Stocks advance as Treasuries hit highs in choppy month-end trade

Snapshot

Crude oil is down and the Dollar is down.

REAR VIEW

: Goolsbee & Barkin are undecided about the next meeting.

Coming Soon

:

The following are some of the most effective ways to reduce your risk.

Tokyo CPI; Japanese Unemployment rate & Retail Sales; German Retail Sales &Unemployment Rate; UK GDP. French, Italian & EZ CPI. US PCE. Chicago PMI. UoM Sentiment.

Speakers

Barkin and Williams from the Fed; Lagarde of the ECB

Earnings

Carnival Corp.

Newsquawk 2 in 1:

MARKET WRAP

Stocks rose on Thursday, with Nasdaq testing 14,950. Communication stocks led the way, but Tech and Consumer Discretionary also saw gains, as did the majority of other sectors. Utilities, however, saw a sharp decline. The Energy sector also lagged, even though it was flat. However, crude oil prices were pronouncedly weak, despite being still high in the overall scheme of things. Treasury curve bull increased, reducing some recent bond weakness. The economic data was mixed. Jobless claims held at around 200k, showing that the cooling labour markets is not accompanied by job losses. Final revision of Q2 GDP remained at 2.1%. However, consumer spending was revised lower. Given that it is Q2 data, it is considered stale. Goolsbee, Barkin and Cook have yet to decide what they will do at the next Fed Meeting. Powell and Cook did not make any comments on monetary policy. The Dollar underperformed due to the decline in UST yields, while the Australian dollar was supported by the rise in stock prices. However, the Loonie did not benefit from the drop in crude oil prices.

US

The following are some of the most effective ways to increase your ROI

The headline Q2 GDP was not revised, remaining at 2.1%. However, the Sales metric, which was expected to remain unchanged, was revised to 2.1% down from 2.2%. The deflator, however, was revised to 1.7% down from 2.0%. Consumer spending was revised down to 0.8%, from 1.7%. This is notable given that the consumer's strong performance has helped the economy. PCE was unchanged at 2.5% in Q2. The report noted that although consumer spending was revised down sharply, this was partially offset by revisions upwards for nonresidential investment, exports and inventory investment. Imports, which are subtracted from GDP in the calculation, were also revised lower. It is stale data and follows large revisions from the second release. We will receive the August PCE & Consumer Spending Report on Friday to get a more current picture of consumer spending and inflation.

Claims of JOBLESS

The initial jobless claims for the week ending September 23rd were 204k. This is the same as the previous 202k but below expectations of 215k. The last two weeks' prints of around 200k are a sign that, although the labour market is cooling, there have been very few layoffs. The BLS survey period ends on 16th September, and the continued claims data for that week was 1.67mln. This is in line with previous 1.658mln. Initial claims: the non-seasonally adjusted claims remained unchanged at 175k. Seasonal factors expected a decline of 3.8k compared to the previous week. Oxford Economics predicts that layoffs will increase as the economy slows down, but they expect job losses to remain modest despite their forecast of two quarters with negative growth.

Home Sales Pending

71.8 (prev. Pantheon Macroeconomics added that mortgage applications will fall even further in September. The PM also noted that 'the continuing back-up of Treasury yields has driven the rate on 30-year conventional mortgages to 7.41%, around 110bp higher than the recent lows in the spring. This squeezes out any remaining discretionary demands'. Bowman, who spoke at the end last week, said that despite the Fed's slowness to acknowledge the renewed deterioration in the housing sector, it appeared to be rebounding. But PM said, "it's not, and it won’t be until mortgage rates drop considerably."

FED

:

Goolsbee

On Thursday, Goolsbee spoke extensively and said that some analyses show inflation will reach target soon 'without any further policy tightening,' with only a slight slowdown in the growth. Goolsbee also noted that long-term inflation expectations were 'well-anchored', and could help lower inflation by causing 'less economic suffering' than before. The Chicago President said that if the Fed does not see any progress in the area of prices, it will be forced to increase restraint. He added that he would make a decision at the next Fed meeting. Goolsbee also said he was still trying to understand why the long-term interest rates were increasing. If long rates continued to rise, then the Fed would have to consider this as a tightening. He did say that he was pleasantly surprised to find out that the monetary tightening has not caused broader problems with financial stability.

Barkin (2024 voter)

He noted that credit card data would be a good alternative in the event of government shutdown. Recent data on consumer expenditure is also stronger than expected. Barkin said it is understandable that spending by lower and middle-income households has slowed down. The economy is still growing, but at a slower pace than earlier this year. In terms of policy, he said that it was too early to predict what will happen next, and to determine whether another rate hike is necessary. He stressed that the economy would dictate what the Fed decided on. Barkin said it's hard to imagine the inflation rate easing much when the economy is strong, but that he doesn't see any problems in the labour market.

Fixed Income

T-NOTE Z3 FUTURES SETTLED AT 107-27+, 9 ticks higher.

Treasuries first stretch to new yield heights amid mixed US Data before reversing back to session lows. 7yr auction had a weaker than average performance

At settlement: 2s at -7.7bps, 3s at -7.8bps, 5s at -7.4bps, 7s at -5.8bps, 10s at -4.5bps, 20s at -2.4bps, and 30s at -2.4bps.

INFLATION BREAKEVENS

10yr BEI - 4.1bps, 5yr BEI - 3.1bps, 30yr BEI -4.7%,

THE DAY

T-Notes traded sideways in APAC on Thursday. 107-19 marked a base before Wednesday's session high of 107-15+. The contracts made a slight recovery at the London Handover. They peaked at 107-27 during the decline in German state-level CPI data, before better selling and the long end taking the lead resumed. EGBs were heavy but this was partly due to USTs catching up from late Wednesday. There was also some BTP pressure added on the latest Italian Government Debt/GDP Forecasts. T-Notes slowly sold off during the European morning after recently printing session lows at the NY Handover of 107-14. The release of German CPI data showed a mild rebound from the lows. 4.6%).

T-Notes bounced to interim highs at 107-25, before falling to new lows at 107-07. T-Notes, however, saw a gradual upward trend once Europe had left for the day. The lack of fundamental catalysts allowed the price to move up at marginal new highs.

7YR AUCTION

The indirect demand slowed down, resulting in a 7-year note auction that was weaker than the average. The 0.3bp tail wasn't as strong as 2bp of stop-through or the average on screws. The Bid-to-Cover also fell below the six-auction average and the previous auction, while Dealers took a higher-than-average 14,6% of the auction. Directs did, however, increase their take from the previous and average to 19.9%. However, the step-back from indirect bidders from 75.3% to 65.5% left for an auction that was rather dull.

STIRS

:

SR3Z3 +3.0bps at 94.550, H4 +7.0bps at 94.810, M4 +9.0bps at 95.080, U4 +11.0bps at 95.395, Z4 +11.5bps at 95.670, H5 +10.0bps at 95.850, M5 +8.5bps at 95.950, U5 +7.5bps at 95.995, Z5 +6.5bps at 96.010, Z6 +3.5bps at 95.990.

Volumes fell to USD 1.388tln (down from USD 1.561tln) on Sep 27th, the biggest one-day drop on record. SOFR rose to 5.32% from 5.31%.

Demand for NY Fed RRP Ops at USD 1.453.2tln (prev. Demand for NY Fed RRP op at USD 1.453tln (prev. 100).

Volumes increase to USD 99 billion from USD 96 billion as of September 27th.

US increases the size of 6-, 13', 26', and 52 week bills by USD 5bln each, 2bln each, and 2bln respectively. 13- and 26weeks will be sold on October 2nd; 6-weeks and 52 weeks on October 3rd. All to settle on 10th.

CRUDE

WTI (X3) SETTLED US$ 1.97 LOWER, AT 91.71/BBL. BRENT(Z3) SETTLED US$ 1.26 LOWER, AT 93.10/BBL

The market paused for a moment on Thursday, despite the Dollar's decline. Oil prices fell from their fresh YTD highs.

WTI and Brent Futures continued their Wednesday rally, reaching new highs of USD 95.03/bbl et 97.69/bbl in the APAC session, before easing off from there. The focus was on Russia, as Energy Minister Shulginov said that the fuel export ban would continue until the domestic market stabilizes. The Kremlin said on Thursday that they had not spoken to OPEC+ about a possible increase in oil supplies as compensation for their fuel export ban. Reuters also reported that Russia was selling oil to India for close to USD80/bbl, USD20 above the Western price cap, after having risen above it in July. Shell (SHEL LN), according to Reuters, is expected to restart its Pernis refinery unit (400k BPD) by September 25th. The unit was closed due to a gas leak. The US Interior Department will release its 5yr offshore drilling plan this Friday.

EQUITIES

CLOSURES

: SPX +0.59% at 4,299, NDX +0.84% at 14,702, DJI +0.35% at 33,666, RUT +0.87% at 1,794.

SECTORS

Communication Services (+1.16%), Materials +1.04%; Consumer Discretionary (+0.97%); Real Estate (+0.85%); Technology +0.69%; Financials (+0.69%); Health (+0.48%); Industrials (+0.43%); Consumer Staples (+0.25%); Energy (0.1%); Utilities (21.9%)

EUROPEAN CLOSES

: DAX +0.70% at 15,323, FTSE 100 +0.11% at 7,601, CAC 40 +0.63% at 7,116, Euro Stoxx 50 +0.76% at 4,162, IBEX 35 +1.02% at 9,426, FTSE MIB +0.54% at 28,163, SMI +0.35% at 10,920.

STOCK SPECIFICATIONS

:

Micron (MU)

The next quarter's profit forecast was low. The revenue outlook surpassed expectations, and earnings exceeded.

Workday (WDAY)

Cut its medium-term growth rate of subscription revenue view. Berkshire Hathaway has sold an additional 4.61mln Berkshire Hathaway shares.

HP Inc (HPQ)

The sales of shares on Monday and at the end of September have been boosted.

Accenture PLC

The revenue forecast for FY is not as optimistic, both in terms of profit growth and revenue. Although it beat its EPS and increased its quarterly dividend by 15 percent.

CarMax (KMX)

The demand for used vehicles has weakened and the company's profit is down Y/Y. KMX highlighted this by adding that it purchased 14.9% fewer cars from consumers and dealers Y/Y due to steep market depreciation.

Jefferies (JEF)

Earnings missed expectations, and combined IB revenue and capital markets revenue was also below expectations. In a commentary, the exec expressed increasing optimism that the cycle has come out of its bottom and momentum will continue in IB.

Lululemon (LULU)

Teaming up with

Peloton

on a five-year deal.

GameStop (GME),

Board elects Ryan Cohen as president and CEO with immediate effect

AGCO (AGCO),

Buy

Trimble (TRMB)

Assets worth USD 2 billion to boost agricultural technology

Jabil (JBL),

Revenue was below expectations, despite a beat on core earnings. Next quarter's profit outlook was better than expected, but revenue was low.

Chico's (CHS)

Sycamore Partners will acquire CHS for USD 7.60/shr or USD 1bln in cash. CHS closed at USD 4.61/shr on Wednesday.

Stratasys SSYS

Explore strategic alternatives to terminate the merger agreement

Desktop Metal (DM).

.

Nvidia's (NVDA)

According to WSJ the French offices of the company were raided as part of a cloud computing competition inquiry. This is the first major regulatory scrutiny that the firm has experienced since it became the leading supplier for AI chips.

UAW

According to Reuters, the UAW union has said that it may strike on Friday at other Detroit Three automotive plants (STLA F GM). This is if labour negotiations do not make any serious progress. UAW wants to negotiate a pay increase of 30% with US automakers, instead of the 40% it originally requested. UAW then noted that it had submitted a counter proposal to STLA, on Thursday.

US FX WRAP

The Dollar

The dollar lost some of its gains in the past week. It fell from highs of around 106.750 down to lows at 106.02, and found support near the round 106 handle. The dollar's decline coincided with the sharp drop in front-end rates, while risk appetite was high with all major US indexes rising. The US GDP data for Q2 (stale), however, saw the final revisions. Consumer spending was revised lower but headline figures were not changed. The number of jobless claims has remained at around 200k, indicating that the slowing labour market has not been met by a significant reduction in jobs. Goolsbee's comments on Fed Speak were neutral, warning that the Fed was doing too much while also being ready to do more when needed.

The Euro

The EZ yields were much higher than US yields as rate differentials supported them on Thursday. Core inflation fell to 4.5%, from 5.5%. The M/M was on par with expectations, and prior at 0.3%. However, the HICP YoY was lower than consensus of 4.5% and was down from 6.4%. Nagel said that ECB could require further hikes if the data indicates the need for more steps, but he doesn't know yet where the peak is. His base scenario is the ECB would end this cycle with a softer landing for the economy.

The Yen

The currency has firmed up with falling UST yields, causing USD/JPY to fall from highs at 149.63 down to 149.16. However, it remains elevated near YTD peaks. Many are still focusing around the round 150 level. PCE and consumer spending data due on Friday could be the next catalyst. If USD/JPY moves above 150, the focus will be on the October 2022 level of 150.66. This is ahead of the previous 32-year high of 151.94.

The Swissy

The Dollar also strengthened versus the Swiss Franc, with USD/CHF dropping from highs of 0.9216 to lows 0.9148. This was also a result of the movements in yields. However, EUR/CHF remained unchanged.

Gold

The yellow metal, however, continued to show weakness, despite the weakening Dollar and yields. It hit a 6-month low as the PCE data for Friday is expected.

Cyclical currencies

AUD was the star performer, rising from lows at 0.6345 up to highs at 0.6432. This helped offset the weakness that had been seen in the previous two trading sessions. NZD, GBP and other currencies also showed some gains but it was the Antipodeans that were the most impressive. Both were boosted by the risk sentiment. GBP was also up against the Dollar, but marginally weaker versus the Euro. CAD was, however, the worst performer in the cyclical group, as the sharp declines of oil prices offset the gains from a lower dollar and increased equities.

EMFX

The results were mixed. LatAm currencies were mostly firmer, except for BRL, which was flat. MXN and CLP saw gains. COP's gains ended a 5-day losing streak despite lower oil prices on Friday, while CLP benefited from the rise in copper prices. The IGP-M index in Brazil was on par with expectations. BCB Chief Neto said that the bar to accelerate rate cuts has been raised. MXN also firmed up versus the Dollar, although it showed little reaction after Banxico. This was ultimately a hawkish position (maintaining the guidance and raising inflation forecasts for the entire horizon). TRY also saw significant weakness following the minutes of the last meeting, in which it was noted that the direct effects from tax increases have been largely neutralized and that the monthly inflation trend is heading downward.

BANXICO

Banxico made a generally hawkish move by keeping the rates at 11,25%, which was in line all analyst predictions. Analysts who were hoping for a more dovish adjustment were disappointed by the decision to keep the guidance at the current level ("it considers it necessary to maintain reference rates at their current levels for an extended time"). If Banxico were to adopt a dovish slant to its guidance, perhaps to signal that rate cuts would be coming in the near future, it would align Banxico with other LatAm central banks. Both Chile and Brazil are currently on an easing cycle. Banxico maintains that inflation risks are more positive than negative, as shown in the table. It also increased its inflation forecasts for the entire forecast period (apart from Q3 of '23), indicating the fight against inflation is still ongoing.