: Equities down, Treasuries up, Crude down, Dollar flat.
META falls after earnings. ECB is in line with expectations. Israel announces it will begin ground operations. in due course.
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US PCE Price Index - Personal Income/Consumption
: Air France, Carlsberg, Eni, Equinor, Sanofi; NatWest; Exxon, Chevron, Abbvie, Aon, Charter, Colgate, Phillips 66.
Newsquawk 2 in 1:
S&P 500 & Nasdaq fell on Thursday due to losses in Meta's (META) earnings and other large-cap names. Relief from the strong 7yr Treasury Auction provided some support, but indexes continued to fall in late trading. The equal-weighted S&P 500 index (RSP), along with the Russell 2k small-cap index, saw gains, but closed flat, as did Q3 Advance GDP, which surged 4.9% (exp.). The jobless claims were above expectations, especially in the continuing claims. Initial claims are still very low. Treasuries were ripped apart despite the generally solid economic data, as shorts took profits in anticipation of the PCE on Friday and the key events next week. The 7yr auction was a big hit after Wednesday's disastrous 5yr offer. Dollar Index ended up flat, with gains in Europe being pared back after the drop in Treasury yields following data. Euro also remained unchanged as the ECB left rates unchanged as expected and refrained from making a hawkish change to its PEPP reinvestment programme. The USD/JPY cross is still in the spotlight, with a sudden drop of nearly 100pip during the European morning following a new high near 150.80. The oil prices fell despite solid US data. They initially tracked the Dollar but benchmarks remained in losses when the Dollar lost gains.
As was expected, the ECB chose to "pause" its rate hike campaign and keep all three of its main rates unchanged. The Governing council believes that the rates are restrictive enough to bring inflation back to target. It also noted that previous interest rate increases have continued to impact financing conditions. The statement reiterated, in terms of economic outlook, that inflation will remain too high for a long time, and domestic prices pressures are still strong. Despite some expectations from outside that reinvestments would be brought forward, the ECB reaffirmed on the balance sheet that PEPP reinvestments will continue until "at the very least, the end of 2020". Lagarde gave a gloomy assessment at the press conference that followed, stating she believed the economy would remain weak over the next few months and that tighter financial conditions were weighing down on the Eurozone. Lagarde said that the actions taken today were unanimously endorsed, and that no discussions took place about a premature end to PEPP or adjusting minimum reserves. Reuters reported that ECB officials had stated in a later report that policymakers were willing to discuss the end date of PEPP reinvestment in early 2024, and minimum reserves in the spring framework review. Sources said that they expected reinvestments to continue gradually, as the ECB did with its APP. The President of the Bank explained that, just because policymakers chose to pause, that doesn't mean that they will not hike in the future. However, he did mention that the transmission from previous hikes would be felt as far back as Q1 2024, and perhaps beyond. The ECB is in a good position to evaluate its actions and keep the door open to further positive adjustments. Lagarde said that at this time, it is premature to discuss rate cuts. However, from the perspective of markets, the first 25bps reduction is expected in July 2024.
Headline Q3 advanced GDP print was hot. It rose 4.9%, exceeding the forecast of 4.3% and speeding up from the 2.1% in Q2, with a big jump in consumer expenditure to 4.0%, from 0.8%. The headline fell within a wide range of estimates, with the most optimistic forecasting 6% and the most negative, 2.5%, while it fell below the Atlanta Fed GDPNow estimation of 5.4%. +3.5% Q2). The September PCE report will be released on Friday, and although the Q3 price metrics were lower than expected, the period covered by the third quarter is from July to September. We have already seen September CPI, but the PCE data for September is still pending. Despite Q3's hot growth, ING and many other analysts expect it to slow down for Q4. They note that "the headwinds faced by the economy and household sector are intensifying" and they expect the growth rate to drop to 1.5% for the last three months of this year.
US DURABLE MERCHANDISE
Durable goods rose 4.7% in September, a huge increase from the previous 1.7%. The -0.1% was way below the expected (1.7%), and only slightly above the upper bound of forecast range (4.8%). This is mainly due to a 131% increase in civil aircraft orders. Nondefense Capital Goods Orders Ex-Air rose 0.6%. This was above the expected (0.1%), but below the previously revised (1.1%). Pantheon Macroeconomics says that 'the larger picture is that core orders for capital goods continue to trend downward in real terms in line with the depressed intentions of capital spending'. Despite the fact that recent increases in auto purchases by businesses have partially offset this weakness, it appears that spending is also slowing. Other than that, the ex-defense sector and the ex-transport sector printed 5.8%. The ex-transport and defense sectors printed 5.8% (prev. 0.2%, prev. 0.5%), respectively.
US JOBLESS CLAIM
The number of initial claims for unemployment continued to hover at around 200k. This figure was 210k. It was marginally higher than the expected 208k. The number of claims continued to rise, reaching 1.79mln. 1.727mln, exceeding the consensus (1.74mln), and outside the upper limit of the forecast range. Oxford Economics says that the recent upturn indicates that while there may not be many job losses on the labour market, it is more difficult for unemployed people to find new employment, which would indicate a slower hiring pace. Oxford Economics' forecast predicts no more Fed hikes, and a slower pace of job growth in early 2024. The consultancy says that due to the strong performance in Q3, the rate cuts may not occur until later in the year.
US PENDING HOME SALES
The Pending Home Sales rose by 1.1%, which is well above the 1.8% decline expected but barely equals August's 7.1% drop. NAR's Chief Economist, however, notes that "pending contracts are still at historically low levels because of the highest mortgage rates for 20 years". The Chief Economist stated that inventory is also tight, which keeps prices high and hinders sales. He added that "homebuilders are able to create more stock, so new-home sales may be higher this coming year, despite rising mortgage rates". This highlights the importance of increased inventories in order to move the housing market.
T-NOTE Z3 FUTURES SETTLED AT 106-11, 21+ ticks higher.
Treasuries are ripping despite strong economic data, as shorts profit before the PCE and key events next week; 7yrs auction saw strong demand.
The following are the rates: 2s at 5.048%; 3s at 4.888%; 5s at 4.806%; 7s at 4.880%. 10s at 4.857%. 20s at 5.204%. 30s at 5.002%.
5yr BEI at 2.394%; 10yr BEI at 2.424%; 30yr BEI at 2.516%.
T-Notes were hovering just above the Wednesday lows of 105-18 heading into Thursday's APAC session. At the London handover, contracts sank to new troughs, 105-15+, with EGBs, Gilts, and Gilts being offered. This was partly a catch-up, but also in anticipation of a surge in US GDP Q3 data, the 7yr auction and the ECB's rate decision. As expected, the ECB kept rates at their current levels with no movement in PEPP. This was due to some support from EGBs.
Treasuries experienced a two-way flow as the 0830ET data was released. Massive beats on GDP and Durable Goods Orders were somewhat offset by above forecast Jobless Claims (although still low) but below forecast Q3 PCE. T-Notes made a new session low in a knee-jerk, before quickly reversing upwards to c.106-00. Shorts were quick to take profits rather than chase further upsides in yields. Prices were cautiously rising in the afternoon of NY, with some anxiety before the 7yr Auction. However, once the auction was over, with a solid demand (details are below), T-Notes were able to surge higher, reaching 106-13 just ahead of settlement. The September PCE data, the final October Uni of Michigan Survey, and next week's FOMC and NFP announcements are Friday's highlights.
The Treasury's 7-year auction was a strong one, especially when compared with other recent offerings, such as Wednesday's 5-year. The stop of 4.908% was the highest 7yr yield since 2009 and it stopped through the WI by 0.2bps. This is better than last month's tail, which was 0.3bps, and the average stop-through for six auctions, which is 0.2bps. The bid/cover of 2.70x is much higher than the 2.47x last month, but similar to average 2.73x. Dealers (forced excess buyers) had 11% of the total, which is well below the previous 14.6% and average 12.0%. Indirects increased their participation from 65.5% to 70.6%, indicating strong end-user demands.
SR3Z3 +2bps at 94.575, H4 +4bps at 94.66, M4 +6bps at 94.875, U4 +7.5bps at 95.135, Z4 +9bps at 95.39, H5 +10bps at 95.605, M5 +11.5bps at 95.745, U5 +12bps at 95.810, Z5 +12.5bps at 95.825, Z6 +13bps at 95.76, Z7 +12bps at 95.61.
Volumes rose to USD 1.439tln, up from USD 1.387tln.
Demand for NY Fed RRP Ops at USD 1,09tln. (Prev. Demand for NY Fed RRP op at USD 1.09tln (prev. 97).
Volumes have increased to USD 93 billion from USD 83 billion.
US sold USD 96bln in 4-week bills, at 5.295%. Covered 2.94x. US sold USD 8bln in 8-week bills, at 5.330%. Covered 2.52x.
US keeps the sizes of its 13-, 26 -, and 52 week bill auctions unchanged, at USD 75 bln each. 13- and 26,-week bills will be sold on October 30th, while 52-week bills will be sold on October 31st. All sales are to settle by Nov 2nd.
WTI (Z3) SETTLED US 2.18 LOWER, AT 83.21/BBL. BRENT(Z3) SETTLED US 2.20 LOWER, AT 87.93/BBL
The Dollar initially stronger and despite strong US economic data, oil benchmarks sold on Thursday.
WTI and Brent futures hit troughs at USD 82.56/bbl & USD 87.53/bbl respectively. Then, the Dollar retreated from its best levels after the release of the US economic data. Prices began to drift back down towards their lows as settlement approached. Energy newsflow shows that preliminary programmes indicate the output of four major Nigerian crude oil is expected to fall to 687k BPD (previous). The 746k BPD programme for Nov was due to reduced loadings of the Qua-Iboe stream. The CEO of Repsol (REPSM) said that they were in Venezuela and talking to PDVSA. He also stated that there was room to reverse the production trend.
: SPX -1.18% at 4,137, NDX -1.89% at 14,110, DJI -0.76% at 32,784, RUT +0.34% at 1,657.
Communication Services -2,58 %, Technology -2,17 %, Consumer Discretionary (-1.56%), Health -9.88 %, Energy (0.8%), Consumer Staples (-0.63%), Industrials (-0.44%), Financials (-0.22%), Materials (+0.72%), Utilities (+0.86%), Real Estate (+2.15%).
: DAX -1.08% at 14,731.05, FTSE 100 -0.81% at 7,354.57, CAC 40 -0.37% at 6,889.48, Euro Stoxx 50 -0.59% at 4,049.15, IBEX 35 -0.24% at 8,962.80, FTSE MIB +0.29% at 27,507.90, SMI -0.34% at 10,366.00.
Revenue missed citing unfavourable macroeconomic conditions negatively affected global demand in the third quarter; reduced FY guidance.
The company's EPS and revenue exceeded expectations but the revenue forecast for the next quarter was low.
The drug breakdown was also very strong. The FY sales forecast was increased, but the profit outlook was cut.
International Business Machines
Beat on EPS and Revenue while leaving FY revenue and Cash Flow Guidance unchanged.
Align Technology (ALGN)
Earnings missed and revenue guidance cut for the next quarter as well as FY.
The top and bottom lines were below expectations, as was the revenue growth forecast for FY23.
O'Reilly Automotive, Inc. (ORLY),
EPS, revenue and comp. Sales exceeded Wall Street expectations and also improved FY outlook.
Top and bottom line are impressive, and subscription guidance for the next quarter and FY is also very promising.
The company's earnings and bottom line were beaten down, and the FY adj. was raised. The company has provided guidance on EPS and EBITDA.
Royal Caribbean Cruises (RCL)
Strong demand and onboard revenue continue to drive a higher EPS and revenue than expected. The results were better-than-expected due to stronger demand for close-in products and continued strength in onboard revenues.
The Q3 earnings exceeded expectations and the FY23 EPS forecast was also raised.
Southwest Airlines (LUV)
Revenue missed and Q3 profits that dropped about 30% due to rising labor and fuel prices.
The report was mixed; EPS were higher but revenue were lower.
Bloomberg reports that GM has reached a tentative agreement with the UAW. The UAW then made a proposal to GM similar to what Ford did. GM will prepare a counter-offer on Thursday or Friday.
Morgan Stanley (MS)
Ted Pick will become Chief Executive Officer, effective January 1, 2024. James Gorman will become Executive Chairman. The incoming CEO stated that this is a "volatile" environment for investment banking.
US FX WRAP
Dollar gains are tempered by falling yields despite strong economic data. A 7yr auction is also helping to boost the dollar.
The dollar was flat Thursday, as the economic data was strong but equity weakness and lower yields were not enough to sustain the currency. US GDP rose by 4.9% in the third quarter, well above the consensus of 4.3%. However, the PCE Q3 price data were a little cooler than expected but not much. US PCE, due on Friday, will provide a better picture of inflation in the US. Durable Goods also surpassed expectations, while Jobless Claims remained hot at 210k but was slightly above the 208k expected. The dollar had begun the session with gains, but by the end it was flat. After a strong auction of 7yr bonds, yields moved further down and tempered the Dollar's strength.
The ECB did not take any action at all, and Lagarde noted that the PEPP and Minimum Reserve Requirement was not discussed during the meeting. However, Reuters sources stated later that policymakers had agreed to discuss the PEPP reinvestment ending date in early 2024 as well as the minimum reserve requirement in the spring framework review.
The dollar/JPY pair hit new cycle lows, with USD/JPY reaching a high of 150.77. This was followed by a sharp and very short move down to 149.88. This sparked new speculation about an intervention but there has been no official confirmation. The initial kneejerk move lower was quickly reversed, and USD/JPY remains above 150 as we enter APAC trading on Friday. Tokyo inflation data will be closely watched.
The dollar was stronger despite the risk-off tone on the markets. RBA Governor Bullock's comment that CPI came in a little higher but about where it was expected, boosted the Aussie. Bullock said the RBA was wary of inflation and had made it clear that they may have to hike rates again but haven't decided yet. Westpac economists changed their view of the RBA after the RBA Governor's response and the latest data. They now expect a rate increase in November. NZD also saw gains similar to Aussie, with NZD/USD surging above 0.5800. AUD/NZD remained relatively unchanged at 1.0850-75.
GBPUSD saw modest gains, supported primarily by the decline in the Dollar. It found little support from the dire CBI Distributive Trade Data but GBPUSD managed to rise above 1.2050 as the dollar pared off its highs.
The dollar's initial gains were offset by the dovish comments of BoC Governor Macklem and the decline in crude oil prices. Macklem said that the BoC may not need to raise rates further, just one day after they did. He acknowledged that the economy was not overheated and that if inflation cooled as predicted, they would not need to increase rates any further.
The Swedish currency was flat against the Euro. There were no independent influences from the Riksbank credit line for Crown Clearing Institutions or the SNDO's upgrade of its budget balance estimate 2023 from deficit to surplus. A drop in the Norwegian LFS unemployment rate was offset with a decline in Brent.
The results were mixed. BRL was flat vs Dollar, but MXN and COP experienced strong gains. CLP fell. IPCA-15 data for Brazil's min-month inflation was 5.05% Y/Y versus 0.21% M/M. In Mexico, the unemployment rate was 2.9% compared to the previous 3.0%. CLP fell ahead of Thursday's rate decision, where analysts are expecting another 75bp reduction. The TRY remained unchanged after the CBRT increased by 500bps in line with expectations. INR is still slightly weaker against the Dollar despite Reuters' reports that the RBI will likely sell USD to stop the INR from falling.