Market Wraps
Watch For:
Canada Retail Trade for August; American Express earnings
Today’s Headlines/Must Reads
– Philadelphia Fed President Patrick Harker Discusses the Economic Outlook
– The Next Hot Obesity Drug Won’t Be Approved for Years. Online Sellers Hawk It Anyway
– There’s a Reason This Bull Market Feels So Weird
Opening Call:
Stock futures pointed to a struggle for Wall Street on Friday, as rising bond yields and geopolitical tensions continued to take a toll on investors, who were also digesting comments from Jerome Powell.
“The [bond] selloff could be explained by strong retail sales data–that followed a strong [nonfarm payroll] read and a stronger-than-expected inflation data since the month started–which both fueled the hawkish Fed expectations,” Swissquote Bank said.
The near two-week war between Israel and Hamas has also weighed on investors, with oil prices up again on Friday, with investors wary of further escalation via a possible ground invasion by the Israeli military.
Overseas
Stocks fell in Asia and Europe. The Shanghai Composite and Japan’s Nikkei 225 retreated less than 1%, while the Stoxx Europe 600 also declined.
Premarket Movers
Hewlett Packard Enterprise fell 3% after it forecast adjusted earnings in fiscal 2024 below analysts’ forecasts.
Intuitive Surgical was down 8% after its third-quarter revenue missed analysts’ estimates.
Knight-Swift Transportation posed revenue in the third quarter above analysts’ estimates. The stock surged 17%.
SolarEdge Technologies warned that demand in Europe had slumped significantly and it slashed its estimates for third- and fourth-quarter revenue. The stock was down 23%. Enphase Energy was down 14%, and shares of Sunrun and SunPower dropped 6.6% and 6.8%, respectively.
Forex:
Sterling hit a five-month low against the euro after U.K. data showed retail sales dropped 0.9% during September , much more than expected, suggesting the economy is feeling the pinch from higher interest rates.
The data “showed an alarming slide in consumer spending, putting the prospect of a U.K. recession back on the table for policymakers,” Monex Europe said, adding that a November rate hike by the Bank of England looks increasingly unlikely.
Bonds:
Treasury yields are unlikely to turn decisively lower until markets are prepared to add to future rate cut expectations, “which is unlikely to happen quickly,” SEB Research said.
Lately, sticky inflation and stronger-than-expected data have recently wiped out nearly 40 basis points of 2024 rate cut expectations and pushed Treasury yields to 16-year highs, SEB said. It added it sees prospects for Treasurys to outperform peers in 2024.
Societe Generale Research said bond yields are set to revisit new cycle highs, with 10-year Treasury and Bund yields close to 5% and 3%, respectively.
“This is remarkable, especially in the current geopolitical situation,” SocGen said, adding that fundamentals are strong, but longer-term forces are likely at play.
With quantitative tightening in full force, the large bond supply to be absorbed is adding to a rapid rebuilding of term premium, SocGen said.
Supply, rather than demand, seems a bigger danger for Treasurys, while the demand side may be more complicated in Europe.
Generali Insurance Asset Management said high-yield credit spreads are expected to widen further as volatility in U.S. and European government bonds remains elevated.
“Watch out credit spreads; they do not easily digest prolonged phases of rates volatility and could now decompress, especially in the lower buckets of the rating spectrum.”
Volatility in sovereign bond yields is expected to continue in the coming weeks due to the Middle East conflict and uncertainty around economic growth, Generali said.
Energy:
Oil prices were higher as concerns grow that the Israel-Hamas conflict could escalate further.
Commonwealth Bank of Australia said the risk of a ground invasion by Israel could open up multiple fronts in the war, and possibly bring Iran into the conflict, which would likely send oil above $100 a barrel.
“Iran’s involvement in any conflict with Israel is a key risk for oil markets, especially given the nation’s control of the Strait of Hormuz,” with 15-20% of global supply transiting through the strait.
Metals:
Gold prices hit their highest since July 31, rising on heightened geopolitical risk, BMI said.
However, base metals have moved in contrast to most other commodities, with weak demand and a strong dollar pegging prices back, BMI said.
“Industrial metals remain the worst performing commodity sub-asset class in terms of year-to-date performance.”
Today’s Top Headlines
Merck, Daiichi Sankyo Ink Commercialization Deal for Up to $22 Billion
Merck and Daiichi Sankyo agreed to jointly develop and commercialize three potential cancer treatments in a deal worth up to $22 billion.
Merck and Daiichi Sankyo will develop and commercialize three antibody drug conjugate candidates-patritumab deruxtecan, ifinatamab deruxtecan and raludotatug deruxtecan-worldwide. Daiichi Sankyo will retain exclusive rights in Japan.
Bond Yields Are Surging. That Could Help to Keep the Fed on Hold.
Another interest-rate hike looks to be off the table at the Federal Reserve’s November policy meeting-and maybe at the December meeting, too. A leading reason: sharply higher bond yields.
Fed Chairman Jerome Powell laid the groundwork Thursday, in a speech to the Economic Club of New York, for the central bank to hold interest rates steady at its Oct. 31-Nov. 1 meeting. In prepared remarks, Powell highlighted that the economy is already moving toward price stability, and that lags in monetary policy and rising geopolitical uncertainty are forcing the Fed to “proceed carefully.”
China Holds Benchmark Lending Rates Steady
China held its benchmark lending rates steady Friday, as expected after the central bank kept its policy rates unchanged earlier this month.
The one-year loan prime rate was maintained at 3.45% and the five-year rate at 4.2%, the People’s Bank of China said on its website.
Five Investors on Investing in the 5% World
Why invest in U.S. stocks when the safest investment in the world-U. S. government debt-pays the most it has since 2007? That is the new question facing investors now that the yield on the 10-year Treasury note is approaching 5%.
Rock-bottom interest rates and record money-printing from the Federal Reserve shifted the picture of what successful investing looked like since the 2008 financial crisis. Roughly 15 years of nearly free cash spurred a tech boom, exponential gains by venture capitalists, and an investing mania tied to digital tokens and stocks on the brink of bankruptcy.
CMA CGM’s Saadé Urges Calm as Ocean Carrier Profits Plummet
Rodolphe Saadé, the billionaire chief executive of French container line CMA CGM, says the shipping industry shouldn’t panic over a sharp retreat in earnings.
The head of the world’s third-largest liner company said in an interview that he expects the weak growth in global trade to continue through 2024. But Saadé said the tumbling profits from record highs during the Covid-19 pandemic essentially bring the business back to prepandemic levels.
Jim Jordan Set to Fall Short Again in Third Speaker Vote
WASHINGTON-Republican speaker nominee Rep. Jim Jordan was set to fall short in a third round of voting to secure the gavel Friday morning, after struggling to win support from colleagues who have opposed his candidacy, likely leaving Republicans at a fresh impasse.
While the Ohio conservative has campaigned as a speaker who can unite the party, he continues to face long odds, a full week after securing the GOP nomination and more than two weeks after former Speaker Kevin McCarthy (R., Calif.) was ousted. Republicans have no current fallback plan after rejecting a proposal to vote on giving more powers to Speaker Pro Tempore Patrick McHenry (R., N.C.).
U.S. Forces in Syria, Iraq, Red Sea Come Under Militant Attack
U.S. forces in the Middle East came under attack several times this week, a potential sign of heightened aggression toward the U.S. following Hamas’s terrorist attack on southern Israel earlier this month.
Such attacks are typically carried out by Iranian-aligned militia groups, but U.S. military officials didn’t confirm the perpetrators of this week’s attacks.
Ukraine Targets Russia’s Big Guns to Blast a Path Forward
SLOVYANSK, Ukraine-At a Ukrainian control room, notifications ping onto a screen as a U.S.-supplied radar locates Russian artillery guns firing on Ukrainian positions.
A Ukrainian team plots the coordinates on a tablet map, sharing them online with drone units tasked with confirming targets and gunners tasked with destroying them.
Source: Dow Jones Newswires