a slower pace of Federal Reserve rate cuts weighs on risk sentiment. “Asian markets are lacking direction at the moment,” said Matthew Haupt, a fund manager at Wilson Asset Management. Investors are “watching for any clues to the health of the US labor market and likely Fed policy settings later in the week,” he said.
In FX, the dollar also adds to its recent gains with the Bloomberg Dollar Spot Index climbing 0.2%. The yen is the clear underperformer among in the G-10 space, falling more than 1% against the greenback and taking USDJPY to 153 and above the 200 DMA in the process.
In rates, treasuries are cheaper again across the curve, underperforming bunds where German 2-year yields are richer by 7bp on the day. US yields are 1bp-2bp cheaper across maturities, with 10-year around 4.22%, the highest since July and trailing bunds in the sector by 2.5bp; Canadian yields are little changed ahead of the rate decision Euro-zone front-end shifts to lower yields as swaps price in around 45% chance of a 50bp rate cut at ECB’s final meeting this year on Dec. 12. Bank of Canada rate decision at 9:45am New York time is expected be a 50bp rate cut to 3.75%. Gilts are also under pressure but there has been a bid in German shorter-dated bonds as traders add to their ECB rate cut bets. German 2-year yields are down 6 bps. Yields on Japan’s 40-year notes reached the highest in 16 years.
In commodities, oil prices decline, with WTI falling 1% to $71 a barrel as a US industry group signaled a rise in nationwide crude inventories, and the Biden administration renewed efforts to secure a cease-fire in the Middle East. Gold was steady after climbing to a fresh record. Gold hit another record high, rising above $2750 as traders seek safety amid jitters over the US election and ongoing conflict in the Middle East. Speaking of, Secretary of State Antony Blinken headed to Saudi Arabia to push for a broad truce after urging Israel to avoid creating “greater escalation.”
Looking at today's calendar, we get September existing home sales at 10am and the Fed Beige book at 2pm. Fed speaker slate includes Bowman (9am) and Barkin (12pm)
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A more detailed look at global markets courtesy of Newsquawk
APAC stocks were ultimately mixed with the upside capped following the inconclusive performance on Wall St amid a lack of fresh macro drivers, recent upside in yields and ongoing geopolitical tensions. ASX 200 traded rangebound with strength in consumer stocks offsetting the underperformance in tech and energy. Nikkei 225 was the laggard as it failed to benefit from a weaker currency and a surge in Tokyo Metro shares on its debut. Hang Seng and Shanghai Comp advanced with risk appetite supported as participants digested earnings releases and after the PBoC upped its liquidity effort, while a Chinese policy think tank called for the issuance of CNY 2tln in special treasury bonds to establish a stock market stabilisation fund.
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European bourses, Stoxx 600 (-0.1%) began the session on a mixed footing, but sentiment continued to slip as the morning progressed, with almost the entirety of European indices in modest negative territory. European sectors are mixed; Optimised Personal Care tops the pile, assisted by post-earning strength in Reckitt Benckiser. Consumer Products is weighed on by poor earnings in L’Oreal. Key European earnings: Volvo Car (-3.2%) Q3 Revenue (SEK) 93bln (exp. 89.65bln), Adj. EBIT 5.7bln (exp. 4.78bln); sees FY Retail Sales +7-8% (prev. guided +12-15%). Roche (+0.1%) Q3 (CHF): Sales 15.14bln (exp. 14.93bln). FY Outlook confirmed. Deutsche Bank (-2.8%) Q3 (EUR) PBT 2.26bln (exp. 2.1bln), Revenue 7.5bln (exp. 7.3bln). FY Guidance: Confident in Revenue guide of "around" 30bln (exp. 29.44bln).
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DB's JIm Reid concludes the overnight wrap
Only two weeks until the big day. One that I've been looking forward to for what seems an exceptionally long time. Yes, the kids will go back to school after an extended 2-week half-term. As predicted last week my wife was already fed up with them last night after one day of holiday yesterday. The twins are so noisy! I'm off to Center Parcs with them all for a long weekend on Friday so I won't be spared.
With two weeks to go today until the election, markets have started the week a bit more nervously than during the last 6 where the the S&P 500 has gone up each week for only the second time since the pandemic. Yesterday it started the week -0.18% but with bigger sell-offs elsewhere and extending into the Asian session this morning. The sell-off was much more pronounced among sovereign bonds though, with the 10yr Treasury yield (+11.3bps) reaching its highest level (4.20%) since late July, shortly before the weak payroll report, the Japanese mini-crash and the associated brief market turmoil. Moreover, the move was primarily driven by higher real yields, with the 10yr real yield (+10.2bps) moving up to 1.88%, which is its highest level since the end of July. Overnight, 10yr USTs are another +1.4bps higher as we go to print.
There were several factors behind the move but none that particularly dominated yesterday. In the background there has been a rising concern about debts and deficits, particularly ahead of the US election. Indeed, the IMF pointed out in their recent Fiscal Monitor that global public debt is forecast to exceed $100 trillion this year, and rise further in the medium term, so this is a growing issue as policymakers gather for the IMF/World Bank Annual Meetings in Washington this week. Moreover, our US economists have pointed out that irrespective of who wins the presidency or congress, they could see deficits in the 7-9% area over 2026-28, which is a level unprecedented outside of major wars or massive economic shocks like the GFC and Covid-19.
In addition to the long-end moves, expectations of Fed easing continue to drift lower, with Fed funds pricing for next March (+8.0bps to 4.05%) moving back above 4% for the first time since the start of August, after having fallen to below 3.4% in late September. This came as Fed speakers continued to express preference for gradual easing moving forward, with Kansas City President Schmid favouring “modest” reductions while Minneapolis Fed President Kashkari was “forecasting some more modest cuts”.
Another factor behind the bond selloff were growing inflation risks, and yesterday saw Brent crude oil prices (+1.68%) pick up again to $74.29/bbl. That comes amidst growing focus on Israel’s expected retaliation against Iran’s missile strikes earlier this month, which is still yet to materialise. But oil prices were reacting to several weekend developments, including the drone strike on the private home of Israeli PM Netanyahu that we mentioned yesterday. Indeed, foreign minister Israel Katz said over the weekend that there was “no doubt that another red line has been crossed here”. Meanwhile, although the classic safe haven of gold (-0.06%) closed marginally lower, after posting four consecutive session ATHs, this morning its +0.43% higher as I type and back at what would be record closing levels again.
Over in Europe, the bond selloff was even more aggressive, with yields on 10yr bunds (+9.9bps), OATs (+12.1bps) and BTPs (+15.3bps) all seeing large moves higher. In part, that’s because investors have pared back their expectations for a larger 50bp rate cut at the ECB’s December meeting, and we had a lot of commentary from several officials to digest as well. For instance, Lithuania’s Simkus said that he didn’t see the need for cuts bigger than 25bps, and Slovakia’s Kazimir said that the December meeting was “wide open”.
Back to the US election, the general consensus across polls, betting averages and forecasting models is that Trump has gained ground on Harris, but the race is still within the margin of error across the key battleground states. Now clearly that could change, but from a market perspective, the Trump bump has meant that beneficiaries of the “Trump trade” have continued to do well in recent sessions. Most notably, Trump Media & Technology Group (+5.81%) was up to its highest since July yesterday just after Biden pulled out of the Presidential race.
Returning to yesterday, equities struggled, particularly as bond yields kept on rising. The S&P 500 (-0.18%) posted a modest decline, but it was a broad-based one, with the equal weighted version of the index seeing its worst day in more than six weeks (-0.85%). Small-caps struggled in particular as the Russell 2000 (-1.60%) saw its worst day since early September. Information technology (+0.93%) was the only major sector within the S&P 500 to post a gain. The Mag-7 (+0.64%) advanced as Nvidia (+4.14%) hit a new record high, while the NASDAQ (+0.27%) moved to within half a percent of its all-time high from July. Over in Europe, markets closed around the intra-day lows of the US session, with the STOXX 600 (-0.66%) and the DAX (-1.00%) both losing significant ground.
Whilst there were several short-term catalysts for the selloff, it’s also worth bearing in mind that the market performance has been pretty incredible over recent months. Only last week, we saw US IG credit spreads reach their tightest level since 2005, and the S&P 500 is up for 37 of the last 51 weeks, which is a joint record back to 1989. This means that traditional valuation metrics are now looking increasingly stretched by historic standards, at a time when geopolitical risks are elevated and the soft landing is now increasingly priced in as the likely outcome, so it should in theory get harder from here. Henry took a look at some of these reasons for caution yesterday here.
Asian equity markets are mostly lower this morning. The S&P/ASX 200 (-1.68%) is the biggest underperformer in the region, followed by the Nikkei (-1.43%), the Topix (-1.14%), and the KOSPI (-1.17%). However, Chinese equities are defying the regional trend, with the Hang Seng (+0.41%) and the CSI 300 (+0.47%) posting gains. S&P 500 (-0.18%) and NASDAQ 100 (-0.26%) futures are edging lower. Aussie 10yr yields are +14.5bps with JGBs +2.6bps.
Early morning data showed that South Korea’s producer prices declined by -0.2% in September, matching the decline from the previous month.
There was very little data to speak of yesterday, although we did get the Conference Board’s leading index from the US. That showed a decline of -0.5% in September (vs. -0.3% expected). In level terms, that also left the index at its lowest level since May 2016. The monthly reading hasn’t been positive since February 2022 so the release has lost some of its shock value recently given how well growth as performed over the last few quarters. Separately in Germany, producer prices remained in deflationary territory in September, at -1.4% year-on-year (vs. -1.1% expected).
To the day ahead now, and central bank speakers include ECB President Lagarde, the ECB’s Centeno, Knot, Holzmann, Villeroy, Rehn and Panetta, the Fed’s Harker, BoE Governor Bailey, and the BoE’s Greene and Breeden. Otherwise, earnings releases include General Electric, General Motors and Verizon.
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