Volatile Tuesday

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Volatile Tuesday

After gapping lower in reaction to hotter-than-expected Retail Sales numbers the bulls rushed back in producing a very whippy and volatile Tuesday as bond yields surged higher with worries about inflation.  After surging higher to test resistance levels index prices softened leaving behind more questions than answers with the declining market breadth. Today we have a very busy day of earnings and economic reports to inspire the bulls or bears.  However, the war in the Middle East and the increasing tensions add a level of caution and uncertainty to the morning as oil prices surge higher.

Asian market closed the day mixed with modest gains and losses despite the better-than-expected economic figures out of China. European markets trade red across the board this morning as they monitor Middle East tensions and worry about inflation as energy prices rise.  U.S. futures suggest a slightly bearish open due to the war tensions, but anything is possible by the open of the day with earnings and economic reports before the bell.  Expect another day of challenging price action.

Economic Calendar

Earnings Calendar

Notable reports for Wednesday include ABT, AA, ALLY, ASML, CFG, CCI, DFS, EFX, FNB, FHN, KMI, LRCX, LVS, MTB, MS, NDAQ, NFLX, NTRS, PPG, PG, REXR, SLG, STT, STLD, TSLA, TRV, USB, WGO, ZION.

News & Technicals’

China’s economy grew faster than expected in the third quarter of this year, according to the latest data from China’s National Bureau of Statistics. The data showed that China’s gross domestic product (GDP) increased by 4.9% year-on-year in the July to September period, beating the 4.4% growth forecast by economists. China’s retail sales also exceeded expectations, rising by 4.3% year-on-year in September. China’s urban unemployment rate dropped to 4.7% in September, the lowest level since November 2019. The data indicated that China’s economic recovery from the Covid-19 pandemic was gaining momentum, as domestic consumption and industrial production improved. China was the only major economy to report positive growth in 2020 and is expected to maintain its growth momentum in the fourth quarter of this year.

Roblox, the online gaming platform and game creation system, has announced a change in its work policy that will require its employees to relocate to the office. Roblox CEO David Baszucki said in a memo on Tuesday that the company will adopt a hybrid work model, where employees will have to work from the office on Tuesdays, Wednesdays, and Thursdays, starting from January 2024. Employees who choose not to relocate to the office can opt for a severance package and leave the company. The new policy is a reversal from the previous one, which allowed employees to “primarily work remotely” since May 2022. Baszucki said that the change was necessary to foster collaboration, innovation, and culture at Roblox.

United Airlines, one of the largest U.S. airlines, has warned that its profits will be affected by higher fuel costs and the conflict in the Middle East. The airline said that the price of jet fuel has increased by 50% since the beginning of the year and that the war between Israel and Hamas has reduced the demand for travel to the region. United Airlines and other airlines with large international networks have enjoyed a boost in overseas travel this summer, as more countries reopened their borders and eased travel restrictions. The summer season is usually the most profitable period for airlines, as they generate most of their revenue in the second and third quarters. However, United Airlines said that the rising fuel costs and geopolitical uncertainty will offset some of the gains from the recovery in international travel.

Index prices produced a whippy and volatile Tuesday after gapping lower after the retail sales report came in hotter than expected driving bond yields higher yet finishing the day nearly unchanged. The industrial production also surprised to the upside, growing by 0.3% month-over-month in September, while the forecast was for a 0.1% drop. However, the market was also affected by the weak housing market index, which fell to 40 in October, the lowest level since January. The index showed that the higher interest rates have hurt the demand for housing, and the 2-year bond surging back above 5% yesterday added more pressure. Today, investors face a big day in earnings events as the 4th quarter season heats up with NFLX, and TSLA numbers pending.  We also have Mortgage Apps, Housing Starts, Petroleum Status, and several Fed speakers throughout the day.  With renewed concerns in the Middle East this morning oil prices are surging adding inflation worries to the mix of uncertainties the market faces. 

Trade Wisely,

Doug

Weirdly Bullish Day

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With no major economic news to influence the DIA enjoyed a weirdly bullish day as market breadth declined.  The SPY and QQQ recovered much of Friday’s selloff while continuing to struggle with overhead resistance as those pesky bond yields moved higher.  Today bulls and bears will have plenty of data to find inspiration with Retail Sales and industrial Production numbers, with several potential market-moving earnings that include BAC and GS. Be prepared for volatile prices with consensus estimates suggesting a decline in the retail figures.

Overnight Asian markets enjoyed a strong bullish session as China and Australia broke a three-day losing streak.  However, European markets trade mixed and mostly lower this morning taking a cautious approach to earnings and economic data with Middle East tensions keeping investors on edge.  U.S. futures indicate a slightly bearish open ahead of busy morning earnings and economic numbers that may provide clues to the strength of the consumer.

Economic Calendar

Earnings Calendar

Notable reports for Tuesday include ACI, BAC, BK, FULT, JNJ, GS, HWC, IBKR, JBHT, LMT, PNFP, PLD, UAL, and WTFC.

News & Technicals’

Country Garden, the largest property developer in China, is facing a possible default if it does not pay a $15 million interest on its offshore bond on Tuesday. The company, which has been struggling with high debt and slowing sales, warned last week that it might not be able to meet all of its offshore obligations. The company also said that it was seeking a waiver from its creditors and that it was facing uncertainty in its liquidity and asset sales. The potential default of Country Garden has raised concerns about the financial stability of the Chinese property sector, which has been under pressure from the government’s regulatory tightening and the pandemic.

The global inflation crisis has prompted central banks around the world to raise interest rates sharply in the last year and a half, but the results have been mixed so far. Some countries have managed to tame inflation, while others have seen it persist or worsen. Now, many economists and central bankers agree that interest rates will remain high for a longer time, as inflation pressures are not likely to ease soon. This means that both businesses and central banks will face more challenges in investing and managing their finances. World Bank President Ajay Banga said that higher rates will make the investment landscape more complex and uncertain for everyone.

Apple CEO Tim Cook made a surprise visit to China, where he attended an event for gamers and praised their enthusiasm. The visit showed the importance of the Chinese market for Apple, which is facing some challenges in selling its latest iPhone model. The iPhone 15, which was launched less than a month ago, has received a tepid response from Chinese consumers. According to Counterpoint Research, the sales of the iPhone 15 series in China in the first 17 days were 4.5% lower than the sales of the iPhone 14 series in the same period.

The DIA had a weirdly bullish day, with no major economic news to influence it with the SPY and QQQ recovering Friday’s selling though still struggling with overhead resistance levels. Bond yields also went up, with the 10-year Treasury yield ending around 4.7% and they continue higher this morning. Commodities such as gold, silver, and oil prices eased slightly after Friday’s spike that seemed to be run to safety.  Today we ramp up earnings events with around a dozen notable reports that include BAC and GS that could inspire some premarket volatility while we wail on Retail Sales and Industrial Production figures.  With the consumer showing significant signs of stress the retail number today could be substantially market-moving so be prepared for just about anything at the open.

Trade Wisely,

Doug

Big Bank Earnings

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Big Bank Earnings

Friday’s big bank earnings failed to inspire the bulls as Middle Eastern uncertainty, declining consumer sentiment, and rising oil and bond yields worried investors headed into the weekend.  All last week we dealt with a premarket pump that whipsawed by the end of today and it looks as if the same game plan has started for Monday.  Today we have Empire State figures, bond auctions, and Fed speeches with a couple of notable earnings reports for the bulls or bears to find inspiration.  However, with about 98% of companies within their blackout period don’t be surprised if we whipsaw on anemic volume.

Overnight Asian markets closed red across the board with the Nikkei leading the selling down 2.03% waiting on Key economic data this week.  European markets have recovered from early losses to show modest gains at the time of writing this report despite the Middle East war worries.  However, U.S. futures point to a bullish gap up open with high hopes on 4th quarter earnings results.

Economic Calendar

Earnings Calendar

Notable reports for Monday include SCHW and ELS.

News & Technicals’

Pfizer, the pharmaceutical giant that produces a Covid treatment and vaccine, lowered its earnings and revenue outlook for the year on Friday. The company’s shares fell in after-hours trading. The company said that the demand for its Covid products has declined, as the Covid booster rollout has faced challenges and the Covid cases have become less severe for many people who have been vaccinated or infected before. Pfizer also said that it expects more competition from other Covid treatments and vaccines in the future.

Rite Aid, a drugstore chain that operates in the U.S., has filed for bankruptcy protection under Chapter 11 in New Jersey. The company has also named Jeffrey Stein as its new CEO, who will lead the company’s restructuring plan. Rite Aid has been struggling with declining sales, high debt, and legal troubles related to the opioid crisis. Rite Aid faces fierce competition from its rivals, such as CVS and Walgreens, which have expanded their healthcare services to cope with the challenges in their retail businesses.

The conflict between Israel and Hamas has escalated into a deadly humanitarian crisis. Hamas, a militant group that controls Gaza, launched a surprise attack on Israel last week, firing hundreds of rockets and killing more than 1,400 people, mostly civilians. Israel responded with a massive air campaign that has killed at least 2,670 people in Gaza, mostly militants. Israel also cut off the supply of food, water, fuel, and electricity to Gaza, and warned the residents of northern Gaza to flee before launching a ground invasion to destroy Hamas. The international community has called for an immediate ceasefire and a peaceful resolution of the conflict.

The market ended the day with losses on Friday, despite the big bank earnings reports from several U.S. banks. but the rising oil prices, bond yields, and uncertainty of the war in the Middle East kept the bears engaged. The weak consumer sentiment report from Michigan also worried investors about the strength of the pending 4th quarter reports. Today we have a light earnings and economic calendar but once again the premarket pump we experienced all last week is underway despite weakness in Asia and Europe.  Watch for whipsaws with about 98% of all companies within their blackout period momentum could be lacking as we test overhead resistance levels.

Trade Wisely,

Doug

Inflation Data

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inflation data

After a strong bull run on Tuesday, the pending inflation data brought in some profit-takers making for a choppy afternoon session.  Bond yields on the long end of the curve continue to weaken and the better-than-expected results out of PepsiCo gave the bulls an extra dose of optimism.  This morning’s trades will have Mortgage Apps and a PPI report before the bell so plan to opening gap up or down depending on the data.  After that Fed Speakers and bond auctions until the afternoon release of the FOMC minutes that usually provides a shot of volatility.  Plan for just about anything today and remember the uncertainty continues into Thursday with the pending CPI report.

During the night Asia markets closed bullish with the KOSPI leading the way up 1.98%.  However, European markets are taking a cautious approach ahead of inflation data trading mixed with modest gains and losses this morning.  U.S. futures on the other hand are putting on a brave face pushing for a bullish open ahead of the market-moving data as bond yields on the long end of the curve continue to decline.  Buckle up because what happens next is anyone’s guess.

Economic Calendar

Earnings Calendar

There are no notable earnings for Wednesday.

News & Technicals’

The conflict between Israel and Hamas has not caused much reaction in the global markets, as they have only seen a slight rally. However, some experts warn that the markets have not fully accounted for the risks that the conflict poses. Bob Savage, the head of markets strategy and insights at BNY Mellon, said that Israel has enough budget and GDP to withstand a “long conflict” that could last more than eight weeks. He also said that the conflict could lead to higher inflation risks, as it could increase oil prices and defense spending. Savage advised the markets to be more cautious and vigilant about these risks.

The recovery of China’s consumption growth from the pandemic is expected to be slow and gradual, according to analysts from UBS and HSBC. Christine Peng, head of the Greater China consumer sector at UBS, said that the current consumption growth is still far below the pre-pandemic level and that it will take until the end of 2024 to reach 5% or 6%. She also said that there is “no way” that retail sales can return to 9% in the near future, as consumer confidence is low. HSBC reported that Chinese luxury spending, both domestically and overseas, in September was about 80% of what it was in 2019, which is a slight improvement from the 70% to 75% recovery seen in August. The data for overseas luxury spending was based on Global Blue, a company that provides duty-free shopping services.

General Motors has reached a tentative deal with its Canadian autoworkers, who had launched a national strike on Tuesday at GM’s four Canadian plants. The strike was initiated by Unifor, the union that represents nearly 4,300 GM workers in Canada. Unifor President Lana Payne said that the strike forced GM to “get serious at the table and agree to the pattern”, which is a set of terms that the union has negotiated with other automakers. The details of the agreement have not been disclosed yet, but Payne said that it includes “significant investments” in GM’s Canadian operations. The agreement still needs to be ratified by the union members.

The market ended the day with gains, though profit takers made for a choppy afternoon session with the uncertainty of the pending inflation data.  PepsiCo delivered better-than-expected results for the third quarter, beating the estimates for both earnings and revenues. The market is also pondering the uncertainty of the earnings reports from several major banks on Friday. The market performance was diverse, with both defensive sectors, such as consumer staples and utilities, and cyclical sectors, like materials and consumer discretionary, among the top performers.  As for today, bulls and Bears will be looking for inspiration in the Mortgage Apps, PPI, Fed Speakers, Bond Yields, and the afternoon release of the FOMC minutes.  Plan for an opening gap that could go either way depending on the reaction to the data.

Trade Wisely,

Doug

Stocks Recovered

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Equities had a rough start on Monday but stocks recovered as the investors shook off the Middle East war and spiking oil prices in favor of continuing the relief rally that began last Friday.  The tech giants enjoyed the majority of bullishness as the QQQ remains the strongest of the indexes while the IWM continues to lag significantly behind.  Today, we have another light day of earnings and economic reports as we wait for the September PPI and FOMC minutes on Wednesday.  Consider your risk carefully as big-point moves, gaps, and reversals are possible.

Asian markets closed mixed but mostly higher with the Nikkei leading the buying up 2.43% and Shanghai modestly lower after Country Garden warned of the likelihood of more missed payments.  European markets appear blissfully unconcerned about the Middle East conflict this morning decidedly bullish across the board.  U.S. Futures seek to continue the relief rally suggesting a bullish open as bond yields decline with pending inflation data on the horizon.

Economic Calendar

Earnings Calendar

Notable reports for Tuesday include AZZ, NEOG & PEP.

News & Technicals’

According to the World Economic Outlook report by the International Monetary Fund, the U.S. economy is expected to grow faster than the eurozone economy this year. The IMF increased its U.S. growth forecast by 0.3 percentage points to 2.1%, while it decreased its euro zone forecast by 0.2 percentage points to 0.7%. The report says that the U.S. has benefited from stronger business investment and resilient consumption, while the eurozone economies have faced challenges from higher interest rates and diverging performance. The IMF also maintained its global growth forecast of 3% for the year.

The future of generative artificial intelligence, a type of AI that can create new content such as images, text, or music, may not be as bright as some expect. A report by CCS Insight, an analyst firm, predicts that generative AI will face a “cold shower” in 2024, as the costs of running the technology will increase and the hype will fade. The report also says that smaller developers of generative AI will struggle to compete with larger players, as the technology becomes “too expensive” to operate. On the other hand, the report also forecasts that the regulation of AI in the European Union will be delayed, as the technology advances faster than the policymakers can keep up.

Country Garden, a leading property developer in China, has defaulted on a debt payment of 470 million Hong Kong dollars ($60 million). The company said that it was unable to repay the debt due to “unforeseen circumstances” and that it was seeking a waiver from its creditors. The company also warned that it faced uncertainty in its liquidity position and asset sales in the short and medium term, as the property market in China has been hit by regulatory tightening and slowing demand. The default has raised concerns about the financial health of Country Garden and other Chinese developers, who have accumulated high levels of debt in recent years.

U.S. stocks recovered from a negative start on Monday, as they shrugged off the impact of the Hamas attacks in Israel and ended the day with gains despite the declining market breath with the uncertainty ahead. Energy was the best performer, boosted by the increase in oil prices. Other sectors that did well were industrials, real estate, communication services, and utilities. Gold prices also went up 1%, partly due to the inflationary effect of higher energy prices and partly due to the demand for a safe-haven asset amid the conflict in Israel. Finding inspiration may be challenging today with little more than Fed speakers and bond auctions on the economic calendar.  Earnings events are also light on numbers but a least there are a couple of notable reports for the bulls or bears to some energy.   However, expect anemic volume as we wait on the key September inflation reports expected to be a major driver in the coming days.

Trade Wisely,

Doug

Strong Jobs Report

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Markets whipsawed on Friday after the strong jobs report pushed bond yields to their highest level of the year.  However, the overdue relief bounced indexes sharply off the morning lows as a strong short squeeze took hold.  Unfortunately, a new conflict erupted this weekend after a surprise Hamas attack on Israel prompted a declaration of war spiking oil prices and adding another geopolitical worry to the world.  With a PPI, FOMC Minutes, CPI, and the beginning of 4th quarter earnings on Friday traders will have to be prepared for just about anything.  Keep in mind that more than 90% of companies within their blackout period volume could be anemic with bursts of wild data-driven volatility.

Asian markets closed their Monday session mixed after Hong Kong canceled the morning session and Shanghai resumed trading after their Golden Week.  European markets trade mixed but mostly lower in a choppy morning session as they monitor the new Middle East war. U.S. futures point to a lower open with rising bond yields, higher oil prices, and more geopolitical concerns worrying investors.

Economic Calendar

Earnings Calendar

There are no noteworthy earnings reports for Monday.

News & Technicals’

The recent attacks in Israel have caused several airlines to cancel their flights to and from the country. American, Delta, and United, which are the three major U.S. airlines, announced that they have suspended their flights to Israel this weekend, citing security concerns. British Airways and Lufthansa, which are the largest airlines in the UK and Germany, respectively, also followed suit and canceled their service. The flight cancellations come amid the escalating violence between Israel and Hamas, the militant group that controls Gaza. The conflict has resulted in hundreds of deaths and injuries, as well as widespread damage to buildings and infrastructure. The airlines said that they will monitor the situation and resume their flights when it is safe to do so.

The ongoing conflict between Israel and Hamas has raised concerns about the stability of oil markets in the Middle East. Oil prices surged on Monday as the violence escalated for the third consecutive day, with Hamas launching rockets at Israel and Israel responding with airstrikes on Gaza. However, analysts say that the impact of the conflict on oil supply and transport is likely to be limited unless it spreads to other countries in the region or disrupts major oil facilities. According to Vivek Dhar, Commonwealth Bank’s director of mining and energy commodities research, “For this conflict to have a lasting and meaningful impact on oil markets, there must be a sustained reduction in oil supply or transport”.

Thousands of workers with Mack Trucks, a subsidiary of Volvo Group, are set to go on strike Monday after rejecting a proposed contract from the company. The United Auto Workers (UAW) union, which represents about 3,900 Mack Trucks employees, announced that 73% of its members voted against the tentative deal that was reached last week. The union said that the deal did not meet its expectations on issues such as wages, health care, job security, and retirement benefits. The union is also negotiating with the Detroit automakers, and some workers said they were influenced by the higher standards set by those talks. The strike will affect Mack Trucks plants in Pennsylvania, Maryland, and Florida.

Equity markets whipsawed on Friday after a strong jobs report boosted the yields to the highest level of the year, but stocks reversed finally beginning a relief rally with a substantial short squeeze. However, the data increased the chances of another rate hike this year and unfortunately, the bond yields are higher this morning.  Sadly a new war erupted this weekend when Hamas launched a surprise attack on Israel spiking oil prices and adding more geopolitical uncertainties setting the stage for a lower open this morning.  Now with more than 90% of companies within their blackout period volume could be anemic as we wait for PPI, FOMC minutes, CPI, and the kickoff to the 4th quarter earnings season with big bank reports on Friday.  Challenging and volatile may prove to be an understatement with all the uncertainty clouding the path forward. 

Trade Wisely,

Doug

Sputtering Relief Rally

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The price action Wednesday produced a sputtering relief rally that provided some hope through the lack of momentum kept uncertainty high.  The sharp decline in the ADP signaled a weakening jobs market while at the same time suggesting the rising rate increases may be coming to an end.  Big tech names enjoyed the majority of the bullish energy while the energy sector sector pulled back sharply on worries of consumer demand declines.  Today we face data from International Trade, Jobless Claims, Natural Gas figures, as well as several Fed speakers to find bullish or bearish inspiration.  Plan your carefully with the likely market-moving Employment Situation report before the bell on Friday.

Overnight Asian markets closed mixed but mostly higher inspired by the pullback in treasury yields.  European markets are also showing some relief with modest gains across the board this morning despite the plunge in Metro Bank. Though U.S. Future has recovered some of its overnight lows they still suggest a modestly lower open ahead of trade and jobless numbers.  Buckle up for another day of uncertainty as we wait on the big Friday jobs report.

Economic Calendar

Earnings Calendar

Notable reports for Thursday include CAG, LW, STZ, LEVI.

News & Technicals’

Metro Bank, a British retail bank, saw its shares plunge by more than 29% on Thursday before trading was suspended by the London Stock Exchange. The reason for the sharp drop was the news that the bank was trying to raise £600 million ($727 million) in debt and equity, amid its financial troubles. The bank has been struggling since 2019 when it revealed a major accounting error that damaged its reputation and profitability. The bank has been trying to improve its balance sheet and reduce its costs, but it has faced challenges from the pandemic, the low-interest rate environment, and the intense competition in the UK banking sector. The bank said that it was in talks with existing and new investors to raise the funds, but it did not provide any details or confirmations. The London Stock Exchange, which lists the stock, confirmed to CNBC that the trading was briefly suspended due to its circuit breaker mechanisms, which are designed to prevent excessive volatility.

Ofcom, the UK’s communications regulator, has expressed its concern that the cloud computing market is dominated by a few large players, known as “hyperscalers”. These are companies like Amazon Web Services (AWS) and Microsoft Azure, which provide cloud services such as storage, computing, and networking to other businesses. According to Ofcom’s estimate, AWS and Microsoft Azure together account for about 60% to 70% of the total cloud spending, leaving little room for other competitors. Ofcom said that this could limit the choice, innovation, and quality of cloud services for consumers and businesses in the UK. Ofcom also said that it is monitoring the cloud market and exploring potential regulatory interventions to promote competition and protect consumers.

LG Energy Solution, a South Korean company that makes batteries for electric vehicles (EVs), has announced that it will supply EV batteries to Toyota, the Japanese automaker, for its cars that will be produced in the U.S. LG Energy Solution’s CEO, Youngsoo Kwon, said in an exclusive interview that the company will invest about $3 billion to build new factories for battery cells and modules exclusively for Toyota and that the factories will be completed by 2025. He also said that the company decided to invest in the U.S. market because of the high inflation, labor costs, and tax incentives in the country. He said that the IRA tax credit, which is a federal tax credit for EV buyers, is a big factor that offsets the costs and boosts the demand for EVs in the U.S. He said that LG Energy Solution is aiming to become a global leader in the EV battery market by partnering with Toyota and other automakers.

Indexes Wednesday began a sputtering relief rally after finding some encouragement in the ADP payroll data showed some signs of a slowing labor market, which could ease the inflation pressure. The bond yields helped ease rate pressures declining modestly giving stocks a little breathing room The sectors that have been lagging, such as consumer discretionary and technology, performed better on Wednesday. However, the energy sector was a big loser, as the oil prices dropped by more than 5%, their worst daily decline in a year. Today we have a few notable earnings, International Trade, Jobless Claims, Natural Gas figures as well as several more Fed speakers to inspire the bulls or bears. Keep in mind the next big market-moving report is Friday before the bell with the release of the Employment Situation numbers so plan your risk carefully because the sputtering relief could continue as we wait.

Trade Wisely,

Doug

Bond Yields

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Surging bond yields and the sharply rising dollar kept the bears engaged Tuesday in a painful selloff that added to the technical damage of the index charts.  The T2122 indicator is in an extreme short-term oversold condition suggesting a relief rally could begin at any time.  However, bond yields are still rising this morning with a parade of Fed speakers today, adding to the uncertainty. Investors will look for inspiration in Mortgage, ADP, PMI, Factory Orders, ISM Services, and Petroleum Status figures as well as a handful of notable earnings reports today.  Expect the price action to remain challenging as we head toward the Friday, Employment Situation report.

Asian markets were mostly lower overnight as Australia kept interest rates unchanged with China closed for a holiday.  European markets are however working to relieve the recent selling pressure with modest gains this morning in a cautious session.  U.S. futures recovered from overnight lows pointing to a modestly bullish open ahead of earnings and economic data that could provide fuel to the bulls or bears so plan your risk carefully.

Economic Calendar

Earnings Calendar

Notable reports for Wednesday include ANGO, HELE, RGP, RPM, & TLRY.

News & Technicals’

The U.S. bond yields surged higher on Wednesday, as investors were worried about the possibility of the Fed keeping the interest rates high for a longer period than expected. The Fed’s interest rate policy affects the bond yields, which are the returns that investors get from buying bonds. The higher the interest rates, the lower the bond prices and the higher the bond yields. The Fed has been raising the interest rates since 2015, to control inflation and support economic growth. The Fed’s latest meeting in September signaled that it may raise the interest rates one more time this year and three more times next year. This has caused the bond yields to rise to their highest levels in more than a decade. The 10-year Treasury yield, which is the most widely watched indicator of the bond market, was slightly up at 4.81% on Wednesday. It had reached a high of 4.884% earlier in the day, after crossing the 4.8% mark on Tuesday for the first time since 2007. The 30-year Treasury yield, which is another important indicator of the bond market, was slightly down at 4.934% on Wednesday. It had briefly traded above 5% earlier in the session, also reaching levels last seen in 2007.

The United Nations Conference on Trade and Development (UNCTAD) has released a new forecast for global economic growth in 2024. The forecast predicts that the world economy will grow by 2.5% in 2024, slightly higher than the 2.4% growth in 2023. However, the forecast is based on several assumptions and uncertainties, and UNCTAD warns that the growth outlook is fragile and uneven. UNCTAD is particularly cautious about the U.S. economy, which is expected to slow down from 3.1% in 2023 to 2.1% in 2024, due to the fading effects of the fiscal stimulus and the rising interest rates. A UN director told CNBC that the forecast is “optimistic” given the “pretty weak” state of the global economy. He said that the main risk for global growth is the eurozone, which is on the verge of a recession. The eurozone is expected to grow by only 0.9% in 2024, after a meager 0.7% in 2023. UNCTAD urges the eurozone to adopt more expansionary fiscal and monetary policies and to address the structural problems of its banking sector and its trade surplus.

ntel, the world’s largest chipmaker, announced that it will spin off its Programmable Solutions Group (PSG) as a separate business, with the intention of taking it public in the next two to three years. PSG is the division that makes programmable chips, also known as field-programmable gate arrays (FPGAs), which can be customized for specific applications. Intel acquired PSG in 2015 when it bought Altera for $16.7 billion. Intel said that it will continue to support PSG and will retain a majority stake in the business, but it will give PSG more autonomy and flexibility to pursue its growth strategy. Intel’s stock price rose by 2.3% in after-hours trading following the announcement.

The stock market dropped sharply on Tuesday, as the bond yields and dollar kept rising as investors now seem to be aware that rates will be higher longer as the Fed has been saying. The S&P 500 fell by more than 1% and the Dow lost over 400 points. The sectors that did better were the ones that provided essential goods and services, such as utilities and consumer staples. The sectors that did worse were the ones that depended on innovation and spending, such as technology and consumer discretionary. Today we have ADP, PMI, Factory Orders, ISM Services, Petroleum Status, and a slew of Fed speakers to provide inspiration and volatility in the extreme short-term oversold condition.  Although we have a few notable earnings it’s unlikely they will market-moving so instead keep an eye on those bond yields that are continuing to rise this morning. A relief could begin at any time but if bad data continues to pile on be prepared for more selling, whipsaws, and challenging price volatility. 

Trade Wisely,

Doug

Mixed Start

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Monday kicked off the fourth quarter with an uncertain mixed start as the so-called magnificent seven tech giants rallied while small caps moved sharply lower.  Bond yields were once again higher across the board as the dollar continued to surge higher adding selling pressure to commodities such as gold, silver, and oil.  Unfortunately, we have another light day of earnings and economic reports for the bulls or bears to find inspiration likely making for another challenging day of choppy price action and whipsaws. The JOTLS report could be market-moving as the start to a big week of employment figures.

Asian markets traded mixed but mostly lower overnight with Hong Kong leading the way selling off 2.69%.  European markets also trade mostly lower this morning as world sentiment continues to decline even as data shows U.K. food prices declined slightly. The U.S. futures fluctuated during the night but currently point to a bearish open ahead of light-day data.   

Economic Calendar

Earnings Calendar

Notable reports for Tuesday include CALM & MKC.

News & Technicals’

Satya Nadella, the CEO of Microsoft, testified in the federal antitrust trial against Google in Washington, D.C. He told the court that Google has an unfair advantage in online search, as it controls more than 90% of the market share. He said that this means that publishers and advertisers have to follow Google’s rules and standards, which makes it difficult for other search engines, such as Microsoft’s Bing, to compete and attract users. He also revealed that Microsoft offered to pay billions of dollars to Apple to make Bing the default search engine on its devices, such as iPhones and iPads. However, Apple rejected the offer and chose to stick with Google, which pays Apple an estimated $15 billion a year for the same deal. Nadella argued that Google’s payments to Apple are another way of maintaining its dominance and excluding its rivals.

The Russian ruble has been facing a severe depreciation against the U.S. dollar, as the country’s economy suffers from the impact of Western sanctions, falling oil prices, and the Covid-19 pandemic. The ruble reached its lowest level in more than six years in August when it traded at more than 100 rubles per dollar. The Bank of Russia, the country’s central bank, reacted by raising its key interest rate, which is the rate at which it lends to commercial banks, by 3.5 percentage points to 12% in an emergency meeting. The central bank hoped that this would stabilize the ruble and curb inflation, which is the increase in the prices of goods and services. However, the measure did not have the desired effect, as the ruble continued to weaken and inflation remained high. In September, the central bank increased its key rate again by another percentage point to 13%, citing the persistent inflationary pressure in the economy. The central bank said that it would continue to monitor the situation and take further actions if necessary.

The U.S. stock market has been showing signs of divergence, as the Russell 2000 index, which tracks the performance of small-cap stocks, turned negative for the year on Monday. The index fell by 1.6% on Monday, bringing its year-to-date return to a loss of 0.2%. It is also down by 12.5% from its highest level in the past 52 weeks. This contrasts with the performance of the S&P 500 and the Nasdaq Composite, which track the performance of large-cap stocks, especially in the technology sector. The S&P 500 and the Nasdaq Composite are up by 11% and 26%, respectively, for the year. The gap between the small-cap and large-cap stocks reflects the concerns that the 2023 market rally has been driven by a few big tech companies, such as Apple, Microsoft, and Amazon while ignoring the rest of the market. The Russell 2000 index is often seen as a better indicator of the health of the U.S. economy, as it represents smaller businesses that are more sensitive to economic conditions, such as consumer spending, inflation, and interest rates.

The stock market had a mixed start to the fourth quarter on Monday. The small-cap stocks, lagged, losing almost 2%, and the NASDAQ, gained about 0.7%. The ISM manufacturing report showed that the factory activity was stronger than expected in September while still indicating the sector is in contraction. The construction-spending data came in flat from last month as higher rates restrict home sales. The bond yields rose across the board, with the 10-year Treasury yield ending around 4.7% and the 2-year yield around 5.1%. The rest of this week will be focused on the labor-market reports, which could have a significant impact on monetary policy decisions.  We begin with the JOLTS report today with a bit more Fed speak and just a couple of notable earnings for the bulls and bears to try and find inspiration.

Trade Wisely,

Doug

Indexes Whipsawed

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The Indexes whipsawed on Friday began with a bit of bullish hope on the better-than-expected Core PCE reading but that hope quickly faded on a failed vote budget vote in the house.  However, with 3 hours to spare Congress passed a 45-day extension kicking the problem down the road to provide the market with more uncertainty during the 4th quarter earnings season.  Today we have PMI, ISM, and Construction Spending figures to inspire the bulls and bears.  Plan for price action to remain challenging with a big week of job numbers while waiting for the big bank reports to kick off 4th quarter earnings silly season. 

Asian markets trade mixed after China reported an improvement in factory activity surging Hong Kong higher by 2.51%.  However, eurozone manufacturing continued to decline bringing in modest selling across European indexes to begin the week.  With U.S. manufacturing numbers pending U.S. futures work to recover some early loss as they chop around the flatline while relieved over no government shutdown, at least for now.

Economic Calendar

Earnings Calendar

There are no notable earnings reports to begin the first trading day of the 4th quarter.

News & Technicals’

Bill Ackman, the billionaire investor and founder of Pershing Square Capital Management, has expressed his interest in doing a deal with X, the social media platform formerly known as Twitter. Ackman’s new investment vehicle called a SPARC, or special purpose acquisition rights company, received approval from the Securities and Exchange Commission (SEC) on Friday. A SPARC is a type of blank-check company that allows investors to buy shares in a future merger or acquisition deal, without knowing the target company in advance. Ackman told The Wall Street Journal that he would “absolutely” do a deal with X if the opportunity arises. Ackman is an active user of X, where he posts about various topics, such as his support for the presidential candidates Vivek Ramaswamy and Robert Francis Kennedy Jr. Ramaswamy is a former biotech executive and author of the book Woke, Inc., while Kennedy is an environmental lawyer and activist. Ackman said he admires both candidates for their courage and integrity.

China, the world’s largest consumer of many commodities, has been showing a strong appetite for various raw materials, despite the slowdown in its overall economic growth. Goldman Sachs, a global investment bank, said in a recent note that China’s demand for commodities such as iron ore, copper, aluminum, oil, and gas has been growing at “robust rates” in the past few months. The bank attributed this to several factors, such as the recovery of industrial activity, the expansion of infrastructure spending, the resilience of the property sector, and the diversification of energy sources. The bank also said that China’s demand for commodities is likely to remain high in the near term, as the country faces supply constraints and environmental challenges. However, the bank also warned that China’s demand for commodities could moderate in the longer term, as the country shifts to a more consumption-driven and low-carbon economy.

The World Bank, an international financial institution that provides loans and grants to developing countries, has lowered its growth forecast for developing East Asia and the Pacific for this year and the next. The region, which includes countries such as China, Indonesia, Thailand, and Vietnam, is expected to grow by 5% in 2023, down from the previous estimate of 5.1%. The growth projection for 2024 has also been revised down from 4.8% to 4.5%. The World Bank said that the region’s growth prospects are facing several risks, such as the uncertainty of the pandemic, the uneven recovery of global trade and investment, and the rising debt levels of governments, corporations, and households. The World Bank urged the countries in the region to adopt prudent fiscal and monetary policies, strengthen their health systems and social protection, and promote green and inclusive growth.

Equity markets began Friday with a nice gap up reacting to the Core PCE numbers but, after a failed vote to prevent a government shutdown indexs whipsawed finishing the day lower with uncertainty. The S&P 500 lost about 4.8% in September and about 6.4% since its peak on July 31. The Nasdaq suffered more losses, falling by 5.5% in September and by 7.5% since July 31. The bond market was stable on Friday, with the 10-year Treasury yield at 4.58%, close to its highest level in the cycle. The bond yields have risen sharply in September, by nearly 0.5% for the 10-year bond, affecting both stock and bond returns. Today traders have PMI, ISM, and Construction Spending along with some short-term bond auctions to deal with as we kick off the first trading day of the 4th quarter.  A relief rally is overdue but expect the price action to remain challenging as we wait for the beginning of the earnings session.  Though the government avoided a shutting down we will be dealing with this uncertainty again having kicked the can down the road for 45 days.  Price action is likely to remain challenging so pan your risk carefully.

Trade Wisely,

Doug