Futures are down small, reversing a modest overnight gain with small-caps underperforming. As of 8:00am ET, S&P futures are down 0.1%, near session lows, while Nasdaq futures are fractionally higher on the session with Mag7 names mixed while GOOG is higher ahead of earnings and semis are seeing a slight bid despite NVDA -60bps. The yield curve is bear steepening with the 10Y yield at 4.30%; the USD is flat. In commodities, oil prices climb along with industrial and precious metals after Reuters reported China is weighing approving over 10 trillion yuan ($1.4 trillion) in additional borrowing in the coming years to shore up the economy and address local governments’ debt risks. WTI is up 1% near $68 a barrel while copper rises 0.9%. Today’s macro data focus will be on JOLTS, Consumer Confidence, and Housing prices. GOOG is the first of 5 of the Mag7 that report this week which may present an inflection point for the group given the reduction in exposure since the summer which has not yet been offset by recent purchases.
In premarket trading, shares of Vans and North Face owner VF Corp. surged 22% after the company reported fiscal Q2 adjusted earnings and revenue that topped analysts' estimates. CVR Energy shares were down nearly 25% pre-bell Tuesday after the company overnight swung to a fiscal Q3 adjusted loss and posted lower net sales in addition to suspending its quarterly dividend. Here are some other notable movers:
US stocks are on a bullish streak this year with the S&P 500 set to gain for a sixth straight month. With the tech behemoths driving the bulk of the rally, investors have been laser focused on earnings growth from the group (full preview here). Of note, analysts expect average profit growth for the industry to slow sharply from the second quarter.
Attention is also on the US presidential election and the Federal Reserve’s rate announcement next week. Traders are almost fully pricing in one rate cut from the central bank, according to swaps data compiled by Bloomberg.
“We could be braced for some volatility over the coming days,” said Mohit Kumar, macro strategist at Jefferies, who said he’s ready to snap up assets cheapened by choppy markets.
European equities rose as positive company updates from the likes of HSBC and Adidas provided some respite in the face of growing market risks. Miners and banks outperform while travel and leisure and real estate are the biggest laggards. Basic resources lead the Stoxx 600 index higher 0.2% to 522.16 with 327 members up, 250 down and 23 unchanged. Here are some of the biggest movers on Tuesday:
Earlier in the session, Asia-Pac stocks were mixed despite the initial tailwinds following the mostly positive handover from Wall St, with gains in the region capped and some markets were choppy owing to a lack of fresh catalysts heading into this week's key data releases. ASX 200 was led by strength in gold stocks after the precious metal extended on advances, while sentiment was also supported by M&A activity with Myer to acquire apparel brands from Premier Investments. Nikkei 225 recouped opening losses and extended higher amid recent currency weakness and lower unemployment. Hang Seng and Shanghai Comp traded mixed with the former underpinned by tech strength and as participants reflected on earnings releases, while the mainland index swung between gains and losses as EV and child-related policy initiatives were counterbalanced by frictions after the US issued final rules to curb US investments in AI, semis and other tech sectors in China.
In FX, the Bloomberg Dollar Spot Index is treading water, up 0.1%, while the yen bounced off a three-month low triggered by the failure of the ruling coalition to win a majority in parliament for the first time since 2009. Japanese Finance Minister Katsunobu Kato said the government will watch developments in the currency market with a heightened sense of urgency
In rates, treasuries are lower, with US 10-year yields 2bps cheaper on the day at about 4.30%, outperforming bunds in the sector by 1.5bp, gilts by around 1bp. German bonds underperform as 10-year borrowing costs add 4 bps. Losses were pared after a 10-year note futures block trade, apparently initiated by buyer. US session includes $44b 7-year note auction at 1pm New York time; Monday’s 2- and 5-year sales tailed. The compressed Treasury auction cycle concludes with $44b 7-year note at 1pm; WI yield at ~4.20% is about 53bp cheaper than September auction, which stopped through by 0.7bp with a below-average dealer allotment. Economic data slate features consumer confidence and JOLTS job openings.
In commodities, oil prices climb along with industrial metals after Reuters reported China is weighing approving over 10 trillion yuan ($1.4 trillion) in additional borrowing in the coming years to shore up the economy and address local governments’ debt risks. WTI is up 1% near $68 a barrel while copper rises 0.9%. Spot gold rises $6 to $2,749/oz. Bitcoin rises 2% to above $71,000.
Looking at today's US data calendar includes, we get the September goods trade balance and wholesale inventories (8:30am), August FHFA house price index and S&P CoreLogic home prices (9am), September JOLTS job openings and October consumer confidence (10am) and Dallas Fed services activity (10:30am). Fed officials are in self-imposed quiet period ahead of Nov. 7 policy announcement
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APAC stocks were ultimately mixed despite the initial tailwinds following the mostly positive handover from Wall St, with gains in the region capped and some markets were choppy owing to a lack of fresh catalysts heading into this week's key data releases. ASX 200 was led by strength in gold stocks after the precious metal extended on advances, while sentiment was also supported by M&A activity with Myer to acquire apparel brands from Premier Investments. Nikkei 225 recouped opening losses and extended higher amid recent currency weakness and lower unemployment. Hang Seng and Shanghai Comp traded mixed with the former underpinned by tech strength and as participants reflected on earnings releases, while the mainland index swung between gains and losses as EV and child-related policy initiatives were counterbalanced by frictions after the US issued final rules to curb US investments in AI, semis and other tech sectors in China.
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European bourses, Stoxx 600 (+0.2%) initially opened entirely in the green, but sentiment gradually withered as the morning progressed; however, following reports that China's legislative body is considering approving a fresh fiscal package which could be worth over CNY 10tln, indices managed to pull back off lows and back towards best levels. European sectors are slightly positive; Basic Resources is the clear outperformer with base metals prices lifting from lows, following the aforementioned China stimulus reports. Banks takes second spot, propped up by post-earning strength in HSBC. Travel &
Leisure is found at the foot of the pile, hampered by losses in Lufthansa, whilst Healthcare is weighed on by post-earning weakness in Novartis. European earnings included: Novartis (mixed, raised FY24 guidance), BP
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DB's Jim Reid concludes the overnight wrap
Back from treetop climbing, zipwires over lakes, daredevil water slides, kayaking and a bolt-on trip to Woburn Safari Park. All good high wire training for the appraisal season that's has now kicked off here at DB.
Talking of appraisals, it's now only one week to go to the US election, with prediction, betting and financial markets increasingly leaning towards a Trump victory. Yesterday saw 10yr US yields rise +4.2bps, not helped by a pair of softer Treasury auctions, and despite an outsized -6% drop in oil prices. Elsewhere, the Trump Media and Technology Group rose +21.59% to its highest level since June and Bitcoin has traded at $71k overnight, also the highest level since June after being as low as 53k in the first week of September.
The momentum has shifted a reasonable amount over the last couple of weeks as FiveThirtyEight’s model still had Harris having a 54% probability of victory on October 15, but that’s since reversed and now Trump is a 54% probability to win. The recent Treasury sell-off also likely incorporates the increased probability of a Republican clean sweep, and potentially unconstrained fiscal power. The Republican sweep probability on Polymarket.com was at 28% as recently as October 4 but is now 48% as we type. Over 45 million people have already voted so one side probably already has some momentum, but we won't of course know who until at least after the polls close next Tuesday night.
It's very rare to see such a big rise in US yields on a day that oil fell as much as it did (-6.09% for Brent) after Israel’s strikes on Iran on Saturday were focused on military targets rather than any oil facilities. The fall in oil, which was the largest since August 2022, did help drive broad gains for the S&P 500 (+0.27%) with 70% of its constituents higher on the day. The index is now less than 1% away from its last all-time high on October 18. The notable exceptions from the positive mood were energy (-0.65%) and information technology (-0.07%) stocks. The latter came as the Mag-7 (-0.13%) saw a slight decline, mostly due to Tesla (-2.48%) losing some ground after its impressive gain last week. By contrast, the Russell 2000 (+1.63%) posted a solid advance, while the KBW Bank index (+2.15%) rose to its highest level since March 2022. In Europe, the STOXX 600 (+0.41%), the CAC 40 (+0.79%) and the DAX (+0.35%) were also comfortably higher. Attention will swiftly turn to earnings now, including Alphabet due after the US close today.
The moves in Treasuries were fairly uniform across the curve with 2yr yields +3.4bps higher, leaving 2 and 10yr yields at their highest levels since August 1 and July 24, respectively. 10yr real yields (+4.2bps) also moved up to a three-month high of 1.99%. The bond move wasn’t helped by a pair of slightly soft Treasury auctions. A 2yr auction saw the highest primary dealer take-up since December, while 5yr notes were issued +1.6bps above the when issued yield with the primary dealer take up the highest since May. So some signs of investors being more price sensitive in their exposure to Treasuries. Showing how this was perhaps more of a fiscal story or supply story yesterday, rather than an inflation one, at least as a first order effect, the US 2yr inflation swap was down -3.1bps to 2.40%, and of course helped by the slump in oil.
Moreover, with expectations of looser fiscal policy, that’s led investors to keep dialling back how many rate cuts they expect from the Fed next year, and markets are now pricing in their most hawkish path since the market turmoil kicked off back in the summer. For instance, the rate priced in for the December 2025 meeting moved up to 3.54%, having been as low as 2.78% back in mid-September.
Staying with fiscal policy, the Treasury’s latest borrowing estimates were issued late in the US session. This saw borrowing estimates of $546bn for Q4 (down from the previous $565bn estimate) and $823bn for Q1 2025, both of which were somewhat smaller than our rates strategists’ expectations. So a bit better news for bonds but one that awaits a new President.
With a Trump victory increasingly being priced in by markets, this is leaving the current market dynamic in a pretty different place to 2016. Back then, Trump was widely considered the underdog across prediction models and betting markets. So given his victory came as a big shock, it was hardly surprising there was a significant market reaction, with Treasury yields surging over the days afterwards, as the 10yr yield rose by over 40bps over the next three sessions. But this time around, the impact is being increasingly priced in already, so using that 2016 playbook carries risks given the different context, as it’s difficult to believe a Trump victory would be a major surprise in the same way. On that topic, Henry put out a note yesterday thinking about how the market reaction might play out based on previous elections.
Talking of fiscal yet again, back in Europe, attention is increasingly turning towards tomorrow’s UK budget, and gilts continued to underperform their counterparts in Europe ahead of that. For instance, the 10yr gilt yield was up +2.1bps to 4.25%, and the spread of 10yr gilt yields over bunds bounced back to 197bps, less than 1bp from last week’s peak that was the widest spread in the last 12 months. By contrast, yields across the rest of Europe moved lower, including those on 10yr bunds (-0.5bps), OATs (-3.3bps) and BTPs (-1.8bps).
Overnight Asian equity markets are relatively quiet and mixed. The Nikkei (+0.64%) is rising for the second consecutive session, and the S&P/ASX 200 (+0.34%) is also up. Chinese stocks are generally underperforming with the CSI (-0.60%) and the Shanghai Composite (-0.65%) both in negative territory, but with the Hang Seng (+0.38%) breaking higher as we type after being as high at +1% at the open but in negative territory by lunchtime. The KOSPI and US equity futures are flat. US Treasury yields have fallen back around -1.5bps across most of the curve this morning.
Early morning data from Japan showed a fall in the unemployment rate from 2.5% to 2.4% in September, along with a slight increase in the job availability ratio to 1.24, indicating strong labour demand.
In FX, the Japanese yen (+0.20%) is recovering from a multi-month low against the dollar, trading at 152.95. Meanwhile, Yuichiro Tamaki, leader of the Japan Democratic Party for the People (DPP), has opposed further rate hikes by the Bank of Japan (BoJ) following strong election results over the weekend.
To the day ahead now, and data releases in the US include the JOLTS job openings for September and the Conference Board’s consumer confidence for October. Meanwhile in the UK, there’s mortgage approvals for September. Otherwise, earnings releases include Alphabet, Visa, McDonald’s and Pfizer.