Stocks, yields, and Dollar firm into month-end and FOMC

Snapshot

Crude oil is down and the dollar is up.

REAR VIEW

VFC pulls its FY guidance. SRPT’s Embark Study did not meet the primary endpoint. Impressive PINS earnings. USD 5bln in NVDA China Orders are reportedly on hold.

Coming Soon

:

The following are some of the most effective ways to reduce your risk.

Australian Building Approvals (ABA), Chinese Caixin Manufacturing PMI (CMI), US ADP, ISM Manufacturing (ISM), Construction Spendings, JOLTS

The Event

BCB Announcement, FOMC Announcement and Chair Powell; US Treasury Quarterly Announcement

Speaker

Jordan, SNB

Buy Now

UK & Germany

Earnings

: GSK, Next; Norwegian Cruise Line, Kraft Heinz, PayPal, Qualcomm.

Newsquawk in two easy steps

MARKET WRAP

Stocks firmed up Tuesday, with a "real-economy" bias. The Russell 2k and the equal-weighted S&P 500 beat the SPX and NDX. All indices rose through the session and into the month's end after a choppy open. The real economy's outperformance was partly due to data, with the October consumer confidence reading showing a smaller decline than expected. However, duration-sensitive stocks also faced headwinds as yields rose on the backs of the Q3 Employment Cost Index. Nvidia (NVDA), which also weighed heavily on tech at first (before paring), was prompted by WSJ reports that the company could lose up to USD 5bln in orders from China due to the new US restrictions. After the BoJ meeting, which was viewed as dovish, and the promising Eurozone inflation figures, yields moved lower in the US session. They then rose on the hot US numbers, before some heavy selling occurred at the end of the month. Oil prices fell as initial gains faded in the face of Dollar's rise and OPEC's continued production. The dollar's strength is largely due to the sell-off of the Yen following the BoJ maintaining NIRP despite expanding the band of YCC. Not to mention the continued unwinding of haven bids as the basket of Yens, Swissys, Gold and Oil are all lower.

US

Pre-FoMC Meeting

There are no new SEPs. The FOMC will almost certainly leave rates at 5,25-5,50% on Wednesday. Therefore, the focus will be on Powell's guidance and the FOMC statement. The statement will likely look similar to the one from September, with its "hawkish-leaning" phrase.

When determining whether additional policy firming is appropriate, it's important to...

Powell is likely to continue to argue that tighter financial conditions, (higher Treasury yields), justify the rate pause, despite the economic recovery. He will also warn that an even greater growth increase, from the already high levels, could warrant further tightening. Download the complete Newsquawk Preview.

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ECI

The US Employment Costs Index increased by 1.1% in Q3, accelerating from 1.0% the previous quarter and exceeding the expectation of 1.0%. It rose 4.3% YoY compared to the 4.5% Y/Y in Q2. Wages and salaries increased by 1.2% M/M, from 1.0%. The Y/Y is 4.6%. Benefits increased by 0.9%, which is the same as the previous 0.9% rise, and the Y/Y eased to 4.1%, from 4.2% Q/Q. The Employment Cost Index, which measures the impact of wages on inflation, is an area that the Fed pays close attention to. However, some Fed members, notably the doves in particular, maintain that wages are backward-looking and that they lag behind inflation. The Fed is expected to hold rates steady on Wednesday but will keep the option to increase rates if they choose to.

CONSUMER CONFIDENCE

The index for present situation and expectations fell to 143.1 (prev. The current situation and expectation indices dropped to 143.1 from previous. Hard-to-get jobs dropped to 13.1% from 14.2% (prev. Inflation expectations for the 12-month period ahead in October increased to 5.9%, up from 5.7%. In the report, it states that "Write-in answers showed that consumers were preoccupied by rising prices, in general, but for groceries and gasoline prices, in particular." Consumers expressed concern about higher interest rates and the political situation, as well as war/conflict worries, following the recent turmoil in Middle East. The decline in confidence among householders 35 years and older was not limited to any particular income group.

Fixed Income

T-NOTE (Z3) FURNITURES SETTLED DOWN 1+ TICKS AT 106.05+

Treasuries fell Tuesday, amid a dovish BoJ response and mixed EZ Inflation data. This was followed by a hotly-leaning US ECI (consumer confidence) and US ECI before the FOMC.

At settlement: 2s +2.8bps, 3s +2.6bps, 5s (+1.6bps), 7s (+1.4bps), 10s (+1.7%), 20s (+1.2%), 30s (-0.1bps).

INFLATION BREAKEVENS

BEI 5yr -1.8bps @ 2.400%; BEI 10yr -1.8bps @ 2.419%; BEI 30yr -1.2bps @ 2.521%

THE DAY

Treasuries began the NY session with a bullish flattener, boosted by the recent BoJ meeting and mixed European inflation figures. The BoJ kept the NIRP target at -0.10%, and the 10-year JGB yield at 0%. However, they increased the reference range from 50bps to 100bps. They also made the YCC more flexible. But the market was clearly positioned for a little more as govvies bounced and Yen weakened in response. T-Notes continued to climb into the European morning where weak Italian and Eurozone data were somewhat offset by disappointing French figures.

T-Notes reached a high of 106-21 on NY morning, before the entire curve was sold after the release Q3 ECI. The headline index increased to 1.1% and the wages component to 1.2%, up from 1.0%. T-Notes later found support at 106-04+. However, any recovery into the afternoon has been scuppered due to the smaller than expected fall in the October US Consumer Confidence Survey, which included a rise in consumer inflation expectations for the next year (5.9%, up from 5.7%). Participants are now getting ready for the FOMC and QRA on Wednesday.

STIRS

:

SR3Z3 -1bp at 94.56, H4 -3bps at 94.625, M4 -4.5bps at 94.83, U4 -5bps at 95.09, Z4 -5bps at 95.355, H5 -4.5bps at 95.595, M5 -3.5bps at 95.76, U5 -3bps at 95.84, Z5 -2bps at 95.86, Z6 -0.5bps at 95.785, Z7 +0.5bps at 95.63.

Volumes fall from USD 1.496tln to USD 1.470tln, with SOFR at 5.31%.

Demand for NY Fed RRP Ops at USD 1,138tln was previously USD 1.138tln. The NY Fed RRP op demand is USD 1.138tln (prev. 101).

Volumes rose to USD 97 billion from USD 94 billion as the EFFR remained flat.

US sold USD 75bln in 42-day CMBs, at 5.295%; covered 2.81x. US 49bln in 1yr bills, at 5.135%.

US keeps the sizes of its 4-, 8 and 17-week auction bills at USD 95bln each; 8-week and 4-week bills will be sold on November 2nd, while 17-weeks on Nov 1st. All are to settle by Nov 7th.

CRUDE

WTI (Z3) SETTLED US$ 1.29 BALANCE LOWER, AT 81.02/BBL. BRENT(F4) SETTLED US$ 1.33 BALANCE LOWER, AT 85.02/BBL

The oil price fell on Tuesday as initial gains faded as the Dollar advanced and OPEC production increases.

The ranges were small throughout the session. Although the benchmarks took a pause following Monday's massive sell-off, after the geopolitical risks were unwound. However, selling continued into the settlement of futures without an obvious catalyst. Reuters' survey shows that OPEC production rose 180k BPD m/m to 27,90mln BPD during October. This is the third consecutive M/M rise, with Nigeria, Angola and Iran leading. PetroChina's executive in China said that China's refined oil demand will grow by more than 10% YoY during Q4 despite the fact that it is starting from a very low base due to lockdowns. PPAC data for India showed that the third largest oil-importing country in the world saw its imports fall for a fourth month running in September, to their lowest levels in a whole year. The traders are now looking forward to the US weekly energy inventory data. A private release is due on Tuesday, ahead of official EIA numbers on Wednesday. Current expectations (bbls): Crude +1.3mln, Gasoline -0.8mln, Distillates -1.5mln.

EQUITIES

CLOSES

: SPX +0.65% at 4,193, NDX +0.52% at 14,409, DJIA +0.38% at 33,052, RUT +0.91% at 1,662.

SECTORS

Real Estate +2.03%; Financials +1.09%; Utilities (+0.86%); Industrials (+0.77%); Consumer Discretionary (+0.71%); Health +0.63%; Technology +0.56%. Materials +0.45%. Consumer Staples (+0.37%); Energy +0.22%. Communication Services (0.18%).

EUROPEAN CLOSES

: DAX +0.64% at 14,810.34, FTSE 100 -0.08% at 7,321.72, CAC 40 +0.87% at 6,884.51, Euro Stoxx 50 +0.82% at 4,061.35, IBEX 35 +0.04% at 9,017.30, FTSE MIB +1.47% at 27,741.91, SMI +0.12% at 10,394.90.

Earnings

:

VF Corp. (VFC)

It has withdrawn its previous FY24 guidance and cut the quarterly dividend by 70%. Reinvent, a new program to improve performance, was introduced and it is now marginally better than before.

Pinterest (PINS).

The top and bottom lines are impressive, but MAUs and adj. EBITDA is also impressive.

GE HealthCare

The Q3 earnings exceeded expectations and lifted lower end of FY adj. View of EPS.

Arista Networks

Next quarter revenue forecast exceeds expectations, resulting in a record EPS and revenue.

JetBlue Airways JBLU

The company posted a larger loss per share and revenue missed than expected. For Q4, adj. EPS is lower than expected, and revenue growth will be between 10% and 6.5% less.

Caterpillar (CAT)

Investors were disappointed with the guidance for next quarter, which was only'slightly higher' Y/Y. In a commentary, the company said that China demand would remain below normal sales levels and predicted continued weakness.

Lattice Semiconductor (LSCC)

Profit guidance for Q4 was low, while revenue expectations were also light. After a dismal Report from

ON Semiconductor

Monday is a holiday.

Eaton Corporation ETN

Profits exceeded Wall Street estimates and also raised the next quarter's outlook.

Leidos Holdings (LDOS)

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Xylem (XYL)

Both topped Wall St. expectations on top and bottom lines alongside raising FY guidance.

STOCK SPECIFICS

:

Nvidia's (NVDA)

According to WSJ, USD 5bln in China orders is still in limbo after the latest US restrictions.

Sarepta Therapeutics SRPT

The primary endpoint of the Embark study was not met. US SEC charges

SolarWinds (SWI)

Fraud and failures in internal controls were cited by the Chief Information Security Officer of the company.

Western Digital (WDC),

The US Treasury announced a proposed USD 1.3 billion convertible note offering.

Tesla (TSLA),

A US jury found no manufacturing defect in Tesla's autopilot system that was involved in a crash in 2019. Noteworthy for

Zillow Z

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Redfin (RDFN).

A Missouri jury found the National Association of Realtors guilty of conspiring to inflate commissions. NAR and defendants were ordered to pay USD 1,78bln as damages.

US FX WRAP

The Dollar

The dollar was stronger on Tuesday. It reached a high of 106.660 against a low of 105.890. ECI, which surpassed expectations, gave the market a boost on the US morning. This bid continued as the month ended and the Fed met on Wednesday. Chicago PMI missed expectations in the wake of ECI. However, this was overshadowed later by Consumer Confidence, which came out better than expected, although it did decline from last month. Tuesday appeared to be the calm before a storm, as the FOMC will announce its rate decision on Wednesday and then hold a press conference with Chair Powell. The focus of this event is the guidance provided by the central bank since it's almost certain that rates will remain unchanged at 5,25-5.50%. Watch for any FX rate differential pressure on Wednesday, in conjunction with the latest Quarterly Announcement by the US Treasury. The focus will then shift to the NFP and Fed Speak scheduled for Friday, with Barr and Kashkari.

JPY

The BoJ meeting was a clear G10 laggard, as hawkish Nikkei reports set up the Yen for a steep fall while the BoJ stayed true to its dovish guidelines. The BoJ's ultra-accommodative stance and guidance to ease further if necessary, coupled with the longer liquidations, led to a continued Yen depreciation. USD/JPY topped out at 151.71, having been just a few cents away from 149.00 before the BoJ. Now, attention is focused on any Japanese jawboning that may occur Wednesday. Desks are focusing on the October 2022 highs at 151.95, which is the level that will be the pivotal round. Barriers then go up to 153.00.

The CAD, NZD and AUD

All currencies suffered similar losses, with the Aussie slightly underperforming its peers due to Yuan headwinds caused by disappointing Chinese PMI data. Kiwi could not sustain its momentum due to strong ANZ data, and was a victim of the Dollar bid and risk-off sentiment. AUD/USD retreated to 0.6315, while NZD/USD fell to 0.5804. Both currencies reversed their initial highs of 0.6377, and 0.5857, respectively. The traders are looking forward to a number of jobs data coming out from the Antipodes on Wednesday.

CAD

Poor GDP data, the decline in oil prices and the Dollar strength were all factors that weighed down on the economy. The Canadian GDP for August was below the 0.1% expected, indicating that economic activity in the third quarter was stagnant. Oxford Economics, however, sees downside risks to this estimate, and believes that the economy probably shrank modestly during Q3. The consultancy predicts that Q4 GDP will be even lower as the impact of rising interest rates on consumers and the housing market deepens. USD/CAD reached a record high of 1.3892 for the YTD period, which is the highest level in exactly 365 day.

GBP, EUR and CHF

The Pound outperformed the Greenback in varying degrees, while the Swissy was more weak and failed to gain any traction from better than expected retail sales. The Swissy's weakness could be due in part to the weakness of haven/Israel hedges, with Gold, Yen and Oil all falling. The single currency was initially boosted after EUR/JPY breached 160.00 as EUR/USD reclaimed 1.600+ status. However, amid the wide Buck bid, it could not maintain this momentum and printed lows of 1.055. The EZ GDP and inflation fell short of the expectations, while Fed speakers such as Visco, Muller and Stournaras spoke about the Fed. As traders awaited the BoE's decision on Thursday, cable traded between 1.2120-2200.

EMFX

The results were mixed. BRL, MXN and CLP all showed gains, while TRY, RUB and Yuan fell as a result of the PMIs. Bloomberg reported that China's overnight interbank repo rate jumped as high as 50 percent on Tuesday. Bloomberg also reported that the PBoC was likely to add liquidity. Reports suggest the money market pressure will abate by Wednesday. Eskom, the state-owned power company, reported that the recent improvements in the performance of generation plants gave them confidence that they were on track to achieve the future energy availability goal. In LatAm FX the Colombia Central Bank kept rates at 13.25% as expected. The decision was backed by the majority of the board.