IG Morning Call

[MongiIG]

Indices in Asia fell back, with the Nikkei's 1% drop coming as it played catch-up following Monday's holiday in Japan. The uncertainty around this week's central bank decisions is keeping risk appetite firmly in check; yesterday's losses for European markets show investors remain acutely nervous about rising oil prices and the potential for higher interest rates that might be needed in response. Oil prices continue to rise, as if to remind everyone of the possibility that inflation will surge in the autumn. Canadian inflation today provides a gentle warmup for the heavyweight news later in the week. 

 

[MongiIG]

Stocks have continued to lose ground as investors await key data and central bank decisions. Asian markets took their cue from a weaker close in the US, and while oil prices have eased back from recent highs, the potential for a resurgence in inflation arising from higher energy prices continues to exercise investors. Added to this, a possible US government shutdown at the end of September provides another reason for investors to remain cautious, with Republican leaders cancelling a vote on short-term funding measures last night. UK inflation rose by 6.7% in August compared to a year ago, while it rose 0.3% compared to July, both rising at a slower than expected pace, and the annual figure continued to slow. This will ease some pressure on the Bank of England, at least in the short-term, though a hike on Thursday still seems likely. European futures point towards a positive open following the UK CPI data. 

 

[MongiIG]

Jerome Powell's rather more hawkish tone last night at the Fed decision caused a slump in US markets, and Asian stocks returned to the theme of losses seen earlier in the week. Markets now price in Fed rate cuts in September next year, a far cry from just a few months ago. The door was left open for another hike this year, in a nod to the surge in oil prices since the middle of the summer. Attention now shifts to the Bank of England; after yesterday's surprise weakness in UK inflation, market pricing is now split evenly between a hike and a pause. A hike today would mark the fifteenth consecutive increase in UK rates. Also on the calendar today are weekly jobless claims and existing home sales. 

 

[MongiIG]

Some indices in Asia saw a modest rebound, but the ASX200 and Nikkei continued to fall, following on from yet more heavy losses in the US. Stocks continue to take a battering from the realisation that the Fed would leave US rates at their current levels for a longer period than previously thought, leading to a reversal in equities and a resumption of the losses seen in the early part of September. Today's data is dominated by flash PMIs from around the globe, in the wake of a Bank of Japan statement that left policy unchanged and maintained its dovish outlook. While US futures have recovered slightly, European markets seem set for a choppy open.

 

[AshishIG]

After a poor finish to last week, Asian markets mostly traded in negative fashion on Monday, though some bargain-hunting in the Nikkei lifted that index off its lows. With major central bank decisions out of the way for the time being, the focus now shifts to the possibility of a government shutdown in the US. House Republicans are making efforts to consider stopgap funding measures to stave off a shutdown. Today's major events include the German IFO index, plus testimony to eurozone lawmakers by ECB president Christine Lagarde. 

[AshishIG]

After rallying on Monday, the Nikkei 225 led the Asian session lower overnight, reversing hopes that losses for Japan had been halted. Rising yields across the globe have driven losses in stocks, though US stocks struggled into positive territory at the close yesterday as some of the selling pressure of the past week eased. However, the theme of higher yields is likely to continue to keep pressuring stocks, resulting in more losses in what is often a difficult period of the year for equities anyway. US lawmakers continue efforts to try and find a short-term funding solution that will avoid a government shutdown. Futures point to a weaker open for Europe and the US, with little heavyweight macro data to detract from the focus on higher yields. 
 

[MongiIG]

Overnight in Asia, stock markets experienced a mixed trading session. The rebound in Chinese industrial profits provided some relief, but this was partially offset by a subdued handover from Wall Street. Australian CPI was also stronger than expected, dampening sentiment on fears that the RBA may have to raise rates again. Moving on to Europe, equity futures indicate a quiet open. In the US, the Senate voted to clear a procedural hurdle for the bipartisan bill aimed at avoiding a government shutdown. House Minority Leader Kevin McCarthy has indicated that a stopgap funding bill will be brought to the House floor on Friday. US durable goods orders are the main event of the session. 

 

[MongiIG]

Stocks in Asia went through another mixed session, with losses led by the Nikkei and Hang Seng, though the ASX 200 ended the day only slightly lower. Stocks continue to fall as yields rise, while Evergrande worries returned as shares of the developer were halted following reports its chairman had been taken away by police earlier in the month. The US Senate is expected to vote this afternoon (UK time) on a bill to avoid the government shutdown, but with markets still expecting higher rates for longer (and positive economic news only adding to this view) it seems that a resolution of the government shutdown will be a minor event. Weekly US jobless claims and pending home sales this afternoon are followed by a speech from Jerome Powell this evening. 

 

[MongiIG]

Asian stocks took their cue from a recovery on Wall Street ignited by a decline in oil prices and a pause in the surge in bond yields. A US Senate bill to avert a government shutdown passed its first hurdle as expected, though time is running out to solve the issue before funding runs out on Sunday. Today sees a swathe of inflation figures, culminating in the PCE index in the US. The final day of Q3 trading might see some further upside in stocks after yesterday's recovery, though the problems of higher yields and oil prices will not have gone away. 

 

[MongiIG]

Asia's stock markets began the fourth quarter with cautious trading on Monday, as several markets were closed for a holiday. The dollar remained strong, while stocks in the region were lifted by a last-minute deal to prevent a U.S. government shutdown. In Japan, the Nikkei initially surged 1.7% before settling back to flat. The yen also weakened, coming close to 150-per-dollar. The agreement to avert a U.S. government shutdown, provided a boost to market sentiment. The temporary funding bill, which allows the government to continue operating until November 17, ensures that important economic data, such as Friday's monthly payrolls report, will be released on schedule. US and European futures have risen so far this morning, as markets begin the traditionally-strong final quarter of the year. 

 

[AshishIG]

Another gloomy session for stocks saw the Hang Seng drop by 3% as it played catch-up following Monday's holiday, and the Nikkei down by more than 1.7%. A hawkish speech by Fed governor Michelle Bowman yesterday and comments from others reminded investors that the Fed is committed to leaving rates unchanged, negating any positive sentiment lingering from the weekend funding deal for the US government. While tech stocks eked out some small gains yesterday, most indices remain under pressure. FX markets are on intervention watch following more comments from officials in Japan about the weakness of the yen. Today sees the monthly US job opening figures, as a warm-up to the ADP and non-farm payroll figures later in the week. A weaker open is expected for European and US markets. 

[MongiIG]

While Asian indices moved lower after yet another gloomy session on Wall Street, the focus is on the yen after indications of an intervention by the Japanese Ministry of Finance. The yen rallied off its lows against the dollar following a breach of the Y150 level, though officials declined to comment. The Reserve Bank of New Zealand left rates unchanged at 5.5%, and avoided any hawkish surprises. In the US, the unprecedented removal of the Speaker of the House has raised fears of paralysis at the highest levels of government. A strong reading on US job openings yesterday saw stocks continue to fall, and attention now turns to the ADP report this afternoon. 

 

[MongiIG]

Asian stocks track Wall Street higher as yields retreat and investors look ahead to key US employment data on Friday. After eleven consecutive weeks of gains the US Dollar Index is retreating from its ten-month high while the Japanese yen is regaining lost ground on possible intervention by the Bank of Japan. The central bank is keeping the markets guessing on whether it is intervening, though, but doesn't rule out any option versus excess moves. As today's economic calendar is light with only some trade balance and initial US jobless claims releases, speeches by MPC and ECB members, all eyes are riveted on Friday's US Non-Farm Payrolls. These should give a better indication as to the probable direction of future US monetary policy.  

 

[MongiIG]

Payrolls day has arrived, at the end of a tumultuous week for global markets. Yields have surged to their highest level in sixteen years, oil prices have slumped and the yen has bounced from the 150 level. Stocks in Asia finally managed a mostly positive day, aside from a small loss for the Nikkei, after a week in which global equities have fallen relentlessly. As ever, markets are quiet ahead of the jobs report, as investors await to see how strong the US employment picture was last month. Any signs of weakness might help the Fed to argue for no more rate hikes, though policy is still expected to be left unchanged for the first half of 2024. European markets are looking towards a positive open, but US futures remain muted.

 

[MongiIG]

After the strong end to the week for stocks on Friday, which had rallied in the wake of the impressive US payrolls report, the week in Asia began with losses for equities. Safe havens such as Treasuries and gold were in demand, while oil prices surged following the outbreak of conflict in the Middle East. As we saw following the start of the Russo-Ukrainian war, the focus will now be on attempting to assess the ramifications of the conflict, and whether it will widen to include other states. Oil prices will be under the spotlight, with supply disruption fears providing a reason for Brent and WTI to rally. However, a repeat of the 1973 oil price spike seems unlikely, given the diminished role of OPEC and a changed diplomatic landscape. US and European futures point to a weaker open, though how much of this is down to profit taking from Friday's surge is hard to say. A risk-off mood could well prevail for the time being, at least until the scope of the conflict becomes clearer. 

 

[MongiIG]

Risk appetite recovered on Wall Street on Monday, following some comments from Fed policymakers perceived as dovish. This led to a late surge in stocks, with the positive atmosphere carrying over into the Asian session. Policymakers suggested that rising bond yields might help to substitute for formal rate increases, alleviating the need for more rate hikes this year. Sentiment rebounded from the weekend's shocking events, with the conflict remaining relatively contained for the time being. More speeches from Fed members today could reinforce the less hawkish tone seen on Monday. With the put/call ratio having spiked to its highest level for the year so far, the risk for stocks could well be skewed to the upside, especially given that equity indices are now poised to enter the strong seasonality period for the final ten weeks of the year. 

 

[MongiIG]

Stocks in Asia made further gains, with the comments earlier in the week by Fed officials helping to support risk appetite. The suggestion that the Fed would not look to hike rates further this year has provided a change from the more hawkish tone of the last few months - Atlanta Fed president Bostic became the latest to argue for leaving rates unchanged, following on from remarks from two other FOMC members on Monday. European stock markets saw the strongest gains yesterday, but overall indices continue to make headway. US producer price data is the main economic event of the day, and will bring inflation back into focus, together with tomorrow's key CPI reading. European markets are expected to see some weakness on the open after yesterday's surge, with a flat opening expected in the US. Today also sees the start of trading for the Birkenstock IPO, which has been priced at $46 per share. 

 

[MongiIG]

Equity markets rise, dollar falls after release of Fed minutes

US equity markets ended the session higher on Wednesday. Minutes of the last Federal Reserve rate meeting, in September, when rates were left on hold, showed that there was a wide variation in views on whether any additional interest rate increases would be needed. The balance indicated that one more hike would be likely, but while there were conflicting opinions on the need for more policy tightening, there was unanimity on one point – that rates would need to stay elevated until policymakers are convinced inflation is heading back to 2%. The dollar fell at the release of the minutes.

Investors now await US inflation data. Economists expect at 3.6% rise in September YoY, down from 3.7% in August. The pace of core CPI growth is also expected to slow, down to 4.1% in September, from 4.3% the previous month.

 

[AshishIG]

Stocks have seen a wave of selling in the wake of yesterday's CPI report in the US, as jitters about inflation and interest rates return. The chance of a US rate hike in December is now 40%, from 28% before the report, according to market pricing. However, deflation is the worry in China after inflation data there missed expectations of a rise. Meanwhile, the potential for more fallout from the Middle East conflict is looming, with Qatar mooting a possible export ban on gas so long as Israel maintains its blockade of Gaza. Earnings season got under way with Delta Airlines yesterday issuing a cautious outlook, and US banks begin their reporting this afternoon. 

[AshishIG]

Asian markets fell back once again on Monday, as nervousness around the conflict in the Middle East continued to see widespread risk aversion. Oil and gold prices surged last week, with the former at its highest level in over a week and the latter having had its best week since March. Earnings season is now underway, but the rise in US inflation data last week has raised market expectations of a hike at the next Fed meeting. Today is a quieter start to the week, with little in the way of heavyweight earnings or data. Futures point to a more positive open for European and US markets, though sentiment remains fragile. 

[AshishIG]

While Australian stocks dipped on Tuesday, other Asian indices moved higher, though with less enthusiasm than before. The conflict in the Middle East appears to be on the cusp of expanding to include Hezbollah, with the shadow of Iranian involvement looming as well. Risk appetite has shrugged off the rebound in US inflation data, but from today onwards earnings season will take centre stage. UK wages rose by more than inflation for June-August, up 7.8%, for the first time since October 2021, providing some easing of the cost of living crisis. Goldman Sachs, Bank of America, Johnson & Johnson and Lockheed Martin are among those companies reporting earnings this afternoon. 

[AshishIG]

Most Asian indices struggled overnight, though the Nikkei eked out a tiny gain, despite a host of Chinese datapoints that beat expectations, including GDP. Wall Street avoided significant losses yesterday, but oil prices rose once more on fears of a widening conflict in the Middle East. This morning's UK CPI data came in ahead of expectations for both the headline and core figures, showing that inflation remains stickier than hoped. This brings to an end a run of falling inflation readings, and will complicate the outlook for the Bank of England. Netflix and Tesla earnings take centre stage this evening.

[AshishIG]

The see-saw week in global markets continues, with more losses for Asian indices coming after a poor session in the US. Disappointing earnings from Tesla countered better figures from Netflix, but it is the ongoing war in the Middle East and fears of its spread, along with rising bond yields and Fed comments about 'higher for longer' that have really prompted the losses in stocks. While oil prices were quieter yesterday, thanks to a lack of a move from OPEC to back Iran's call for an oil embargo on Israel, fears of a widening conflict may see the price resume its march higher. Added to this is a speech by Jerome Powell today that could see the Fed chairman take a hawkish tone similar to his colleagues - recent strength in inflation has resulted in FOMC members redoubling their efforts to stress the potential for rates to rise again if needed, supporting the dollar and weighing on equities. Among the US companies reporting today is American Airlines, while weekly jobless claims and September's existing home sales figures are also set for release. 

[AshishIG]

Indices across the globe remain under pressure, with more losses in Asia overnight following on from the drop in US and European markets yesterday. Investors remain sensitive to news coming out of the Middle East, and reports that a US destroyer had intercepted missiles fired from Yemen raised fears of a broadening of the conflict. A speech by Jerome Powell initially provided a boost to risk appetite, but this rapidly faded when he, like other FOMC members recently, left the door open for more rate hikes should the situation require it. US bond yields are the big driver again, after a rise in the 10-year yield to briefly hit 5% yesterday. Oil prices are up too, and are moving back towards their late September highs once again.UK retail sales fell sharply in September, down 0.9% month-on-month, weakening sterling against the dollar and the euro. 

[AshishIG]

Stocks remained under pressure in Asia after a distinctly negative finish to the week on Wall Street. Surging yields have once again prompted steep losses in equities, and with an action-packed week of earnings this week there will be more reasons to sit on the sidelines. Oil prices fell back from last week's highs, but the ongoing war in the Middle East will likely act as a driver to further upside. A quiet day looms, a lull in the storm of earnings, while there are a number of central bank speakers scheduled for the week. Last week saw Powell and others reiterate the potential for more rate hikes, while also noting that rising yields were also providing a similar function for monetary policy. 

[MongiIG]

Stocks in Asia were able to trade in more positive fashion, taking their cue from a better finish on Wall Street. There was a mixed reaction to Microsoft and Alphabet earnings, with the former soaring and the latter falling as investors focused on the diverging performance of their cloud computing divisions. Stronger Australian inflation data meant that markets began pricing in a higher chance of another hike from the RBA. Today's Bank of Canada rate decision and earnings from Meta are likely to be the key drivers of activity. The latter has seen a host of US states opening a lawsuit against the company's Instagram business, on accusations of causing addiction in teens.

 

[MongiIG]

The risk-off mood remains pronounced across global markets. Earnings from Meta beat expectations but a warning about ad revenue in upcoming quarters drove the stock lower. Far from reviving risk appetite, tech earnings this week seem to have driven the sell-off, so all eyes are on Amazon tonight to see if the retail giant's figures are any different. Today's big event is the ECB meeting. A pause in rate hikes is expected, after a run of poor PMI figures and weak lending data in the eurozone mean that the ECB is expected to avoid piling any more pressure on the economy. A fresh rise in Treasury yields, including the ten-year's move back to 5%, has caused investors to dump stocks again, while the yen moved above 150 against the dollar again, in a move that may well trigger intervention by Japanese authorities. Another weaker open is expected for European and US indices. 

 

[MongiIG]

Asian shares rose Friday defying the latest tumble on Wall Street, where the S&P 500 fell to its lowest level in five months. An easing of the technology stock rout due to better-than-expected earnings by Amazon and Intel counter balanced risk-off sentiment as the Israeli military said its troops and tanks had briefly entered northern Gaza. The oil price rose by $1, together with the greenback while gold continues its advance towards the $2,000 mark ahead of the Fed’s preferred PCE inflation data out later today. 

 

[MongiIG]

Asian stocks mostly decline amid ongoing tensions in the Middle East and ahead of a busy week with monetary policy decisions by the Bank of Japan, US Federal Reserve and Bank of England. German and Spanish inflation, Eurozone preliminary Q3 GDP and US employment data as well as the ongoing earnings season are likely to keep volatility at recently elevated levels. A mixed open is expected for the European session.

 

[MongiIG]

Global markets begin the day waiting for intervention from the Japanese Ministry of Finance, after USD/JPY surged through Y150 and Y151. One Japanese official said that authorities were on standby to intervene, a day after the Bank of Japan's latest policy decision. Attention now turns to the US government's borrowing needs and the Fed rate decision. While no change is expected in US rates, the Fed is expected to leave the door open for more hikes. Stocks showed further signs of strength on Tuesday, aside from the FTSE 100, but may struggle for direction until this week's big events of the Fed decision, Apple earnings and non-farm payrolls are out of the way.