MARKET REPORT
(Unburdened by what has been)
Riga, RIGA!
You were found in clear conditions. But you’re handsome in the Fog.
Day in Review:
Today:
(Kamalanomics: Govt-manipulated data with un-reported historic downward revisions to make the economy look more favorable):
DATA:
– The odds for a 50bps rate cut in November currently stand at 41%, well below levels above 50% in the previous week
– Inflation rate in Germany fell more than expected to 1.8% in September, the lowest since February 2021 while in Italy, it eased to 0.8%
– ECB President Lagarde said lawmakers in the European Parliament that the central bank is increasingly confident that inflation will fall back to 2% and that should be reflected in the October policy decision. Traders are expecting the central bank to continue its easing campaign, with the odds for another interest rate cut in October rising to about 75%
– Fed Chair Powell said “We are not on any preset course,” and “The risks are two-sided, and we will continue to make our decisions meeting by meeting.”
– Bostic sees a further 25bps of easing by year-end
– Disappointing China PMIs
GENERAL:
– Euro Bourses end lower
– American Dream costs $4.4 million, Investopedia says
– Stocks and bonds took a hit today around 1400ET when Powell said that he “doesn’t feel like The Fed is in a hurry to cut quickly.”
Additionally, Powell said “sometimes people pay too much attention to The Fed’s SEP [Dot Plot],” noting that the SEP shows two more 25bps cuts this year (less than the market).
Less than 3 cuts now priced in for 2024
– US FAA grounds SpaceX’s Falcon 9 rocket after second-stage malfunction
– NYC Rail Tunnel Project Gets $3.8 Billion in Federal Funds
– Major Union dockworkers strike threatened
– Israel prepares for a ground incursion into Lebanon
– Steel rebar futures surged by 7% to CNY 3,420 per ton in the last session of September, the highest in three months, amid an improved construction input outlook after key Chinese cities relaxed home-buying curbs. Shanghai, Guangzhou, and Shenzhen loosened regulations for homebuyers, mirroring previous steps from Beijing and other cities to push back against the crisis in the country’s property market.
Such measures magnified support from the government, with the Politburo pledging aggressive fiscal stimulus to be announced at a later date, and the PBoC cutting a series of key interest rates and setting aside cash to back cheaper mortgage refinancing. In the meantime, the NBS Construction PMI refrained from slowing in September to raise hopes that the plunge in rebar demand could have bottomed, adding further support to prices.
Chinese financial and commodity markets will be closed from October 1-7 for the country’s Golden Week celebrations.
– Equities up, Treasuries flatten, Crude down, Dollar down
– Top commodity gainers are Steel Rebar (6.78%). Biggest losers are Platinum (-2.82%), Silver (-2.09%), Copper (-1.43%) and Gold (-1.19%).
– Top commodity losers are Cocoa (-6.78%), Orange Juice (-1.70%) and Lumber (-1.68%). Gains are led by Oat (1.73%), Corn (1.45%) and Butter (1.03%).
Coming Up:
– Australian, Japanese, EZ, US, Canadian Manufacturing PMIS, Japanese Unemployment Rate, Tankan Survey, Australian Retail Sales, EZ HICP, US ISM Manufacturing PMI, JOLTS Job Openings. Holiday: Chinese Mainland China and Hong Kong Market Holiday (Golden Week). Events: BoJ SOO; Riksbank Minutes.
Speakers:
– Speakers: ECB’s de Guindos, Rehn, Schnabel; BoE’s Pill; Fed’s Bostic, Cook, Barkin.
MAJORS:
DX:
– The Dollar trended higher throughout the day, but caught a strong bid after Fed’s Chair Powell’s hawkish remarks at the NABE conference. The Fed Chair said that the Fed is not in a hurry to cut rates quickly, and if the economy evolves as expected, that would mean two more cuts this year for a total of 50bps – implying 25bps in both November and December, downplaying the need for another 50bp cut. Money markets moved hawkishly, with 69bps of rate cuts now priced in by year-end (was 73 pre-Powell). Yields also surged in the wake of the commentary, specifically in the short end. Besides Powell, Fed’s Bostic (2024 Voter) said he is open to another 50bp rate cut if the labour market shows unexpected weakness, and sees the year-end rate at 4.5-4.75%, above the Fed median of 4.25-4.50%. That said on the EFFR for the end of 2025, he was more dovish than the median, seeing it at 3-3.25% (median of 3.4%), a level that he sees as neutral, vs the Fed median of 2.9%. Elsewhere, on data Chicago’s PMI unexpectedly rose to 46.6, its third consecutive increase. Despite the Dollar Index finishing around its session highs of 100.92, the buck is poised for its third straight month of losses, not seen since 2022. Key risk events on Tuesday include ISM Mfg PMI, JOLTs, Construction Spending, and Fed’s Bostic and Barkin ahead of NFP on Friday.
EURO:
– The Euro crept higher earlier into the European session, although it failed to hold above 1.12 with German inflation printing cooler than expected, adding to the recent raft of softer inflation prints in Europe (Spain, France) ahead of the Eurozone print on Tuesday, which ECB’s President Lagarde said today that it’s likely to come in below the baseline. On ECB pricing, that now fully prices a 25bps rate cut at the October meeting (was 22bps pre-German CPI). Weakness markedly ramped up after Powell’s Hawkish remarks hit the wires, cementing the Euro’s intraday downside. Attention on Tuesday turns to the aforementioned CPI data, and remarks from ECB’s de Guindo, and Rehn.
EQUITIES:
EUR:
– AX: -0.68% at 19,342, FTSE 100: -1.01% at 8,237, CAC 40: -2.00% at 7,636, Euro Stoxx 50: -1.31% at 5,001
US:
– SPX +0.42% at 5,762, NDX +0.26% at 20,061, DJIA +0.04% at 42,330, RUT +0.24% at 2,230
Sectors (W to S): Materials -0.60%, Consumer Discretionary -0.28%, Consumer Staples +0.09%, Financials +0.32%, Utilities +0.42%, Industrials +0.48%, Technology +0.58%, Health +0.61%, Real Estate +0.76%, Communication Services +0.79%, Energy +0.83%.
GOLD/SILVER:
– Gold declined by over 1% to trade around $2,630 per ounce on Monday, as its recent rally took a breather as investors digested Fed Powell’s remarks at the National Association for Business Economics. He said that the recent half-point interest rate cut should not be seen as an indication of similarly aggressive actions ahead and further cuts will be data based. He also mentioned that the economy is in solid shape and still sees a soft landing ahead for the US.
The yellow metal is on track for its biggest quarterly gain since early 2016, driven by repeated record highs in recent sessions following Fed’s 50 bps rate cut in September, tensions in the Middle East as well as China’s additional monetary stimulus.
Fed fund futures suggest that markets are betting on about a 65% chance of another 50 bps reduction in November.
OIL:
– WTI crude oil futures settled flat at $68.17 per barrel on Monday, capping off a 7% decline for the month as escalating tensions in the Middle East slightly outweighed rising supplies and weak demands.
The market saw little support from geopolitical risks, even after Israel’s airstrike killed Hezbollah leader Hassan Nasrallah in Beirut and bombed Houthi targets in Yemen.
On the other hand, China’s ongoing economic struggles, with manufacturing contracting for a fifth consecutive month and a slowdown in services, further pressured prices. Traders remain doubtful of Beijing’s stimulus measures to boost demand.
Additional pressure came from reports that Libya may resolve a central bank dispute, potentially restoring 500,000 barrels of crude exports, and speculation that Saudi Arabia could ease its voluntary production cuts by December.
BONDS:
US 1-MO: 4.852
US 6-MO: 4.42
US 1-YR: 3.021
US 5-YR: 3.564
US 10-YR: 3.787
US 30-YR: 4.124
2’s/10’s: 0.14 -0.05
KEEP DOING WHATS WORKING, STOP WHAT ISNT
Best of luck out there. Let the market come to you
Post of the day:
https://www.youtube.com/watch?v=aql5BZ1gBec
Song of the day:
https://www.youtube.com/watch?v=fZFmaMbkUD4
Joke of the Day:
https://www.youtube.com/shorts/TWdApDNt5m0
Or
https://www.youtube.com/shorts/4Rxt1RT3j3M
(Seize all assets of Duke and Duke enterprises)
I can be contacted should anyone have any questions, input at [email protected] during US hours of EST 9am until 5pm
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