Weekly Market Update: Hopes for a turnaround fade as economic data remains too strong to alter monetary tightening track
After the dismal close last week markets were set up for a bounce when trading commenced on Monday. Highly oversold short-term conditions and key stabilization in government bond yields appeared to be the main catalysts. September ISM manufacturing data was weaker than expected and prices paid fell to the lowest levels since June 2020, which was very well received by the markets. On Tuesday, rates continued to roll away from cycle highs and the relief rally found further legs after the Reserve Bank of Australia raised rates less than markets were expecting. Also softening economic readings continued, such as the JOLTS job openings in the lead up to Friday’s September employment report. Finally worries about a UK financial crisis receded further after PM Truss retracted plans to cut the top tax bracket in the UK. By mid-week the BOE had drastically reduced GILT purchases via its temporary APF.
After US stock markets experienced the biggest two-day gains in more than two years, volatility resurfaced on Wednesday. US economic data was largely stronger than expected with the ISM Services Index holding up notably well, offsetting some of the softer readings seen this week that had stoked hopes the Fed could be nearing a data-induced pause. The OPEC+ decision to cut production by 2M bpd complicated matters, adding to the risk that resurgent oil prices will keep inflation higher for longer. Fed officials appeared to be on high alert to squelch any pivot narrative, picking up their hawkish rhetoric noticeably into the September employment report.
Unfortunately for investors who may have positioned for a weaker employment report, Friday’s jobs data offered few, if any, signs of slack in the labor market. Workforce growth was moderate at best and while wage growth moderated, it remained strong. Employers added 263K workers in September which is still well above the monthly gains of around 50K that many economists think would keep the unemployment rate from falling. To that end, the unemployment rate unexpectedly fell to 3.5%, an optic that makes it hard for investors to get behind any narrative calling for a near term pause in rate hikes. Treasury yields rose across the curve and risk assets came under broad pressure, led by significant giveback in the gains made in US stock markets early in week. With traders likely to quickly turn their attention to next week’s September CPI print, the sharp rise in WTI crude back above $92/bbl may rekindled worries of inflation staying higher for longer. Futures markets saw the odds of a 75bps hike at the November FOMC meeting rise slightly to above 80%. For the week, the S&P rose 1.5%, the DJIA gained 2%, and the Nasdaq was up 0.7%.
In corporate news this week, Credit Suisse was reportedly planning to accelerate its efforts to strengthen its finances following speculation over the weekend about potential liquidity issues at the bank. FedEx shares were volatile on Friday on a report that its ground division expects to lower volume forecasts as customers are expecting to ship fewer holiday packages. Tesla shares were hit early in the week after the EV manufacturer reported a miss on its Q3 deliveries, pointing to China demand concerns and increasing challenges in securing transportation capacity for vehicle deliveries. Tesla shares also may have suffered from speculation that Elon Musk may have to sell shares to fund the acquisition of Twitter after the world’s wealthiest man proposed to proceed with the original buyout price with the stipulation that ongoing acquisition dispute litigation was halted. Twitter balked at the proposal as a legal maneuver, and the Delaware judge overseeing the case agreed to delay the trial by two weeks to allow the parties to agree to terms. The semiconductor sector sank on Friday after the White House confirmed new restrictions on sales of chip technology to China, and also due to AMD cutting its Q3 revenue outlook amid weak PC demand and a significant inventory correction across the computing supply chain. Media reports indicated the US government is considering easing sanctions against Venezuela which could allow Chevron to produce oil there in return for new talks between government and opposition leadership.
SUN 10/2
(UK) PM Truss: I do accept we should have laid the ground better, but I do stand by the fiscal package we announced; I will not publish OBR forecasts early, want to work with OBR
OPEC+ said to consider production cut of more than 1Mbpd on Oct 5th; To hold in-person meeting (first since early 2020) - press
(AU) ABC Australia correspondent David Taylor tweets: Credible source tells me a major international investment bank is on the brink
(IT) Gas supplies from Russia to Italy through only entry point completely halted from Oct 1st until regulatory issues in Austria resolved - press
(US) Congress reauthorizes FDA user fee agreements
TSLA Reports Q3 deliveries 343K v 360Ke v 254.7K q/q; Q3 production 365K v 258.6K q/q; Notes it began transitioning to a more even regional mix of vehicle builds each week; It is increasingly challenging to secure vehicle transportation capacity
CSGN.CH Bank of England (BOE) 'monitors' co. amid market turbulence - UK Telegraph [update]
MON 10/3
(EU) EU ambassadors to meet later on Oct 3rd to discuss the 8th package of sanctions against Russia; One diplomat notes there will be no sanctions package without Russian oil price cap - Politico
(UK) Chancellor of the Exchequer (Fin Min) Kwarteng: Confirms not going ahead with 45% tax rate move; There will be no tax cuts ahead of budget on Nov 23rd
CSGN.CH Extends losses to 7% following last week's CEO memo to staff saying Credit Suisse is at critical moment
*(IT) ITALY SEPT MANUFACTURING PMI: 48.3 V 47.5E (3rd straight contraction)
(CH) Swiss weekly Total Sight Deposits (CHF): 669.6B v 747.1B prior
(US) Supreme Court takes case related to social media company liability under Section 130
*(US) SEPT FINAL S&P/MARKIT MANUFACTURING PMI: 52.0 V 51.8E
*(US) SEPT ISM MANUFACTURING: 50.9 V 52.0E (lowest since May 2020); PRICES PAID: 51.7 V 51.8E (lowest since June 2020)
(UK) Chancellor of the Exchequer (Fin Min) Kwarteng: It's been tough but we need to move forward; We need to focus on job at hand with no more distractions
(US) Atlanta Fed GDPNow: Cuts Q3 GDP to 2.3% from 2.4%
(KR) Japan notes that North Korea has appeared to have test fired a missile eastward; Issues warning to seek shelter from missile
POSH Naver to purchase co. at $17.90/shr in all cash deal; enterprise value ~$1.2B
005930.KR To present plans on chip foundry at event; Aiming for 2nm mass production by 2025 and 1.4nm by 2027
(JP) Japan Defense Min Hamada: Missile Launch from North Korea likely longest ever at 4.6K km, Decided to not deploy missile destruction after determining there was no danger to Japan
*(AU) RESERVE BANK OF AUSTRALIA (RBA) RAISES CASH RATE TARGET BY 25 BPS TO 2.60%; LESS-THAN-EXPECTED
TUES 10/4
(UK) PM Truss: Rules out any more mini-budget u-turns; Absolutely determined to press ahead with this growth plan; No decision made on raising benefits yet; Govt focused on helping more people get into work
2317.TW Reports Sept (NT$) Rev 822.3B +40.4% y/y; Notes Q3 Rev better than expected
*(US) AUG JOLTS JOB OPENINGS: 10.05M V 11.09ME (first reading below 11M since Nov 2021, and lowest since May 2021)
(NZ) Fonterra Global Dairy Trade Auction Dairy Trade price index: -3.5% v +2.0% prior
OPEC+ reportedly considering cut to quota of as much as 2.0M b/d - press
TWTR Tesla CEO Musk reportedly proposes in letter to Twitter to proceed with deal at $54.20/shr - press
WEDS 10/5
TSM Follow Up: Said to be negotiating lower prices with suppliers, talks said to focus on price decreases of at least 10% - Digitimes
TSCO.UK CEO: Seeing more frequent shops, smaller basket sizes and less shopping online - post earnings comments
(CN) Reportedly Chinese diplomats in latest conversations with EU counterparts made clear that the use of nuclear weapons by Russia would be viewed as totally unacceptable in Beijing - press
*(US) SEPT ADP EMPLOYMENT CHANGE: +208K V +200KE; Notes annual pay growth for job changers in Sept is down m/m
*OPEC+ JMMC TECHNICAL PANEL SAID TO AGREE ON OIL PRODUCTION CUT OF 2M BPD (biggest cut since 2020) - press
*(US) SEPT FINAL S&P/MARKIT SERVICES PMI: 49.3 V 49.2E
*(US) SEPT ISM SERVICES INDEX: 56.7 V 56.0E
(US) Atlanta Fed GDPNow: Raises Q3 GDP to 2.7% from 2.3%
(US) Association of American Railroads weekly rail traffic report for week ending Oct 1st: 496K total units, -3.9% y/y
(US) September preliminary NA Class 8 Net Orders 56.5K, +169% m/m; Largest net orders ever - FTRintel.com
COST Reports Sept total SSS +8.6% (ex-gas and FX) v +6.3%e
CVX (VZ) Reportedly US is prepared to ease Venezuela sanctions to allow Chevron to produce oil there - press
(VZ) US NSA Official: Venezuela sanctions policy unchanged
THURS 10/6
DGE.UK AGM trading update: Expect operating environment to remain challenging
(EU) EU formally approves 8th package of Russia sanctions; Confirms the beginning of the implementation within the EU of the G7 agreement on Russian oil price cap; Confirms ~€7B worth of additional import restrictions, including steel products, chemicals, machinery and appliances
VNTR Reports Prelim Q3 TiO volumes -25% q/q
(US) Sept Challenger Job Cuts: +30.0K v +20.5K prior; Y/Y: 67.6% v 30.3% prior; Sep planned hires lowest since 2011
(RU) LME confirms discussion paper with options that include an immediate ban on new Russian metal
AMD Cuts Q3 Rev $5.6B v $6.68Be (prior $6.5-6.9B); Macroeconomic conditions drove lower than expected PC demand, significant inventory correction across the PC supply chain
(EU) EU ACEA: Cuts 2022 vehicle sales forecast to -1.0% from +7.9% seen in Feb
*(US) FED'S MESTER (FOMC VOTER): FED WILL NOT CUT RATES AT ALL IN 2023
005930.KR Reports prelim Q3 (KRW) Op 10.8T v 15.8T y/y (12.1Te), Rev 76.0T v 74.0T y/y (78.5Te)
(JP) Japan Sept FX Reserves: $1.24T v $1.29T prior (Largest m/m fall; at lowest amount since Dec 2015)
(JP) Japan Fin Min Suzuki: FX reserves fell most on record in Sept; FX intervention was a factor in fall in reserves
*(US) US Pres Biden: Putin's nuclear threat biggest risk since Cuban Missile Crisis; Warns Putin is 'not joking' about nuclear threat; Warns of 'Armageddon' if nuclear weapons used
FRI 10/7
(RU) According to US intelligence, a member of Russia Pres Putin’s inner circle has voiced disagreement directly to the Russian Pres in recent weeks over his handling of the war in Ukraine - WaPo
CSGN.CH Announces public tender for senior debt securities for up to CHF3B
TSM Reports Sept (NT$) Rev 208.3B, +36% y/y, -4.5% m/m; YTD Rev 1.64T +43% y/y
066570.KR Reports prelim Q3 (KRW) Op 746.6B v 596.8B y/y (v 952.8Be); Rev 21.2T v 18.6T y/y (v 20.1Te)
(EU) ECB said have told some banks recently that it expects pay and dividend restraint; ECB concerned about potential wave of defaults on banks - press
*(US) SEPT CHANGE IN NONFARM PAYROLLS: +263K V +255KE
*(US) SEPT AVERAGE HOURLY EARNINGS M/M: 0.3% V 0.3%E; Y/Y: 5.0% V 5.0%E
*(US) SEPT UNEMPLOYMENT RATE: 3.5% V 3.7%E (matched the lowest since Feb 2020); Labor Force Participation Rate: 62.3% v 62.4%e
*(CA) CANADA SEPT NET CHANGE IN EMPLOYMENT: +21.1K V +20.0KE; UNEMPLOYMENT RATE: 5.2% V 5.4%E
Sep Manheim Used Vehicle Value Index: -3.0% M/M; -0.1% Y/Y; Values saw larger-than-normal declines
FDX Internal memo shows FedEx ground division expects to lower volume forecast as customers expecting to ship fewer holiday packages – press
(US) Atlanta Fed GDPNow: Raises Q3 GDP to 2.9% from 2.7%
(US) AUG CONSUMER CREDIT: $32.2B V $25.0BE