Stocks and bonds chop on PMIs and Dollar unwinds Monday's losses

Snapshot

Equities are up, Treasuries are flat, Crude is down, and the Dollar is up.

REAR VIEW

GM pulls '23 forecast amid uncertainty over the UAW; Lacklustre auction for 2yr; KO, RTX and VZ earnings impress, but HCA, GLW and HCA disappoint.

Coming Soon

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: Australian CPI, German Ifo, US New Home Sales

The Event

BoC Announcement

Speakers

Lagarde of the ECB, Macklem & Rogers from BoC

Buy Now

UK, Italy, Germany, & US

Earnings

: ADP, Heineken, Santander, Ubisoft, Reckitt Benckiser; Meta, Thermo Fisher, T-Mobile, IBM, ADP, Boeing.

Newsquawk: 2 Steps to More Newsquawk

MARKET WRAP

Stocks continued to rise throughout the morning despite the disappointing EZ-PMIs. The US PMI surveys were stronger than expected, which helped support the higher stock prices. The corresponding rise in yields led to a decline in stocks in the afternoon. Oil prices also fell, and the dollar erased Monday's losses. T-Notes and indices both pared their losses ahead of the slew mega cap tech earnings scheduled for tonight. Crude, however, remains at its lowest levels. The Dollar surged in FX but the Aussie outperformed due to the hawkish comments of RBA Governor Bullock ahead of the inflation data. USD/JPY dipped towards 150 as the Dollar advanced following the US PMI data, but the EUR lagged behind due to the disappointing EZ PMI report. Oil prices fell due to a combination of soft PMIs from Europe, the dollar's bounce and optimism in the Middle East. Treasuries, meanwhile, were little changed as a result of choppy trading.

NORTH AMERICA

US FLASH PMIs

Manufacturing PMI rose to 50.0, but only by a small margin (prev. The expected 49.8 was actually 49.8. Composite will now rise to 51.0, up from 50.2. Williamson, the Chief Economist at S&P, said in the report that "Hopes for a soft landing in the US economy are encouraged by the improved conditions seen in October". He added later, "Sentiment improved partly due to the hope of interest rates peaked. Firms' input cost inflation dropped sharply to its lowest level since October 2020 and average selling prices of goods and services showed the smallest rise in a month since June 2020." He concluded by noting that 'the survey's sales price gauge is close to its long-term average pre-pandemic and consistent with headline prices dropping close to the Fed target of 2% in the coming month'.

BOC PREVIEW

According to Reuters' survey of economists, the BoC will likely leave rates at 5.00%. This is consistent with market pricing that assumes an implied probability of a pause of 85% and a probability of a rate hike of 15%. The BoC's previous statement acknowledged that the BoC was prepared to do more, if necessary. This was further accentuated by Governor Macklem's hawkish comments. The BoC Governor said that higher bond yields on long-term bonds are not a substitute to doing what is needed to bring inflation back to the target. He noted they will decide whether to keep the current 5% or take further action to restore stability. The latest Canadian CPI was lower than expected, which led to a reduction in hawkish expectations. Both JPMorgan and Goldman Sachs removed their call for an October rate hike. We will look to the statement to provide guidance. The previous one stated that the Bank was "prepared to increase the interest rate policy further if necessary". The BoC is also releasing its latest Monetary Policy Report, which will focus on inflation forecasts following mixed inflation data since the July MPR. Growth forecasts may be revised lower. Download the complete Newsquawk Preview.

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Fixed Income

T-NOTE Z3 FUTURES SETTLEMENT 4 TICKS BESIDES AT 106-11+

Treasuries traded in choppy conditions on Tuesday, with hot US survey numbers offsetting weak European data; slightly soft demand for 2yr auctions.

At settlement: 2s +4.3bps, 3s +3.7bps, 5s+2.9bps, 7s+1.6bps, 10s-0.2bps, 20s-1.8bps, 30s-3.1bps.

INFLATION BREAKEVENS

5yr BEI at 2.25%, 10yr BEI at 0.90%, 30yr BEI at 0.60%

THE DAY

The BoJ's unexpected bond-buying operation prompted some JGBs to show some support after Monday's Ackman tear. The T-Note was trading sideways until Europe arrived. Some block purchases in the T-Note helped contracts reach session highs of 106-22, although the front-end lagged. There was no follow-through in Treasuries following the weak EZ PMIs. Contracts began to pare lower as the NY handover approached, with the front end leading in the increase in yields.

T-Notes experienced two-way flow as US trade began, but did manage to reach new lows each time there was a wave of selling. The soft Philly Fed Service report managed to limit losses for a brief period before the S&P National PMIs. Interest in the Friday expiry puts for 105.50 (105-26) was high, but was quickly absorbed. After the surprise increases in S&P manufacturing and services data, T-Notes fell to session lows at 106-03+, before recovering a bit ahead of the 2-year auction. The auction was a success, with the contracts ranging bound into settlement.

2YR AUCTION

The 2,64x bid/cover was below the previous 2.73x, and average 3,31x. Dealers (forced excess buyers) had 17.6% of the total, which was above previous 14% and average 15%. Directs and Indirects saw a decline in participation.

This Week's Auctions

US will sell USD 52bln in 5yr bills on October 25th and USD 38bln in 7yr bills on Oct 26th. All to be settled on Oct 31st. US will sell USD 26bln in 2yr FRNs to settle on October 31st.

STIRS

:

SR3Z3 -1.5bps at 94.560, H4 -2.5bps at 94.640, M4 -1.0bps at 94.865, U4 +2.0bps at 95.140, Z4 +4.5bps at 95.405, H5 +6.5bps at 95.640, M5 +7.5bps at 95.780, U5 +8.0bps at 95.835, Z5 +8.5bps at 95.840, Z6 +9.0bps at 95.755, Z7 +8.5bps at 95.615.

Volumes fall from 1.396tln to USD 1.330tln, with SOFR at 5.30%.

Demand for NY Fed RRP Ops at USD 1.98tln (prev. Demand for NY Fed RRP op at USD 1.098tln (prev. 101).

Volumes have increased to USD 88bln, up from USD 87bln.

US sold USD 75 billion in 42-day CMBs, at a 5.300% rate.

CRUDE

WTI (Z3) SETTLED US$ 1.75 LOWER, AT 83.74/BBL. BRENT(Z3) SETTLED US$ 1.76 LOWer, AT 88.07/BBL

The oil prices fell again on Tuesday, with desks pointing out the weak PMIs from Europe, the dollar's bounce and the optimism in the Middle East.

The US Dollar's rise in value was the catalyst for the oil price decline, even though the European PMIs were disappointing. Oil prices were not boosted by the surprise rise of the US PMIs. New lows in WTI and Brent were set heading into the afternoon in NY. The WTI and Brent contracts ended up at USD 82.94/bbl & USD 87.35/bbl respectively. This brings the MTD lows for Oct 6th to focus at USD 81.52/bbl & USD 83.44/bbl. The lack of movement by Israel's IDF in Gaza is another factor that has contributed to the loss. Diplomatic discussions are ongoing and hostage release negotiations are being conducted. Aramco's CEO noted the Co. was experiencing significant growth in demand, and the Saudi Energy Minister stated that they would not increase oil capacity to 13mln BPD if there were no demand. Iraqi PM Sudani told us that foreign oil companies in the Kurdish area informed him that they would resume oil production if a deal was reached over oil production costs and contract terms. The traders are now looking forward to the US weekly energy inventory data. A private release is due on Tuesday, ahead of EIA figures released on Wednesday. Current expectations (bbls): Crude +0.2mln, Gasoline -0.9mln, Distillates -1.2mln.

EQUITIES

CLOSES

: SPX +0.73% at 4,247, NDX +0.97% at 14,745, DJIA +0.62% at 33,141, RUT +0.82% at 1,679.

SECTORS

Utilities (+2.57%), Communication Services +1.38%; Real Estate +1.19%; Materials +1.13%; Consumer Staples (consumer discretionary) +1.04%. Industrials (+0.72%); Technology +0.71%. Financials (+0.67%); Health +0.29%. Energy -1.42%.

EUROPEAN CLOSES

: DAX +0.54% at 14,879.94, FTSE 100 +0.20% at 7,389.70, CAC 40 +0.63% at 6,893.65, Euro Stoxx 50 +0.55% at 4,064.05, IBEX 35 -0.22% at 8,975.80, FTSE MIB +0.05% at 27,572.74, SMI +0.45% at 10,378.70.

STOCK SPECIFICS

:

Coca-Cola (KO)

The Q3 results exceeded expectations and the company increased its sales and profit estimates for the year on account of strong demand and higher price.

General Motors (GM),

The company reported top and bottom-line gains, but retracted its FY23 guidance due to strike uncertainty. It estimated that the current facilities are causing an impact of USD 200mln/week, but after further actions were announced on Tuesday this was increased to USD $400/mln/week. Not has seen a weakening in consumer demand.

3M (MMM)

The FY23 guidance was raised due to the expected benefits from cost-cutting and price increases.

General Electric (GE),

The company's aerospace business has seen increased demand, which helped to boost its FY23 outlook.

RTX (RTX).

Earnings topped by USD 10bln share buyback program; FY23 adj. narrowed. EPS forecast is above consensus, and revenue guidance has been raised.

Verizon (VZ),

The FY FCF guidance was also boosted by the EPS and revenue beating.

Centene (CNC)

Earnings beat and improved FY outlook

Corning (GLW),

The company's earnings were below expectations and its outlook for the next quarter was downgraded. It noted that demand continues to be below trend lines.

HCA Healthcare (HCA)

EPS missed noting that results were negatively impacted by Valesco Physician Staffing JV which performed below expectations. Reaffirmed FY outlook.

Sherwin-Williams (SHW)

Earnings beat and increased FY profit outlook US government. US government

Nvidia

NVDA believes that the licensing requirements resulting from additional export controls for some semiconductors will have an immediate effect on financial results.

Fiserv (FI)

Earnings beat is accompanied by an increase in FY profit and revenue forecast.

Spotify (SPOT),

The company beat revenue and MAUs by a surprising profit per share, citing cost-cutting initiatives, such as lower market spending and layoffs as well as higher subscription costs.

TransUnion (TRU).

The top and bottom lines were missed; the FY guidance was cut, as well as the Q4 outlook.

W R Berkley (WRB)

Earnings beat, with other key metrics strong. Noted that it is well-positioned for continued success. Very optimistic about 2023.

NextEra Energy (NEE)

Post solid results and reaffirmed FY Outlook

Nucor's (NUE)

Report impressed investors

Halliburton, HAL

Profits on track but revenue missed

Danaher (DHR)

The EPS and revenue are solid but the core revenue is "down by mid-single figures" in Q4 Y/Y. Also, FY24 revenue forecasts have been cut.

US FX WRAP

The Dollar

The Dollar Index is trading around this level heading into APAC. The Euro's weakness following disappointing EZ PMI data supported the dollar further.

As previously mentioned,

Euro

The EUR/USD dropped from a high of 1,0693 to a low of 1,0583 in the wake of weak PMI data. This move was also influenced by the yield differential between US and EZ – German yields were lower, while US yields remained firm, albeit at lowered levels as risk sentiment soured.

The Yen

Bloomberg reported that there was a two-way price movement in Europe this morning, based on the BoJ's statement that it does not see the need to alter its forward guidance and is considering whether or not to adjust the YCC due to US yield concerns. Prior to this, the BoJ had announced unscheduled bonds purchases. USD/JPY tested 150 again after the stronger-than-expected US PMI report, but it was quickly rejected. USD/JPY peaked at 149.92 and remained there throughout the session. Participants are hesitant to see USD/JPY go above 150 due to fears of intervention. In response to a question about the Yen falling near the USD 150 mark, Japanese PM Kishida stated that it was desirable for FX movements to be stable. Kishida said that it was important for the BoJ and the government to work closely together to achieve wage growth, stable prices and to avoid deflation.

Cyclical currencies

Despite mixed results, the AUD outperformed the Buck, and even the Euro, after comments from RBA's Bullock, who stated that the board would not hesitate to increase the cash rate if the inflation outlook was materially revised upwards. This is a rather eerie comment ahead of tonight's inflation report. Bullock said that the current cash rate could be used to achieve the inflation target, but warned of the risks.

NZD

The AUD/NZD rose above 1.0850, but the Aussies were not as strong. GBP, along with the dollar and Antipodeans, was the worst performing currency. Sterling fell as risk sentiment soured in afternoon despite an improved employment report.

CAD

The Canadian Dollar also showed weakness against the dollar but not as much as the GBP. Lower oil prices were a factor in CAD's decline ahead of Wednesday's rate decision by the BoC (

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The BoC will release its inflation and growth projections in the MPR.

Scandis

The SEK was the biggest laggard, despite lower Brent prices. Theeden, a Riksbank employee, stated that the bank needed to restore its equity to the minimum level of SEK40bln as stipulated in the Sveriges Riksbank act. Theeden said that by the end of 2023, the restoration of the basic level will require a capital infusion of approximately SEK 80bln.

EMFX

The results were mixed. BRL was up, MXN and COP were down but CLP was up. Mexico's first-half October data on inflation was mixed. The headline figures were slightly below expectations, but the Core M/M numbers were slightly higher. Y/Y was in line. CLP's performance was boosted by the rise in copper prices. HUF also showed notable weakness against the Euro, after the NBH cut more than expected. The street had only anticipated a 50bp reduction, but the expectations ranged between unchanged and a 100bp reduction.