IG Morning Call

[MongiIG]

Stocks in Asia staged an impressive rally following the gains on Wall Street on the first day of Q4. A surprisingly-dovish move from the RBA saw the central bank raise rates, but only by 25ps instead of the expected 50bps. The bank left the door open to more increases, but cited the recent rapid pace of tightening as a reason to ease off for the time being. European futures are pointing towards further gains after yesterday's positive session, which came after a weak period for stocks that ended Q3 on a poor note and left some indices at their lowest levels since 2020. Today's calendar is light on data, but includes speeches from three Fed officials and the president of the ECB.

 

[MongiIG]

Asian markets made fresh gains after another strong rally on Wall Street and in European markets. A sharp drop in job openings in the US seemed to point towards weakness in the US employment market of the kind that the Fed had suggested would cause them to rethink their plan for further sharp rate increases. While this is only one datapoint so far, it came as markets were looking for a reason to bounce and thus helped the surge in equities to extend into a second successive session. Today's big event will be the latest OPEC meeting, at which a significant cut in production is expected, in reaction to the decline in prices seen since the summer. The Biden administration has attempted to push back against the move, but it is unclear whether their efforts will bear fruit. Also on the calendar for the day is the ADP employment report and the US ISM non-manufacturing PMI, while in the UK the prime minister will deliver her speech to the Conservative party conference. 

 

[MongiIG]

Stock markets remain in a more bullish pattern after the losses of recent weeks, and Asian indices made some more progress, albeit in a more tentative fashion. Oil prices remain on an upward path following OPEC's move to cut output by two million barrels per day, pushing prices to their highest level since mid-September. Stronger data in the form of the ADP report and the ISM non-manufacturing PMI caused a wobble in stocks, which have rallied on fresh hopes that the Fed will pivot away from its hawkish policy in the near future. Today is a quieter day, with just the UK construction PMI and weekly jobless claims, and the focus is now shifting to tomorrow's non-farm payroll report. 

 

[MongiIG]

Stocks in Asia headed lower overnight, taking their lead from a tough session in the US, where the bullish move of the early part of the week faded thanks to ongoing nervousness about the direction of Fed policy and the usual pre-non farm payroll nerves. Fed officials have continued to pour cold water on the idea of a pivot, suggesting that there is little likelihood of a change in policy due to the persistence of high inflation. While this week's job openings in the US showed surprising weakness, for the moment it is a one-off. Further weakness in today's figures might add to the view that the jobs market is slowing, and thus perhaps produce a fresh rally in stocks. Conversely, signs of further strength will reinforce expectations of more tightening, and a pushing further into 2023 of any initial rate cut. 

 

[MongiIG]

The dismal end to last week in the US following Friday's payroll report carried over into early Asian trade on Monday. Markets dropped back in thin trading, as holidays in Japan and South Korea reduced activity, but tech stocks suffered in China following the US' decision to publish a new set of export controls to cut off firms in China from supplies of US semiconductor chips. Friday's jobs report dashed any hopes of a Fed pivot, as markets returned to selling equities and buying the dollar. The US employment market remains robust, which will give the Fed further confidence to push ahead with more rate hikes this year and further into 2023. It is a quiet day ahead, with no major events on the calendar, in part due to Columbus Day in the US (although stock markets remain open). 

 

[MongiIG]

Fresh losses in Asia maintained the negative global theme, as markets returned from holidays in Japan and South Korea and raced to play catch-up after yet another broadly negative day in global markets on Monday. Both the IMF and the World Bank have warned of the risk of a global recession, while JPMorgan head Jamie Dimon also said the global economy would tip into negative growth in coming months. This gloomy outlook seems set to continue, with futures weaker in Europe and the US. In good news for the UK economy, unemployment in August dropped to 3.5%, the lowest since 1974. However, job vacancies fell by 46,000 and jobless claims rose by 69,000. 

 

[MongiIG]

There has been little relief from the selling in global markets, and Asian indices continued their push lower overnight. US inflation data today and tomorrow and then the start of Q3 earnings season on Friday mean that stock markets may not get much in the way of good news. In the UK the Bank of England has been warning pension funds to sort their liquidity needs out in good time ahead of the planned end of its bond-buying programme, although it has also hinted that it might extend the programme as a means of restoring stability in the UK gilt market. UK GDP fell by 0.3% in August, while the three-month figure was also -0.3%. Today's US PPI marks the warm-up for tomorrow's CPI figures, while dollar traders will be watching tonight's Fed minutes for hints about the outlook for the next meeting and expected rate rises. 

 

[MongiIG]

Stocks were generally weaker across Asia following the poor finish for US markets on Friday. Concerns about tighter monetary policy, weaker earnings and rising inflation, and the accompanying fears of a global recession, have put pressure on stocks once again. The main event of the day will now be a statement from UK chancellor Jeremy Hunt, who starts his first full week in the job. It is expected that a number of tax rises will be brought forward and planned tax cuts pushed back as he looks to shore up the UK's fiscal position. The pound has already rallied against the dollar on hopes that some stability may return to the UK political scene. 

 

[MongiIG]

The latest rally in stocks has come following some better earnings from Bank of America, which have reassured markets about the strength of the US consumer. Markets surged across Asia, taking their cue from another solid session on Wall Street, where the Dow has rallied some 2000 points from last Thursday's low. Earnings season is now in full flow, and today sees updates from Goldman Sachs, Johnson & Johnson and Netflix. Both USDJPY and EURUSD remain in focus, with the former approaching the psychological 150 level and risking Japanese intervention, and the latter at risk ahead of what is expected to be a fresh post-2008 low for the ZEW index. In the UK, the FT reported that the Bank of England was looking at postponing the beginning of its quantitative tightening programme for a second time, until gilt markets had calmed further following the new chancellor's statement to markets. 

 

[MongiIG]

The rally in markets has cooled slightly after the strong start to the week, but better results from Netflix, Goldman Sachs and Johnson & Johnson suggest that further positive news might help lift stocks in the short-term, even if the broader backdrop still seems grim. Asian markets edged lower after an initial strong start, while the US dollar was higher following some recent weakness. Oil prices had been particularly weak on Tuesday, on fears of higher US supply and a slowdown in the Chinese economy, but they managed to recoup some lost ground overnight. UK inflation hit 10.1% in September, with higher food costs offsetting a fall in fuel prices. Core inflation, which excludes food and energy, also rose faster than expected, at 0.6% month-on-month and an annual rate of 6.5%. Earnings season continues, and Tesla and IBM are two major firms expected to report earnings.

 

[MongiIG]

Rising bond yields and concern about inflation slowed stock markets across Asia overnight, pushing some into reverse. Chinese markets were helped by reports that the government was considering reducing the quarantine time for visitors coming into the country, raising hopes of an easing of restrictions. Meanwhile in Tokyo, the Bank of Japan appears to be preparing another round of bond buying as USD/JPY nears the 150 level. Tesla failed to join in the trend of better earnings, falling sharply following its numbers last night and reversing some of the positive momentum in US markets established earlier in the week. Today sees US initial jobless claims and existing home sales data, along with earnings from Snap, American Airlines and Dow. 

 

[MongiIG]

Stocks look to be headed lower once again as an initial bounce earlier in the week on a slightly better start to earnings season fades. Snap's earnings hit tech stocks in the US, which carried over to Asia, as the company warned that revenue growth in Q4 would be flat due to inflation. Asian markets resumed their falls, as US data and Fed comments continued to point towards the need to raise rates. In the UK the PM's decision to step down was greeted with a sigh of relief in UK assets, and a shortened election contest now takes place; given that 100 nominations are needed to get on the ballot it looks like the Conservative party would like to make this is as quick as possible, with ideally one clear choice removing the need to ask party members. Eurozone consumer confidence and earnings from Verizon and American Express are the main events on the calendar today. 

 

[MongiIG]

The week is beginning on a cautiously positive note, with Asian markets mostly higher following Chinese GDP data and futures in the US and Europe looking to build on Friday's more positive mood. A 3.9% year-on-year figure for China's GDP was a marked improvement from Q2  but was still among the lowest readings in years. Earnings season continues to provide a cushion for stocks, with a broad rally ending Friday's session, even as the Fed still looks to continue its pace of rate rises. The day is dominated by flash PMIs from around the globe, but in the UK attention will focus on the race to be prime minister. After Boris Johnson pulled out over the weekend it looks increasingly like Rishi Sunak will take the crown as the only one of the three contenders to have gained the needed 100 votes. This means Conservative Party members need not be consulted, and expedites the process, something likely to be approved of by markets given the looming fiscal statement next week. 

 

[MongiIG]

Stocks in Asia moved higher again overnight, although it was a choppy session for China as markets continued to digest Xi Jinping's election to a third leadership term. As we noted yesterday, earnings season and the hope of better numbers from many of the big tech names have helped to push markets higher in the short-term, though many still think this rally is on borrowed time. Today's economic data includes the German IFO index and US consumer confidence, while Coca-Cola, Microsoft, Alphabet and Twitter are all set to report numbers for their most recent quarter. UK investors will wait to see how the new PM sets out his stall in a speech to the country, while a steady stream of cabinet posts will be announced during the day. For now the pound is holding up against the US dollar, with little of the volatility seen during the last administration. 

 

[MongiIG]

The rally has received a check following results from Microsoft and Alphabet, which missed some of their forecasts, causing Nasdaq futures to slip. Asian markets continued to push higher however following a slew of softer data in the US yesterday that gave hope that the Fed might think about slowing the pace of rate rises. In addition, US lawmakers are beginning to voice concerns about the labour market and the impact of rate hikes, potentially adding to the pressure on the Fed to look beyond just the impact on inflation. Futures are softer this morning as investors worry that other tech firms might also fall down on some of their earnings figures, following Alphabet reporting weaker ad sales and Microsoft missing revenue forecasts. Ford, Boeing and Meta report today, while the Canadian dollar is in focus as the Bank of Canada makes its latest decision on interest rates.

 

[MongiIG]

The MSCI Asia ex-Japan index gained over 1.5% overnight, moving into a third session of gains, although it is still down 2% for the month. Nonetheless, gains continue for equity markets around the globe, while the dollar is still weakening in short-term, providing some breathing space for the euro, sterling, Aussie and others. Caution is likely to persist ahead of the European Central Bank meeting today, at which a sharp rise of 75 basis points is expected as the bank looks to renew its fight against inflation. Disappointing results from Meta overnight hobbled tech stocks to an extent, with the weak Q4 forecast and poor performance in ad revenue echoing comments earlier in the week from Alphabet. While earnings season is still providing just enough good news for now to keep markets from slipping lower, the general outlook for the global economy remains gloomy. Tech heavyweights Apple and Amazon report numbers tonight, along with Caterpillar amongst other names. 

 

[MongiIG]

Stocks in Asia were in retreat again following disappointing numbers from tech giant Amazon, while Chinese markets continue to see outflows by foreign investors as fears build about the direction of China as Xi Jinping's third term begins in earnest. Apple and Amazon earnings were always going to be a major test for this market's resolve to keep moving higher, and while Apple held up well despite its weaker outlook for Q4, Amazon's poor performance and even gloomier forecast meant the stock fell sharply in after hours trading. The Bank of Japan continues to be an island of dovishness among central banks, leaving policy unchanged, although it revised up price forecasts for 2024. German GDP and CPI, plus US PCE prices, are on the calendar for today, along with earnings from oil giants Exxon and Chevron. 

 

[MongiIG]

Stocks in Asia made gains overnight, with a notably strong performance from the Hang Seng. Risk appetite appeared to firm up across the region even as investors look towards tomorrow's Fed rate decision. In central bank news, the RBA, the first of this week's big trio to make a policy decision, raised rates by 25bps points, lower than had been expected by many. However, it also said that more inflation was expected, requiring continued rate hikes. The Aussie dollar was able to move higher following the announcement, as some softness crept into the greenback. Along with the US ISM manufacturing PMI, today sees the publication of earnings from Uber, AMD and Pfizer.

 

[MongiIG]

It was a mixed session in Asia, where stocks outside China struggled to make progress, and those inside rose for a second day on unconfirmed reports that the government would ease Covid curbs. Oil prices rose by $1 a barrel, but the main focus remains today's FOMC decision - a 75bps raise is priced in, but after yesterday's job openings data it looks like the US economy remains strong, boosting the case for the Fed to continue tightening at a rapid pace. Today's ADP report will also provide some further clues on the strength of the jobs market, ahead of Friday's non-farm payrolls report. 

 

[MongiIG]

Global stocks are on the back foot once again, with the respite seen over the course of October looking to finally having come to an end. The FOMC meeting provided a rude awakening for those believing that a slowdown in the pace of hikes at Canadian and Australian central banks meant we are starting the ‘pivot’ all traders have been awaiting. Instead, the FOMC meeting saw Jerome Powell state while the rise in rates would soon start to slow, the terminal rate will likely be higher than previously expected. With markets finally realising that this is likely to be a drawn-out period of economic difficulty, we have seen the Nasdaq somewhat predictably lead the losses (-3.3%). Asian stocks followed suit, although it was the Hang Seng that really saw selling pressure take hold in a meaningful manner (-2.9%). In part that was also a reflection of Chinese concerns as the Caixin services PMI data fell into a five-month low of 48.4. Looking ahead, keep a close eye out for the Bank of England rate decision, with the bank expected to step up their tightening pace with a 75-basis point hike that would be the largest rise since 1989.

 

[MongiIG]

Stocks have risen in Asia overnight, as hopes of relaxation of China's anti-Covid measures spurred a revival of risk-taking after the losses mid-week. The Hang Seng is expected to have enjoyed its best week in ten years, though this comes hot on the heels of it giving up all gains since 2009. Futures in Europe and the US have moved up overnight too, but this is more of a short-term rebound than a medium-term recovery. The Fed's hawkish statement on Wednesday seemed to sound the death-knell for this latest bounce in equities and other risk assets, and puts stock markets firmly back on a downward course.

There was little cheer yesterday for the pound either, which fell despite the BoE's sharpest hike in over three decades, with UK monetary policy officials saying that a long recession is likely, and that the terminal rate of monetary policy in this cycle is likely to be lower than markets currently expect. Today is non-farm payrolls day, and while signs of labour market strength are always welcome, markets may well take any strong data as bolstering the Fed's case for more hikes, bolstering the dollar but putting more pressure on equities. 

 

[MongiIG]

Asian markets began the week with a move higher, takin their cue from the US and its strong finish to last week. However, China's denial that it was considering easing its zero-Covid measures cast a shadow over the session. Risk assets had surged on Friday on hopes that China might begin to unwind some of its stricter policy measures, but comments over the weekend seemed to negate this, with a winter of restrictions likely ahead for the world's second-largest economy. Apple reduced its output forecast for its new iPhone by three million units due to cooling demand, adding to the more cautious atmosphere among traders. Overall it is a quiet start to a week in which earnings season is now winding down, with US CPI the main focus later in the week. 

 

[MongiIG]

A rebound in risk assets seems to have stalled as investors look towards this evening's US mid-term elections, wondering if a Republican win in the two houses of Congress will result in legislative impasse and a fresh US debt ceiling crisis. After a solid day yesterday, which saw markets continue their bounce from last Friday, things have calmed down. Relative quiet on the data and earnings front means that investors will focus on the elections tonight , before moving on to concentrate on the US CPI reading due later in the week. Earnings season is now firmly winding down, although earnings from Disney are expected this evening. 

 

[MongiIG]

Signs are emerging in the US mid-terms that the Republicans will gain control of the House, while the battle for the Senate is still in the balance. This result spells gridlock for the US government, which faces the likelihood of bitter partisan battles for the next two years. Risk markets made further progress yesterday, although pre-election hesitation generally reigned. But it will remain tricky for stock markets to move up again as attention now turns to the CPI reading tomorrow. While the pace of tightening might slow off the back of a weaker CPI figure, the Fed's rate rises will continue, so any initial bounce in stocks might be short-lived. 

 

[MongiIG]

Sentiment in Asia soured overnight as pre-US CPI nerves and the ongoing rout in crypto markets caused investors to turn more cautious. The lack of a clear conclusion as yet from the US mid-term elections means that inflation data has taken its place as the key event of the week. Any slowing of price rises would likely give equities a boost while weighing on the dollar, but conversely an acceleration of price growth would prompt a revival of concerns about a continued sharp pace of Fed tightening. The likely collapse of crypto broker FTX has resulted in caution across markets, with a heightened potential for more volatility should crypto prices fall further. 

 

[MongiIG]

Markets have been delivered two presents in the form of weakening US inflation and a loosening of some of China's Covid restrictions. The former prompted a huge surge in stocks around the globe, prompting the biggest one-day rise for the Nasdaq in over two years, and pushing the Dow up by over 1000 points as well as causing the dollar to fall, while the latter boosted the yuan and weakened the greenback yet further. The sight of weakening US inflation, or at least a slowdown in price growth, for both the headline and core readings was enough to spark a reassessment of the Fed's outlook, and the market view is shifting back to a 50bps move in December, having briefly thought that another 75bps was the more likely possibility. While this is just one reading, expectations of a softening of the Fed's rhetoric are on the rise once again. The UK economy weakened in Q3, shrinking by 0.2%, putting pressure on the pound again. 

 

[MongiIG]

Asian markets were mixed overnight as one Fed member warned about putting too much weight on a single CPI number, while China's stocks moved up on signs of aid for its struggling property sector. Christopher Waller of the Fed said that it would take more than one report for the Fed to ease back on its hiking policy. However, he did say that the Fed might now think about a slower pace, something that may well give the buyers fresh hope. Chinese stocks moved up as reports suggested that regulators had asked financial institutions to provide more help to the real estate sector, prompting a broad-based rise in Chinese equities. Earnings season in the US is now winding down, while on the economic front it is a quiet start to a week that is heavy on UK data. Elsewhere, the ongoing collapse of FTX will mean that cryptocurrencies remain in focus. 

 

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Chinese markets continued  to make headway on hopes of support for the struggling property sector, while oil prices are under pressure again. Reports of some easing back of Covid-testing, along with a positive readout from the Biden-Xi meeting, lifted stocks, although most of Asia saw a more muted performance. Oil prices fell yesterday and took further losses overnight following OPEC's cut to its demand outlook, while mixed Chinese data overnight also put pressure on the commodity. UK employment data saw the unemployment rate rise to 3.6% for September, while average earnings rose 6% for the 3 months to September. On the calendar for today is the German ZEW index and US PPI, the latter being closely-watched following last week's CPI data. 

 

[MongiIG]

Stocks fell back overnight as news of a missile landing in Poland prompted a rise in geopolitical concerns. Recent big winner, the Hang Seng, fell back over 1%, while mainland China stocks were also hit by weakness in the housing sector, where prices fell at their fastest pace in seven years in October. The explosion in Poland, which killed two people, prompted some weakness in European and US futures after a few days of gains. However, the origin of the missile remains unclear. Former US president Donald Trump has declared his intention to run again in 2024, providing another potential headache for markets further down the line. UK inflation spiked to 11.1% in October, from 101.% a month earlier, with housing and fuel costs pushing the rate of price growth up to its highest level in four decades. 

 

[MongiIG]

The recent run of strong equities and a weaker dollar was reversed yesterday and overnight in Asia, a a warning from Micron Technology hit tech stocks, while strong US retail sales bolstered the dollar. Micron said that high inventories and sluggish demand would hit performance, dragging down tech stocks in the US and chipmakers in Asia, while the better retail sales figure shows that the US economy remains strong and is able to withstand the impact of further rate rises. Today sees the release of the long-awaited UK autumn statement. Chancellor Jeremy Hunt has warned of the dire situation facing the UK economy, and has already raised the prospect of more taxes being paid by all sections of the population. Also on the calendar for today are US initial jobless claims and, later on, Japanese CPI.