Breakfast Bites - Markets subdued on war escalation amid better than expected earnings from banks

Rise and shine everyone.

It’s not a happy Friday in the global macro world. The war in the Middle East seems to be escalating as evacuation has been ordered for Gaza in a possible preparation for ground invasion. This is:

• giving bonds a mild bid. Yields surged yesterday after CPI came in hotter than expected and a not great 30Y bond auction but, they are off their high’s this morning as the war gives “flight to safety” (FTS) a bid. The Yield Curve is now at 0.41%

• causing Gold to hold it’s rally at $1880/oz and bid agriculture and the US Dollar Index back above $106 - again flight to safety. Base metals remain muted on poor China data.

• causing Oil to spike. As I wrote earlier, while there is much debate as to whether real production is impacted, war in the Middle East can’t be good for oil supply and more importantly, oil transportation.

• US Equity Futures continue to trend lower after yesterday’s risk-off from the hotter-than-expected CPI report and now the news of possible escalation in the geopolitical conflict

But, it is Friday which means we have the weekly options expiries which has more often than not pushed the markets up. And most importantly, we have the big banks, Blackrock and United Health kicking off earnings season in full flow today. UMich consumer sentiment and inflation expectations out at 10am ET.

Asia and Australia

• Asian equities finished lower Friday. Losses sharpest in Hong Kong after flat CPI and trade data caused renewed concern over deflation, mainland markets also lower. Seoul and Taipei gave up ground after a solid few days. Australia and Japan closed at their day's lows. Southeast Asia mixed, India extending early losses.

• Major data from China this morning showing a mixed picture. Focus is on the CPI data decline and export data still remaining weak despite some improvement. Credit data was also not promising enough to suggest economic support:

  • Deflation threat in China with the CPI coming in at 0% YoY down from 0.1%. Core CPI came in at 0.8%. The biggest drag was from food prices that dropped -3.2% YoY.

  • PPI declined -2.5% YoY after a 3.0% drop in August. This leads the way to further deflation. While this is good global inflation, its signals subdued activity in the country.

  • In better news, China’s trade surplus increase to $77.1B improving from $68.3B. Exports and imports both declined but relatively less than previous months. Exports fell -6.2% YoY in September, better than -8.8% decline in the previous month. Imports also declined -6.2% YoY, slightly better than -7.3% fall in the previous month.

  • China credit data however, came out mixed while PBOC reasserts having ample policy room to support economy. M2 money supply slowed for seventh consecutive month to +10.3% YoY, lowest level since Mar-2022. Outstanding loan growth also fell marginally to 10.9% from 11.9%. New loans came in higher than last month but below consensus.

Europe, Middle East, Africa

• European equity markets lower. Follows broad weakness in Asia.

• Eurozone industrial production rebounded 0.6% MoM in August compared with a drop of -11% in the previous month. On a YoY basis production is still down -5.1%. worse than last month’s reading of -2.2%. Germany, Spain and France are still seeing negative readings. The improvement came from Italy and some of the smaller economies.

• Over in the UK, BoE chief economist Pill highlighted Thursday that it will be a long-drawn-out process before it will be confident in stating its tightening cycle is over. The UK economy’s slowdown suggests that a recession over the winter cannot be ruled out and this is likely causing the BoE to reconsider hiking aggressively and let higher rates work for a while.

The Americas

• Kaiser Permanente resumes talks with healthcare workers union week after strike,

• California prepares lawsuit to block Kroger-Albertsons deal

• Qualcomm cuts 1,200 job in California to reduce costs

• Ford says its offer of 23% pay rise to UAW is best it can do

• United Health delivered a double beat with improvements in their revenues and Medical Care Ratio. OptumHealth which was creating a drag on earnings also saw improved performance.

• JP Morgan also delivered a double beat. Loans were up 17% but deposits were down 4%. Provisions were lower than estimates but, net charge offs increased to $1.5B. Investment banking revenues up 8% with Assets under Management up 22%. Despite reporting $669M in net investment securities losses and $665m in legal fees, they posted a solid report.

• Blackrock Assets under Management up 11%. Revenue up 5% and Net Income up 14%. This compared to declines in the previous quarter. Operating margin was up 14%.

Quote of the Day

Calendars

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