Breakfast Bites - Fedspeak could lean hawkish

Rise and shine everyone.

Yesterday, market remained muted after a softer print in US Retail Sales data suggesting that consumer spending may have reached its peak. We’ve been discussing that the consumer is certainly becoming more discerning in their choices, and spending less on goods.

For the US, we have initial and continuing claims data. If you recall, the 4-week average has been steadily moving up, and continuing claims have risen for seven months in a row. We also have Industrial Production numbers which is forecasted to come in negative.

And just in case you were bored, we have 5 Fed Speakers today with multiple appearances from some. The last two weeks has considerably wiped out tighter financial conditions so it shouldn’t come as a surprise if we hear some hawkish Fedspeak today.

US Equity Futures are trading largely flat this morning, even with yields pulling back marginally from yesterday’s bounce. The Yield Curve has been relatively stable, now at -0.38%.

Gold, Oil and Copper are perking up with morning, after Oil saw a pull back yesterday on rising US Crude Inventories. The US Dollar and Bitcoin are marginally weaker.

Asia and Australia

• Asian equities are mixed. Japan, India and South Korea are marginally higher, while Australia pulled back. But, the biggest decline is China (-0.7%) and Hong Kong (-1.4%).

• China’s pullback is likely the result of data on Home Price Data. October New Home Prices decline: -0.4% MoM vs. -0.3% prior. This was the fastest pace of decline in 8 months. Prices fell in 56 / 70 cities MoM.

• Australian employment rose by 55.0K in October, more than double consensus forecast for a 24.0K gain. Unemployment rate rose to an in-line 3.7% from 3.6%, tracking RBA's year-end forecast of 3.75%.

• Mixed data coming out of Japan. Exports came in at +1.6% YoY lower than last months’ 4.3%. While imports fell by -12.5% YoY, improving from last month’s -16.3%. Somewhat surprising given the weakening in Yen over the past month. Machinery Orders saw an unexpected increase to -2.2% YoY vs. -7.7% last month. Trade Balance came in better than expected.

• China PBOC sets Yuan reference rate:7.1724 v 7.1752 prior [strongest CNY fix since Sept 27th].

• Alibaba comes in with a beat: Reports Q2 (Sep) earnings of RMB 15.63 per share, excluding non-recurring items, RMB 0.35 better than the FactSet Consensus of RMB 15.28; revenues rose 8.5% year/year to RMB 224.79 bln vs the RMB 224.48 bln FactSet Consensus. Announced their first annual dividend distribution for FY 2023, of approx. $ 2.5bln.

Europe, Middle East, Africa

• European equity markets mostly lower. DAX outperforming. Gainers: - Utilities [SX6P] +0.8%- Real Estate [SX86P] +0.6%- Industrial Goods [SXNP] +0.6%Decliners: - Oil & Gas [SXEP] -1.0%- Personal & Household Goods [SXQP] -0.7%- Basic Resources [SXPP] -0.6% **

• Decliners in UK Stocks led by Burberry that reported this morning, missing estimates and lowering guidance. The CEO discussed a challenging macro environment in all regions, with demand deteriorating particularly from China, and largely in September. They say they are unlikely to achieve revenue guidance if slowdown in luxury demand globally persists.

• UK interest rate expectations with money markets now pricing in the first BoE rate cut as early as March after marked slowdown in headline inflation.

The Americas

• Total US Retail sales declined 0.1% MoM in October and Sales, excluding autos, increased just 0.1%. The retail sales data are not adjusted for inflation, so these weak changes signify a weakening in demand for goods.

• US PPI for final demand declined -0.5% month-over-month and was up just 1.3% YoY versus 2.1% in September. Excluding food and energy, the index for final demand was unchanged month-over-month and up 2.4% YoY versus 2.7% in September. While welcome news for inflation and Fed Policy, the declining prices also means lower input prices and therefore, declining pricing power for retailers.

• Walmart earnings showed a marginal beat. Q3 $1.53 vs $1.52 FactSet Est; Revenue $160.8 bln vs $159.65 bln FactSet Est. Sees FY24 EPS at $6.40-6.48 lower than the $6.50 est. Shares trading lower.

Chart of the Day

The recent run in the Russell 2000 has been largely driven by regional banks. KRE led the price increase in the last few sessions. But, warnings abound that there will be increases in capital requirements which will put pressure on profits and delinquencies continue to inch up. The BTFP usage continues to increase and we’re wary that this price increase is sustainable.

Calendars

(news taken from Reuters, FT, Bloomberg; Calendar from Trading Economics)