Breakfast Bites - Wed Sep 27, 2023

Rise and shine everyone.

US equity futures are taking a breather this morning after a strong sell off yesterday. Yields are also pulling back slightly with the 10Y pulling back below 4.5% this morning, we’re seeing a bit of a relief rally in stocks. But we’re keeping an eye on the USD Index which is marching on upwards crossing 106 this morning. Gold is pulling back hard but, Crude Oil is back up. Bitcoin is higher.

The Yield Curve has steepened significantly to -0.55%. This is important - a curve steepening, particularly when the long end steepens (a bear steepener) is not great for stocks. 30Y yields hit 4.7% yesterday, highest since 2010 and trading higher than the 10Y which hit 4.56% yesterday. The 2Y note auction yesterday didn’t help the yield either and today we have another $48B in 5Y auction.

BoFA raised their Brent forecast for H2 to $91/bbl from $81/bbl and the drawdown of 828k barrels at the US’s major storage hub in Cushing has been getting some attention.

Asia and Australia

• Asian equities mostly higher Wednesday. Greater China markets outperformed on improvement in August industrial profits though property remains a major drag. Japan and Taiwan closed higher, South Korea marginally higher, while Australia recorded mild loss

• A major group of offshore creditors of China Evergrande (3333-HK ) is planning to join a court petition to liquidate if it doesn't submit a new debt revamp plan by next month. The owner / CEO has been put under police surveillance. China’s property worries seemed to be contained but, Evergrande is proving otherwise.

• Profits at industrial firms in China declined 11.7% YoY in Jan-Aug, narrowing from 15.5% decline in Jan-Jul with pace of decline improving for sixth consecutive month. Profits for August alone increased 17.2% YoY.

• Australian headline inflation climbed to an in-line 5.2% YoY in August from 4.9% in July. Increase driven largely by fuel prices, which rose 9.1% over the month.

• Edtech firm Byju's to lay off 4,000 employees in major restructuring

• Minutes for the July Bank of Japan meeting indicated ongoing broad support to maintain easing despite emerging optimism on inflation and wage prospects.

Europe, Middle East, Africa

• European equity markets mostly higher. Technology, Industrial Goods/Services and Media sectors outperform. Telecom, Insurance and Real Estate underperforms.

• Eurozone money supply growth sees larger-than-expected fall. August reading down 1.3% YoY versus 1.0% fall forecast and prior 0.4% drop. Narrower M1, which included overnight deposits, down 10.4% after 9.2% fall in July.

• German 10 Year Bund Auction pushed rates up slightly from 2.63% to 2.78%. The DAX however, remains largely flat on this.

• German GfK consumer confidence for October fell to -26.5 versus consensus -26.0 and prior -25.6. GfK highlighted increase in appetite to save was the main driver. They also added that chances of recovery in sentiment unlikely before year-end. Reasons are persistently high inflation and does not expect positive consumption to contribute to overall economic development this year.

The Americas

• The decline in US Money Supply - M2 - remained largely flat falling -3.67% YoY in August vs. -3.68% YoY in July.

• US Conference Board Consumer confidence came in weaker than expected dropping to 103.0 from 108.7. But the more significant number was the change in the Expectations Index which is now at recessionary levels. “The Expectations Index—based on consumers’ short-term outlook for income, business, and labor market conditions—declined to 73.7 in September, after falling to 83.3 in August.”

Largest short gamma position

“In the GS calculus, the market is net short the largest amount of SPX gamma in the data’s history $3.3 billion of short gamma, which increases if the tape trades lower”. Remember being negative gamma means market moves intensify.

Calendars

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