Market Wraps
Watch For:
New Home Sales, Bank of Canada Rate Decision, EIA Weekly Petroleum Status Report; Earnings from Boeing, Meta, IBM
Today’s Top Headlines/Must Reads:
– What Can the Fed Do About the Deficit? Nothing
– Why the Shine Has Come Off Clean-Energy Stocks
– General Motors Finds Itself in a Jam
Opening Call:
Stock futures were lower on Wednesday, as a sharp decline in Alphabet shares counteracted a jump in Microsoft following earnings.
Helping sentiment was some less volatile action in government bond markets as 10-year Treasury yields firmed a touch but remained near one-week lows.
But this was being counteracted somewhat by lingering concerns about Middle East tensions and reports that troubled Chinese property developer Country Garden has been declared in default on a dollar bond .
Still, traders’ main focus for now is earnings, and analysts noted that the stock market was struggling to make headway.
“A sharp, high breadth equity rally is needed nearly right away to prevent selling pressure into late October,” Fundstrat said.
“Given the degree of broader market weakness, the burden of proof is certainly on the bulls.”
Premarket Movers
Alphabet fell 6.7% in premarket trading, echoing an after-hours slide the previous evening, after the tech giant reporting disappointing sales growth in its cloud business.
Microsoft reported better-than-expected revenue growth for the latest quarter, amid strengthening demand for its cloud-computing services. The stock rose almost 4% in premarket trading.
Snap was rising 1.8% after the parent of Snapchat reported a third-quarter loss that was narrower than expected and revenue of $1.19 billion that beat analysts’ expectations.
SunPower dropped 9.5% after it said it would be restating financial statements for 2022 and for the first two quarters of 2023.
Teladoc was down 6.7% after the company reported a narrower-than-expected third-quarter loss but revenue of $660 million that missed estimates.
Texas Instruments reported third-quarter revenue below analysts’ expectations and issued a forecast for its fiscal fourth quarter that also missed. The stock fell 4.7%.
Visa narrowly topped earnings and revenue estimates in its fiscal fourth quarter, driven by a continued post-pandemic rebound in international travel. Shares declined 0.9%.
Forex:
The dollar is more likely to rise than fall, supported by the strong data on U.S. economy, ING said.
“With markets having seen a modest reaction to geopolitical risk and high U.S. yields making the dollar an expensive sell, a recovery in DXY to the 107.00 highs looks more likely than another material correction for now.”
MUFG said a macro backdrop of recession doesn’t mean EUR/USD is heading lower.
“A level of 1.0500 for EUR/USD in large part we believe captures the current divergence between the euro-zone and the U.S.”
The purchasing managers indices from the U.S were the complete contrast of the PMIs in the eurozone, it said, adding that all three PMIs in the U.S. were stronger than expected.
MUFG said that at around 1.0600, there is still a case to argue euro resilience.
Bonds:
The environment for fixed income is a “great one” for long-term investors, despite the volatility in markets, PGIM Fixed Income said.
“Bond yields are a lot higher and cyclical headwinds suggest value over the medium term.”
Bonds are also more attractive relative to equities, as bonds offer yields that are now closer to those of equities, with less volatile returns, it said.
That said, given the many fragilities across markets at the moment, “we would not be surprised to see weaker asset prices and wider spreads over the shorter term.”
Energy:
Oil prices continued to fall, amid worries that the wider Middle Eastern region could become embroiled in the current conflict in Israel.
“Although there was no further escalation in the Israel-Hamas conflict yesterday, the market remains on edge and the focus continues to be on any further developments within the region,” ING said, adding that markets should remain volatile due to the conflict.
The need for energy in developing and emerging markets– particularly in Asia– will push fossil-fuel demand to new highs in 2024 despite efforts to cut emissions, the Economist Intelligence Unit said.
Fossil fuels will dominate despite high demand for renewables, with new peaks in oil, coal and gas, it said.
Metals:
Base metal prices were mixed, while gold edged lower in early trading in London, with worries over demand keeping prices range-bound.
Sucden Financial noted that Chinese support for the economy has stepped up, after the government issued additional sovereign debt and raised the budget deficit ratio.
“We expect that while these announcements are not game changers for the market, the cumulative impact of policy support, especially in the form of housing market aid, will help stabilize the demand for steel in Q4 2023 before a slight recovery next year.”
Today’s Top Headlines
Deutsche Bank Anticipates Accelerated Shareholder Returns After 3Q Revenue Rose
Deutsche Bank said it anticipates being able to accelerate and expand shareholder returns to 2025 and beyond after third-quarter revenue rose but net profit fell on rising costs and taxes.
The German bank said Wednesday that it made 1.03 billion euros ($1.09 billion) in attributable net profit for the period compared with EUR1.12 billion a year ago, on revenue that grew 3% to EUR7.13 billion. The result compares with expectations of EUR1.07 billion in net profit and EUR7.1 billion in third-quarter revenue, according to a bank-provided consensus of analysts’ average views.
Exxon, Chevron Look to the West in an Increasingly Uncertain World
As the world becomes more dangerous, the two largest Western crude producers are focusing their investments closer to home.
Chevron on Monday announced that it was acquiring Hess in a $53 billion deal that gives it access to one of this century’s biggest oil finds in the South American country of Guyana and allows it to double down on shale by expanding its presence to North Dakota. Both regions are established oil producers with limited geopolitical tensions, affording Chevron new reserves with fewer risks.
One Year On, Twitter Continues to Burn a Hole Through Bank Balance Sheets
The banks that financed Elon Musk’s $44 billion purchase of Twitter are still struggling a year later to contain the damage to their balance sheets.
Seven banks including Morgan Stanley, Bank of America and Barclays lent Musk around $13 billion to buy Twitter a year ago this coming Friday. Under normal circumstances, they would have unloaded the debt to Wall Street investment firms soon thereafter. But investor appetite for Twitter, which Musk has since renamed X, has cooled since the billionaire took over, forcing the banks to hold the debt on their own balance sheets at a discounted value.
Hong Kong Cuts Housing, Stock-Market Taxes in Bid to Boost Global Standing
Hong Kong will cut taxes on home purchases and stock trades, part of efforts to revive its credentials as a financial hub and boost a struggling property market.
Hong Kong Chief Executive John Lee on Wednesday unveiled a raft of measures to turn around flagging property sales. These include halving home-purchase taxes and allowing homeowners to sell without paying extra tax after holding properties for two years, down from three years previously.
JPMorgan’s Dimon and BlackRock’s Fink both see parallels to the 1970s
JPMorgan Chairman and CEO Jamie Dimon and BlackRock Chairman CEO Larry Fink both have one decade in mind – the 1970s.
Both were speaking at the Future Investment Initiative in Saudi Arabia, or the so-called Davos in the Desert, on Tuesday. In the U.S., Dimon noted the highest levels of debt during peacetime. “There’s kind of this omnipotent feeling that central banks and governments can manage through all this stuff,” he said. “I’m cautious.”
Gaza Aid Efforts Near Collapse, Hospitals Close as Israeli Airstrikes Intensify
The largest provider of humanitarian support in the Gaza Strip said it would be forced to cease operations in the enclave by Wednesday night if it doesn’t receive fuel, putting desperately needed aid for the strip at risk amid intensifying Israeli airstrikes.
The United Nations Relief and Works Agency said that without the additional fuel it would be unable to pick up and distribute any incoming aid that enters Gaza, affecting residents across the enclave, including the 600,000 people sheltering at its facilities.
Iranian-Backed Militias Mount New Wave of Attacks as U.S. Supports Israel
U.S. Secretary of State Antony Blinken warned Tuesday that Washington would react “swiftly and decisively” if Iran or its proxy forces attack U.S. personnel after Tehran raised the risk of a larger Middle East conflict in recent days by unleashing the regional militias it has spent years arming.
For more than six months, these Iranian-backed militia groups refrained from launching drones or rockets against American troops in Iraq and Syria, as part of what appeared to be an undeclared truce between Tehran and Washington.
GOP Picks Mike Johnson as House Speaker Nominee After Tom Emmer Stumbles
WASHINGTON-Rep. Mike Johnson of Louisiana was chosen as House Republicans’ latest nominee for speaker in a conference vote late Tuesday, hours after the party elected and then derailed a different member in its search for the elusive candidate who can actually win the gavel.
At the end of a marathon day of internal debate and votes, Johnson, the vice chairman of the House Republican conference, bested Byron Donalds of Florida, a Trump ally popular with many of the House’s most conservative lawmakers. In a shift, lawmakers left the Capitol on Tuesday night optimistic that Johnson could unite them after a series of failed attempts to find a successor to former House Speaker Kevin McCarthy (R., Calif.), who was ousted three weeks ago.
Source: Dow Jones Newswires