Market Wraps
Watch For:
Employment Report for October; ISM Report on Business Services PMI for October; Canada Labour Force Survey for October; Enbridge earnings
Opening Call:
Stock futures were lackinhg momentum on Friday ahead of key payrolls data and after soft guidance from Apple.
Stocks have been rejoicing as the long-end of the Treasury curve has rallied, with the yield on the 10-year Treasury sliding 21 basis points over three days.
Whether that rally continues will be impacted by the release of the pivotal nonfarm payrolls report, which according to economists polled by the Wall Street Journal will show 170,000 jobs added, an unemployment rate of 3.8% and hourly wage growth of 0.3%.
“Central banks indicated they don’t have much more to do. The rally this week has been from this relief and bond yields coming off as a result,” Pictet Asset Management said.
“If we have a strong labor market number, this might reverse.”
Apple will be a headwind after it barely met analyst expectations for revenue, and forecast sales below Wall Street estimates for the current fiscal first quarter. Its shares fell nearly 3% in premarket trading.
Other Premarket Movers
Block shares rose 18% after it raised its full-year guidance and beat expectations for the third quarter.
Expedia shares rose more than 10% after its board approved up to $5 billion in share buybacks and reported higher quarterly revenue.
Paramount shares rose more than 3% after the company said its streaming business lost less money in the third quarter.
Forex:
Diverging policy rate expectations between the Fed and the European Central Bank have been a major contributor to the increase in long Treasury yields and to a weakening of the euro relative to the dollar, SEB Research said.
“Without clearer signals of the softening of the U.S. economy, ECB rate cut expectations priced by forwards may remain more aggressive than those of the Fed or even widen further in the coming weeks,” SEB said.
However, SEB said if it’s right in expecting the Fed to reduce policy rates clearly more than the ECB in 2024, U.S.-eurozone yield spreads should tighten and the EUR/USD should rise.
Overall, the dollar has remained under pressure as the risk-on mood continued in global markets after the Fed left interest rates unchanged earlier this week.
“The dovish Fed [or at least the market interpretation of it], improved risk sentiment, and small signs of U.S. data starting to disappoint have broadly weighed on the USD over the past couple of days,” Danske Bank Research said.
ING said the dollar could continue to weaken if the non-farm payrolls data are not significantly strong, and the DXY dollar index possibly declining to “the 105.50/55 area.”
“Assuming no upside surprises today, we favour the dollar handing back a little further of its gains, especially against the high yielders [e.g., Mexico and Hungary] given the renewed interest in the carry trade,” ING said.
Bonds:
With Treasury yields already moving lower, markets are likely to be more sensitive to stronger-than-expected payrolls data than to a lower-than-expected reading, UniCredit Research said.
“This is especially the case considering that markets are pricing in a very modest probability of another Fed hike, while around 80 basis points in rate cuts are priced in by the end of 2024,” UniCredit Research said.
Furthermore, the 10-year Treasury yield is trading almost 85 basis points through [below] the Fed funds, which incorporates already a decent amount of easing by the Fed, UniCredit said.
Energy:
Oil futures moved higher, with BMI saying prices were being torn between rising, conflict-related risks on the supply side and a slowing global economy, increasing the downside pressures on demand.
BMI’s baseline case remains for the conflict to be limited to the Levant; however there is still worry Iranian oil output could be sanctioned, cutting supply in an already tight market.
Metals:
Base metals inched higher and gold was flat ahead of the key U.S. jobs data, with investors gauging likely Fed policy.
Key data releases like nonfarm payrolls are likely to inform the Fed as it goes forward, according to analysts. Additionally, potential oil-price-fueled inflation is keeping open the possibility of another rate rise in December, ANZ said.
Today’s Top Headlines
The AI Deals Enriching Silicon Valley’s Tech Giants
Amazon, Google and Microsoft have spent the past year investing billions of dollars in artificial-intelligence startups-while also charging those fledgling companies a similar amount to use their cloud platforms.
The deals are making the big tech firms both the largest backers and most direct beneficiaries of these startups, reflecting how some of the AI boom’s biggest rewards keep going to the most powerful players. The value of the tech giants’ stakes could shoot up if the startups take off. And if not, they still will have turned chunks of cash into revenue.
Google, Lendlease Scrap $15 Billion Real-Estate Development in Silicon Valley
SYDNEY-Four years ago, Google and Australia’s Lendlease rolled out a vision for a more than $15 billion real-estate investment in the San Francisco Bay Area featuring apartments, shops and new office space.
Now, those plans are on the scrapheap, the latest example of U.S. tech leaders dumping office space at a rapid clip as they reassess commitments to the workplace.
Maersk to Cut More Than 10,000 Jobs as Industry Faces New Normal
A.P. Moller-Maersk said it will cut more than 10,000 jobs as it steps up cost savings, with the industry facing a new normal of subdued demand, lower freight rates and inflationary pressure.
The company now expects to report earnings for the full year at the lower end of its targeted ranges, it said.
China Caixin Services PMI Rose for October
A private gauge of China’s services activities edged up in October, remaining in expansionary territory for 10 months in a row as Beijing ramped up efforts to shore up economic growth.
The Caixin services purchasing managers index climbed to 50.4 in October from September’s 50.2 which was the lowest of the year, Caixin Media Co. and S&P Global said Friday.
It’s U.S. vs. China in an Increasingly Divided World Economy
China passed a significant milestone last fall: For the first time since its economic opening more than four decades ago, it traded more with developing countries than the U.S., Europe and Japan combined. It was one of the clearest signs yet that China and the West are going in different directions as tensions increase over trade, technology, security and other thorny issues.
For decades, the U.S. and other Western countries sought to make China both a partner and a customer in a single global economy led by the richest nations. Now trade and investment flows are settling into new patterns built around the two competing power centers.
Germany’s Trade Surplus Fell in September as Exports, Imports Dipped
Germany’s trade surplus declined in September, as exports and imports fell more than expected, a signal of the fragile economic climate for German businesses both at home and abroad.
The country’s adjusted trade surplus-representing the difference between exports and imports of goods-dipped to 16.5 billion euros ($17.53 billion) in September, compared with EUR17.7 billion in August, data from the country’s statistics office Destatis showed Friday.
House Passes GOP’s Israel Aid Package as Disputes Simmer Over Ukraine, Border
WASHINGTON-The House passed Republicans’ $14.3 billion Israel-aid bill on Thursday, setting up a fight with the Democratic-controlled Senate, which is pursuing a much larger package that includes assistance to Ukraine.
The measure was approved 226-196 in a largely party-line vote that masked broad underlying U.S. support for sending weapons and financing to Israel.
Source: Dow Jones Newswires