Jump to content

Sign in to follow this  
News Feeds

Global Stocks Rebound As Fed Fears Ease, Dollar Falls From 7 Month High

Recommended Posts

If yesterday's session was dominated by concerns about Fed tightening and rising long-end rates, today fears about a hawkish Fed have subsided, and as a result European, Asian stocks and S&P futures all rose amid speculation Federal Reserve policy will remain accommodative after yesterday's dovish comments by Fed vice-Chair Stan Fischer who offet Friday's hawkishness by Rosengren and Yellen.


This helped the USD-index fall off 7-month highs ahead of US inflation figures, after reports showed New York manufacturing unexpectedly shrank and U.S. factory output barely grew, while corporate earnings also dictate much of the price action in Europe. “The dollar has struggled to gain upside momentum today because of

further evidence that the Fed’s tightening cycle will be very gradual,” Elias Haddad, an FX strategist at Commonwealth Bank of

Australia in Sydney told Bloomberg. The weaker dollar helped lift oil and metals prices which in turn propelled commodity-linked stocks higher.


As Bloomberg further summarizes, stocks rallied around the world, commodities jumped and the dollar sank on speculation that a pick-up in the global inflation outlook won’t tempt the Federal Reserve to quicken the pace of monetary tightening. And speaking of inflation, the UK is already suffering the consequences of the sterling plunge when the Office for National Statistics said the annual inflation rate accelerated to 1% last month, from 0.6% in August, above the 0.9% rate forecast by economists and is the highest since 2014, pushing sterling well higher.


The pan-European STOXX 600 share index rose 1.2 percent, led higher by a 2.6 percent rise in the basic resources sub-index and a 1.4 percent gain in oil and gas firms. Britain's internationally-focused FTSE 100 index, in which miners are heavily represented, rose 1.1 percent. MSCI's broadest index of Asia-Pacific shares outside Japan gained 0.8 percent, led by financials and energy shares. Australia's benchmark index was up 0.4 percent while Japanese stocks edged higher on a softer yen.


The MSCI All Country World Index of equities headed for its biggest advance in almost four weeks as investors parsed earnings reports. The Bloomberg Dollar Spot Index extended Monday’s retreat from a seven-month high after reports showed New York manufacturing unexpectedly shrank and U.S. factory output barely grew. South Africa’s rand and South Korea’s won led gains in emerging-market currencies. The Bloomberg Commodity Index rose for a fourth day to the highest in a week, with oil and metals climbing.




Speaking of the Fed's intentions, confusion appears to be the watchword not just about the Fed...


“The market has clearly come to a stronger view that they will raise rates in December but that has very little influence on where rates are perceived to go in the longer term,” said Adam Cole, head of global foreign-exchange strategy at Royal Bank of Canada in London. “In a more normal interest-rate cycle, if the market had moved to discount a December interest rate hike, it would probably have moved to discount three or four hikes next year and that’s simply not the case any more.”


But also about the presidential election:


“We’re likely to see some choppy trading until we get some of these risk events out of the way, such as the last U.S. presidential debate,” James Woods, an analyst at Rivkin Securities in Sydney, said by phone. “Momentum seems to be building up for a December rate hike by the Fed.”


While Fed fund futures indicate the probability of a rate increase by the December meeting has risen to 66% , from about 55% a month ago, the data continues to come in on the weak side. The Bloomberg U.S. ECO surprise index -- which measures whether data have exceeded or fallen short of analysts’ estimates -- fell below zero for the first time in two weeks. Officials are still to form a consensus view to support a faster pace of tightening, with Chair Janet Yellen last week pondering whether a “high-pressure economy” could reverse some of the damage done in the recession.


The Stoxx Europe 600 Index rose 1.1 percent at 10:51 a.m. in London. Miners led gains as commodity prices advanced. Italian banks propelled lenders higher, with Banca Monte dei Paschi di Siena SpA jumping 6.5 percent after Il Sole 24 Ore reported that the board of directors will discuss a proposal to bolster the lender’s financial health from Corrado Passera, Italy’s former economic development minister. Among stocks moving on earnings-related news:


  • Remy Cointreau SA added 6.7 percent after its sales growth beat estimates.
  • Burberry Group Plc tumbled 4.9 percent after reporting declines in its Asian business and worsening results from its wholesale unit.
  • Continental AG lost 4 percent after the car-parts maker cut its annual profitability forecast following provisions for antitrust fines.
  • Kuehne & Nagel International AG dropped 4.6 percent after reporting quarterly profit that missed estimates.


S&P 500 Index futures advanced 0.5%, after U.S. equities fell 0.3% on Monday amid a slide in health-care companies. The Hang Seng China Enterprises Index of mainland companies in Hong Kong rose 1.9 percent, its biggest advance since Aug. 1. The Philippine Stock Exchange Index climbed 2.9 percent, the most in five months. President Rodrigo Duterte starts a four-day trip to China on Tuesday, and there’s optimism it will yield investment deals and boost tourism, said James Lago, head of research at PCCI Securities Brokers Corp. in Manila.


Data on inflation scheduled for release Tuesday. Investors will also look to results from firms including Goldman Sachs Group Inc. and Johnson & Johnson for indications of the health of corporate America. Analysts forecast a 1.4 percent contraction in third-quarter profits for S&P 500 members. Wednesday's report on China GDP is expected to show that Asia’s largest economy expanded 6.7% in the three months through September, the same as in the

previous two quarters, according to the median estimate of analysts

surveyed by Bloomberg.


Bulletin Snapshot Summary from RanSquawk


  • European equities are on the front foot this morning with energy and financial names among the best performers
  • Early Tuesday price action saw a little more of a pullback in the USD, though as a whole, the greenback is holding its ground, primarily against the JPY and CHF
  • Looking ahead, highlights include US and inflation figures, Fonterra GDT auction and the API oil inventory report


Market Snapshot


  • S&P 500 futures up 0.5% to 2134
  • Stoxx 600 up 1% to 341
  • MSCI Asia Pacific up 0.9% to 139
  • Nikkei 225 up 0.4% to 16964
  • Hang Seng up 1.5% to 23394
  • Shanghai Composite up 1.4% to 3084
  • S&P/ASX 200 up 0.4% to 5411
  • FTSE 100 up 0.9% to 7013
  • DAX up 0.8% to 10587
  • German 10Yr yield down less than 1bp to 0.05%
  • Italian 10Yr yield down 1bp to 1.39%
  • Spanish 10Yr yield down 1bp to 1.1%
  • S&P GSCI Index up 0.6% to 377
  • US 10-yr yield up less than 1bp to 1.77%
  • Dollar Index down 0.19% to 97.71
  • WTI Crude futures up 1% to $50.45
  • Brent Futures up 0.9% to $51.99
  • Gold spot up 0.5% to $1,262
  • Silver spot up 1.1% to $17.65


Top Global News


  • Fed Making Same Errors as Sweden in Trying to Lift Rates: Citi; Market feels there is a recession-type risk based on Fed tightening
  • U.K. Inflation Rate Surges to Highest in Almost Two Years: U.K. inflation accelerated to the fastest in almost two years in September, according to data from the Office for National Statistics published in London on Tuesday
  • IBM Profit Margins Shrink Again in Shift to Cloud Computing; IBM said profit margins shrank for the fourth quarter in a row, underscoring the technology company’s challenge in shifting to more subscription-based software and cloud services
  • Disney Said to Have Dropped Twitter Pursuit Partly Over Image
  • Sprint Said to Change Borrowing Plans by Dropping Longer Bonds
  • William Hill Abandons Amaya Merger Talks on Investor Dissent
  • Visa CEO Scharf Resigns, Replaced by Ex-AmEx President Kelly
  • Netflix Tops Estimates as Hits Like ‘Narcos’ Ease Price Concern
  • China’s New Credit Surges Again to Fuel Economy’s Stabilization
  • IBM Margins Shrink Again Amid Cloud-Computing Shift; Shares Drop
  • Ryanair Finally Bows to Brexit With Cut to Profit Guidance
  • Orbital Rocket Soars to ISS on First Flight Since 2014 Blast
  • United Air Sees Costs Rising as New Labor Contracts Take Effect
  • Wind Farms in U.S. Probed for Potentially Inflating Forecasts
  • VW Seeks Final Approval of Emissions Deal Without Fix in Hand
  • U.K. Inflation Rate Surges to Highest in Almost Two Years
  • Southwest, Virgin America, JetBlue Say Online Bookings Restored
  • Teva May Buy Celltrion to Bolster Biosimilar Portfolio: Investor
  • Staples in Talks With Cerberus on Europe Stores Deal: Telegraph
  • Wanda Nears $1b Deal for Dick Clark Productions: Variety
  • Dick’s Said to Prepare Bid for Golfsmith’s U.S. Stores: Reuters


* * *


Looking at regional, we start in Asia, where stocks again shrugged off the negative US lead and traded mostly higher, although gains were reserved amid quiet news flow and a lack of catalysts to drive price action. ASX 200 (+0.4%) was led higher by mining names after gold rebounded and iron ore surged nearly 2% to above USD 57.00/tonne. Nikkei 225 (+0.2%) recovered from early losses as JPY weakness supported exporters, while index heavyweight Fast Retailing shares gained on China expansion plans. Chinese markets were positive with Shanghai Comp. (+1.4%) and Hang Seng (+1.6%) both higher following further supportive government project announcements and after the PBoC increased its liquidity injections. 10-yr JGBs traded flat amid indecisiveness in Japanese stock markets, while today's enhanced liquidity auction for 20yr, 30yr and 40yr JGBs also failed to spur demand despite an improvement in the b/c. RBA's Governor Lowe says Australian interest rates are already very low and says they are watching employment and the stability of the financial system. Japanese Finance Minister Aso says debt panel says it is vital for the market to absorb JGBs, adds Japan is watching FX markets closely and FX volatility would damage the economy.


Top Asia News


  • RBA Sees Reasonable Growth Prospects as Mining Headwinds Ebb: Economic expansion is expected to continue at a moderate pace
  • Pimco Cuts Asia Risk While Being Bullish on India, Indonesia: Dialing down assets that have done well recently, Spajic says
  • China Said to Have Warned Crown, Others in 2015 About Marketing: China probes whether Crown lured Chinese gamblers to Australia
  • Hutchin Hill Hedge Fund to Shut Hong Kong Office After 19 Months: Pan-Asian strategy didn’t meet firm’s performance criteria
  • CEO’s Death Stirs Debate as China’s Techies Face 9-to-9 Workday: Health app founder, Zhang Rui, 44, died of a heart attack
  • Thai Junta Cracks Down on Royal Insults After King’s Death: Justice Ministry says it is setting up new monitoring team


European equities are on the front foot this morning with energy names among the best performers amid the uptick in crude futures as the USD-index falls off 7-month highs ahead of US inflation figures at 1330BST, while corporate earnings also dictate much of the price action in Europe. Additionally, sentiment once again in the financial sector has been lifted with Commerzbank yet again leading the way higher in the DAX amid the recent firm earnings reports from US banking names with focus now turning towards Goldman Sachs who are due to report before the Wall Street open. Furthermore, Deutsche Bank continue to be lifted as markets welcome the company's restructuring efforts which are also said to be well received by the German government. In credit market, government bonds have been somewhat contained this morning relative to the selloff observed in yesterday's session with bunds trading near flat for the session. While in the periphery, Portuguese yields saw a slight pull back from 1-month lows ahead of the crucial DBRS rating review at the end of the week.


  • Top European News
  • Ryanair Finally Bows to Brexit With Cut to Profit Guidance: Net income set to gain about 7 percent rather than 12 percent Low-cost specialist says weaker pound is hurting fares
  • William Hill Abandons Amaya Merger Talks on Investor Dissent: Parvus co-founder Gensmann ‘pleased’ deal has fallen apart. Deal would have formed world’s largest online gambling company
  • Carney to Ignore Inflation Jump as November Rate Cut Forecast: Pound drop no barrier to BOE November rate cut, economists say Benchmark will be cut to 0.1% according to 26 of 36 surveyed
  • Tesco Gains U.K. Market Share for the First Time in Five Years: Retailer is only one of U.K.’s largest grocers to grow sales. Food price deflation persists in Britain, weighing on recovery
  • Monte Paschi Board to Discuss Passera Proposal Tuesday: Il Sole: Proposal from Corrado Passera includes a letter of intent from some institutional investors such as Atlas Merchant Capital, Il Sole 24 Ore reports, without citing anyone
  • Teekay LNG Plans 5Y Norwegian Bond Issuance: Planned senior unsecured bonds are expected to be used for refinancing NOK bonds due in May 2017 and general partnership purposes
  • BASF’s Explosions Could Tighten Olefins & Derivatives: Nomura; Nomura says that prolonged outage of steam crackers could tighten the European ethylene markets in 2017, benefitting DOW/LYB, according to note.
  • Munich Prosecutors Limit Appeals of Deutsche Bank Acquittals: Prosecutors drop cases against Boersig and von Heydebreck Cases against Ackermann, Fitschen and Breuer will continue


In FX, the Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 major peers, declined 0.3 percent. “The dollar has struggled to gain upside momentum today because of further evidence that the Fed’s tightening cycle will be very gradual,” said Elias Haddad, a senior currency strategist at Commonwealth Bank of Australia in Sydney. The pound rose 0.6 percent to $1.2253 as the Office for National Statistics said the annual inflation rate accelerated to 1 percent last month, from 0.6 percent in August. That’s above the 0.9 percent rate forecast by economists and is the highest since 2014. The New Zealand dollar climbed 0.9 percent after the country’s consumer prices rose in the last quarter faster than economists predicted, a reading some analysts said may weaken the case for interest-rate reductions beyond November. The Australian dollar strengthened 0.7 percent and touched a two-week high. Reserve Bank of Australia Governor Philip Lowe said Tuesday that trying to revive inflation too quickly could threaten financial stability by inciting a new round of borrowing by heavily indebted consumers. He spoke before the release of minutes from the RBA’s last policy meeting, which showed economic expansion was forecast to continue at a moderate pace. The MSCI Emerging Markets Currency Index rose 0.4 percent as the South African rand climbed to a one-week high. The won and Mexican peso both strengthened 0.8 percent, followed by gains of at least 0.5 percent in Russia’s ruble, Thailand’s baht and the Philippine peso.


In commodities, crude was up 0.9 percent at $50.40 a barrel in New York, after slipping 0.8 percent in the last session. The price has fluctuated near $50 for most of this month amid skepticism that the Organization of Petroleum Exporting Countries will implement a Sept. 28 agreement to reduce supply. An OPEC committee will meet later this month to try to resolve differences over how much individual members should pump. Gold rose 0.5 percent in London trading to $1,262.29 an ounce while silver, platinum and palladium all added more than 0.7 percent. Copper gained 0.6 percent to $4,705 a metric ton, with all six main industrial metals traded on the London Metal Exchange advancing. U.K. day-ahead natural gas rose an 11th day, buoyed by forecasts for cooler-than-normal temperatures. The contract is in the longest rising streak in at least nine years, according to broker data compiled by Bloomberg going back to 2007. On the Chicago Board of Trade, soybeans gained 0.4 percent to $9.825 a bushel, touching the highest since Sept. 21.


Looking at today’s calendar, the highlight in the US is also the latest inflation data where market expectations are currently sitting at +0.3% mom for the headline and +0.2% for the core. The NAHB housing market index for October rounds out the data this afternoon. Away from the data the other big focus today will be earnings with 16 S&P 500 companies due to report. The highlights include Goldman Sachs and Johnson & Johnson prior to the open and Yahoo and Intel after the closing bell.


* * *


US Event Calendar:


  • 8:30am: CPI m/m, Sept., est. 0.3% (prior 0.2%)
  • 8:55am: Redbook weekly sales
  • 10am: NAHB Housing Market Index, Oct., est. 63 (prior 65)
  • 4pm: Total Net TIC Flows, Aug. (prior $140.6b)
  • 4:30pm: API weekly oil inventories


DB's Jim Reid concludes the overnight Wrap


The focus in equity markets is starting to turn now to earnings season. Yesterday Bank of America followed Citi, JPM and Wells Fargo last week in posting results which exceeded both analyst earnings and revenue estimates, driven also by a much better performance in fixed income trading. In fact the YoY improvement in FICC trading revenue for BofA was +39% which is a similar level of improvement to Citi (+35%) and slightly behind JPM (+48%). The consensus estimates based on Bloomberg numbers for those three banks was just +11%, +15% and +8% respectively. It’s worth noting however that these beats are being driven off significantly downgraded earnings estimates from analysts which has been a big theme in recent quarters. Yesterday BofA’s Q3 EPS of 42c was 27% ahead of the consensus 33c forecast. However, go back 12 months and the consensus forecast for the quarter just reported was 41c. It was a similar story for both Citi and JPM last week. JPM’s Q3 EPS would have been pretty much in line versus the consensus from 12 months ago, while Citi would have missed by 14%.


Despite those BofA numbers beating, US equity markets generally faded into the close. The S&P 500 closed -0.30% and has now alternated on a daily basis between gains and losses for 8 consecutive sessions. Energy stocks weighed in particular with WTI closing back below $50/bbl (-0.81% on the day) with reports of increased supply out of Libya. Prior to this the European session had also been generally weak. The Stoxx 600 (-0.74%), DAX (-0.73%) and FTSE 100 (-0.94%) were all under pressure. Italian equities (+0.23%) were the exception after the banking sector got a boost from that merger news on the weekend.


This morning in Asia it’s been a broadly positive start for equity markets. The Nikkei (+0.14%), Hang Seng (+1.14%), Shanghai Comp (+0.39%), Kospi (+0.27%) and ASX (+0.48%) are all higher helped by a bit of a rebound in Oil this morning (WTI currently +0.50%) following that decline yesterday. US equity index futures are also tracking higher, boosted by better than expected results from Netflix last night which sent shares up over 20% in aftermarket trading. Elsewhere there’s not a lot of direction in sovereign bond markets with moves a lot more mixed. In FX the Aussie Dollar is up half a percent or so with our Australia economists highlighting that comments from Governor Lowe and the latest RBA meeting minutes this morning suggest that rates are likely to remain unchanged in November.


Moving on. Yesterday we got the latest ECB CSPP holdings data as of the week ending 14th October. It showed that total holdings amounted to €33.797bn which implies net purchases settled last week of €1.835bn. That implies a daily run rate in that week of €367m which is more or less in line with the average of €376m since the program started. So after a big month of September which also coincided with more primary market buying, last week was a more solid but unspectacular week of purchases.


Over at the Fed meanwhile, yesterday we heard from Vice-Chair Fischer although his comments were again a bit underwhelming. He said that the Fed was ‘very close’ to employment and inflation goals although offered little guidance to near-term expectations for Fed policy. Perhaps more interesting was some of his comments about how much the Fed can resist a high-pressure economy which was what Yellen alluded to on Friday. Fischer said that ‘if you go below the full employment rate, or peoples’ estimates of full employment, by a couple of tenths of percentage points, I don’t think there’s any danger in that’.....’but saying we should keep going until the inflation rate shows us we’re wrong, then you’re going to change too late’.


Before we look at the day ahead, just wrapping up the remainder of the data flow from yesterday where the only other release to highlight was the final Euro area CPI print for September which was unrevised at +0.4% mom. That also left the YoY rate at +0.4% which is the highest since October 2014, while the core was left unrevised at +0.8% yoy which is in line with that of August.


Looking at today’s calendar, first thing this morning we’ll get the latest ECB bank lending survey which will be worth keeping an eye on, before we then turn to the UK where we get that September inflation data which we mentioned at the top (the latest RPI and PPI prints will also be released). This afternoon the highlight in the US is also the latest inflation data where market expectations are currently sitting at +0.3% mom for the headline and +0.2% for the core. The NAHB housing market index for October rounds out the data this afternoon. Away from the data the other big focus today will be earnings with 16 S&P 500 companies due to report. The highlights include Goldman Sachs and Johnson & Johnson prior to the open and Yahoo and Intel after the closing bell.





Continue reading...

Share this post

Link to post
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
Sign in to follow this  


Important Information

Your Privacy Is Important To Us Learn More: Privacy Policy