MARKET WRAPS
Watch For:
International Trade for August; EIA Weekly Petroleum Status Report: Canada International Merchandise Trade for August; Canada Constructing Permits for August
Opening Call:
Stock futures fell on Wednesday as a more cautious tone prevailed following a robust begin to the fourth quarter.
Wall Street was heading in the right direction for a comparatively mild pullback, as futures suffered some selling after a sturdy rally over the past two sessions.
Johanna Chua, chief Asia economist at Citi, said that though U.S growth remained in higher shape than other countries and Fed officials continued to sound hawkish, the market risked being wrongfooted by any signs that rates of interest could soon peak.
“At the same time as the general fundamental setup has not modified…trimming of bearish risk/bearish rates/bullish USD positions has driven a pointy reversal,” Chua said.
This view that oversold conditions and overly bearish sentiment was a key contributor to the newest advance was endorsed by Tom Lee, head of research at Fundstrat, though he accepted that bulls could also be chastened by the recent past.
“Given the widely poor win-ratio for rallies in 2022, investors are naturally viewing the gains over the past two days as just one other ‘bear market rally’,” Lee said.
Still, quite a few shifting aspects suggest the positive run could proceed, based on Lee.
These included the dip in Fed fund futures; a 5% pullback within the dollar index; and the Vix volatility index moving back below 30 with Vix futures back in contango.
As well as: “the Nasdaq 100 was ‘100% bid’ Tuesday…since 1996, this has only happened 6 times, and 6 of 6 times the [Nasdaq 100] is higher 6M and 12M later with average gains of 27% and 34%,” Lee said.
U.S. economic updates set for release on Wednesday include the September ADP employment report at 8:15 a.m.; international trade balance data for August at 8:30 a.m.; the September S&P services PMI survey at 9:45 a.m.; and the September ISM services report at 10 a.m.
The ADP report sets up the marketplace for heightened nervousness when the crucial nonfarm payrolls data is published at the top of the week.
“All eyes are on the employment data on Friday, which has priced in tremendous in the future volatility in the choices market,” said Stephen Innes, managing partner at SPI Asset Management.
Stocks to Watch:
Apple is asking its suppliers to shift the production of some AirPods and Beats headphones to India for the primary time, because it seeks to diversify its supply chain away from China, Nikkei Asia reports.
Apple is talking with a number of suppliers to ramp up production in India as soon as next 12 months, the report said, citing three people conversant in the matter.
Read more here .
Economic Insight:
Oxford Economics said the evidence of the past 12 months shows that inflation has been removed from transitory. It believes supply aspects and relative demand shifts have been vital inflationary forces across advanced economies, and these pressure will subside.
“While we expect inflation to fall back, pressure has grown on central banks to be sure that this happens relatively quickly,” Oxford Economics said.
Persistently high inflation has increased the chance that expectations turn out to be de-anchored, making central banks tip towards erring on the side of an excessive amount of policy tightening.
Inflation could fall back sharply without recessions, he says. Nonetheless, in most advanced economies recessions are more likely than not, Oxford Economics said.
Forex:
ActivTrades said the dollar’s recent losses and shift in market sentiment was limited, with strong employment numbers on Friday likely supporting further aggressive Fed tightening, a scenario where the dollar would almost actually regain the front foot.
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The euro touched parity against the dollar late on Tuesday, but ING said there’s not enough “bullish push” to maintain EUR/USD above parity on a sustainable basis, because it maintains its forecast of a drop to the low 0.90 area into year-end.
“It’s hard to point to any material change within the eurozone’s outlook that will warrant a big return of market appetite for the euro just yet,” ING said.
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Sterling looks vulnerable given the U.K.’s tarnished fiscal status and after Treasury Chief, Kwasi Kwarteng, pushed back against reports he would bring forward his debt-cutting plan, ING said.
“We suspect that the sterling rebound and the dollar correction could have come far enough and will easily see cable [GBP/USD] reversing to the 1.1200 area,” ING said.
Bonds:
With higher yields across maturities, Pimco believes the case is now stronger for investing in bonds and is of the view that high-quality fixed-income markets can now be expected to deliver returns which might be far more consistent with long-term averages.
“We predict the front end of yield curves in most markets already price in sufficient monetary tightening.”
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JPMorgan said bonds are oversold, expecting peaking inflation and inflation expectations, in addition to activity weakness to likely cap yields.
It expects activity momentum to remain weak near term, while market pricing of a Federal Reserve terminal rate of 4.6% won’t be delivered.
“As activity softens towards contraction, the Fed is more likely to turn out to be more data dependent,” JPMorgan said.
Energy:
Oil prices were little modified in Europe, with investors pausing ahead of an OPEC+ meeting which could see the cartel undertake its biggest supply cut for the reason that pandemic.
Despite Wednesday’s muted moves, oil has jumped this week because the market has priced in a big cut in OPEC+ oil quotas. Analysts are girding for a cut of between 500,000 and 1.5 million barrels a day because the group seeks to halt a slide in crude prices.
“OPEC+ has to convincingly show its desire to revive prices to market fundamentals with the intention to offer meaningful support for oil benchmarks, amid the wave of demand-destroying policy tightening by central banks all over the world,” Exinity Group said.
Metals:
Gold and base metals were higher in European trading, with prices supported by a weaker dollar on hopes the Fed will adopt a looser monetary stance.
“Tighter monetary policy has been a robust headwind for base metals, with concerns demand will falter amid higher borrowing costs,” ANZ Research said.
TODAY’S TOP HEADLINES
Elon Musk Proposes Closing Twitter Deal on Original Terms
Elon Musk has offered to shut his acquisition of Twitter Inc. on the terms he originally agreed to, a sudden and unexpected comedown for the billionaire entrepreneur that would end a monthslong battle he waged to get out of the $44 billion deal.
A lawyer for Mr. Musk communicated the proposal to Twitter’s lawyers Monday, based on a replica of a two-sentence letter that was filed with the Securities and Exchange Commission Tuesday afternoon.
Icahn, Others Clean Up on Musk’s Twitter About-Face
Elon Musk’s decision to finish his war with Twitter Inc. is not just a giant win for the social-media company, but in addition for some big-name investors like Carl Icahn.
Mr. Icahn quietly amassed a Twitter stake of well over $500 million previously few months and made a large profit Tuesday after the shares shot up on news that Mr. Musk offered to shut his $44 billion purchase of the social-media giant on the unique terms, based on people conversant in the matter.
Juul Prepares to Seek Financing for Potential Bankruptcy Process
Juul Labs Inc. is predicted as soon as this week to begin discussions with lenders for financing that will carry the corporate through a possible chapter 11 bankruptcy filing, based on people conversant in the matter.
The vaping company has received inquiries from lenders and can soon formally request debtor-in-possession financing options, one in every of the people said. Such financing allows corporations to pay day-to-day expenses and remain in possession of their business while under bankruptcy protection.
Amazon Freezes Hiring in Retail Division
Amazon.com Inc. is halting hiring in its core retail division through the top of the 12 months, making it the newest big tech company to tug back on hiring because it contends with economic headwinds.
The corporate is pausing hiring for corporate roles that include tech positions in its retail business, an individual conversant in the matter said. The corporate has posted 1000’s of openings within the segment in recent months. The Recent York Times earlier reported on the freeze.
Commodity-Trading Hedge Funds Are Having a Strong Yr
Some hedge funds that trade raw materials have generated blockbuster returns this 12 months, making them amongst the foremost beneficiaries of exceptionally volatile commodity markets.
Prices for oil, natural gas, metals and grains ripped higher earlier this 12 months as economies reopened from lockdown and the Ukraine war disrupted flows of energy and raw materials.
RBNZ Continues to Raise Rate Sharply to Counter Inflation Threat
The Reserve Bank of Recent Zealand raised its official money rate by an extra 50 basis points on Wednesday, citing continued inflation pressures across the economy.
The hike takes the official rate to three.50%, and marks the fifth 50-basis-point rise in the present tightening cycle. Most economists expect the RBNZ will take the money rate well above 4.0% before it’s satisfied that inflation has been tamed.
Student-Loan Forgiveness Plan’s Cost More likely to Widen 2022 Federal Deficit
President Biden’s student-debt forgiveness plan is more likely to widen the federal budget deficit for the just-ended fiscal 12 months, in comparison with the White House’s previous estimates.
Providing as much as $20,000 in student-loan cancellations to tens of millions of Americans will cost $379 billion over roughly three many years, the Education Department estimated. That entire cost will likely be reflected as a one-time item within the budget results for fiscal 12 months 2022, which ended Sept. 30, a senior administration official said.
As Ukrainian Forces Advance, West Plays Down Threat From Russian Nuclear Weapons
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October 05, 2022 05:42 ET (09:42 GMT)
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