MARKET WRAPS
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Employment Trends Index for October
Today's Top Headlines/Must Reads:
- These Funds Offer a Way to Lock In High Bond Yields
- Foreign Firms Pull Billions in Earnings Out of China
- Markets Got an Unexpected Boost From Washington. Will It Mark a Turning Point?
Opening Call:
Stock futures nudged higher early on Monday, as hopes the Federal Reserve has finished raising borrowing costs continued to underpin sentiment.
The benchmark 10-year Treasury yield at one point on Friday dipped below 4.5%, however, the new week saw yields pick back up to 4.59%, and this is somewhat constraining equity bulls' newfound optimism early on Monday.
"Equities are playing second fiddle as Treasury bonds are unquestionably the primary drivers, with the S&P 500 merely tagging along for the ride, " SPI Asset Management said.
"Whether the recent rebound in bonds can be sustained holds significant implications. This week's bond auctions will play a crucial role, and the upcoming CPI release later this month will be decisive significantly, as it might eliminate the possibility of another rate hike entirely."
Premarket Movers
Berkshire Hathaway third-quarter operating earnings surged 40% to a record $10.8 billion after taxes. Its class B shares rose 0.5% in premarket trading.
KKR is poised to acquire Telecom Italia's fixed-line network for more than $20 billion. Telecom Italia shares dropped more than 3% in Milan.
NIO gained 3%, building on a big runup Friday.
Tesla rose almost 3% before the bell. Tesla is boosting factory pay in Germany amid an aggressive unionization drive.
Friday's Post-Close Movers
Astra Space disclosed in a regulatory filing Friday that it was considered in default on its senior secured note because it didn't meet the minimum cash-on-hand requirement. Under the terms with investors, the company must have at least $15 million in cash or equivalents. Shares fell 6.3%.
Energy Fuels posted a surprise profit of 7 cents a share, when analysts polled by FactSet were expecting a per-share loss of 3 cents. A large sale of uranium to a U.S. nuclear utility accounted for a portion of the earnings. Shares rose 2%.
Kaixin Auto said its sales fell 43% in the first half of 2023, to $18.9 million, which the company said was caused by lower sales of used cars. The company posted a narrower loss of $4.5 million, compared with a loss of $70.6 million in the first half of 2022. Shares sank 13%.
Forex:
The dollar has very little prospect of rising following Friday's weaker-than-expected jobs data, though it should stay steady this week due to a lack of major data, Commerzbank said.
"Based on monetary policy the dollar's upside potential is more or less used up and the market prices in faster cuts than the Fed signals with its dots," it said, referring to the Fed's interest-rate forecasts.
Weaker inflation and economic data will put more pressure on the dollar, while the prospect of another increase in interest rates in December is now "minimal."
BNP Paribas Markets 360 said carry is looking increasingly attractive in foreign currency markets .
With rate spreads wide and the U.S. economy not being in a recession, two of the analysts' three preconditions have been met to re-enter into carry opportunities.
Bonds:
The bullish momentum in bond markets and aggressive rate cut pricing is in for a reality check amid little data and a raft of central bank speeches due this week, Commerzbank Research said.
"The bullish momentum is in for a reality check after Friday's payrolls triggered another leg of bullish Treasury steepening."
The series of weak U.S. data whetted the market's appetite for significant interest-rate cuts in 2024 with more than three 25 basis-point cuts priced in for the Fed and almost four for the European Central Bank, Commerzbank said.
Generali Investments said U.S. credit indices could be more resilient than their eurozone counterparts in the event that war in the Middle East becomes more pronounced.
U.S. credit indices have a larger share of energy bonds than eurozone indices, and fewer financial bonds which could be impacted by weakening economic activity.
Energy:
Oil prices rose more than 1% after Saudi Arabia and Russia said they would keep cutting supply until the end of the year.
Saudi Arabia will continue to cut supply by one million barrels a day, while Russia will keep cutting 300,000 barrels a day, the two countries said in separate statements Sunday.
"The confirmation from these producers that they would continue with cuts shouldn't come as too much of a surprise," ING said.
However, the focus will be on whether the cuts extend into 2024. The Dutch bank expects the oil market to move into surplus in the first quarter.
Hong Leong IB said oil prices may remain in the $80/bbl-$90/bbl range in the medium term.
It reckons OPEC+ continued production cuts coupled with the potential heightening of geopolitical risk premium amid the Israel-Hamas conflict may lift oil prices, which will translate to a favorable operating environment for oil and gas companies.
Slower U.S. oil production growth as well and impending U.S. strategic petroleum reserve restocking activities may also support higher oil prices, it added.
Metals:
Base metal prices rose, while gold ticked lower, with traders looking toward risk assets.
"The macro environment is bullish following last week's dovish Fed and softer job numbers," Peak Trading Research said.
"Bond markets are now pricing a low 10% probability that the Fed will hike again this cycle. This dovish shift is good for risk assets and a bullish tailwind for our commodity markets."
TODAY'S TOP HEADLINES
Telecom Italia Board Accepts KKR's $20 Billion Offer for Network Assets
The board of Telecom Italia SpA has approved the sale of its fixed-line network to KKR & Co. for more than $20 billion, part of a plan by the former monopoly to reduce increasingly unmanageable amounts of debt.
The Italian telecommunications company said late Sunday that it had voted 11-3 to accept the binding offer by the U.S. private equity group for Telecom Italia's fixed-line and other assets.
LVMH to Buy Eyewear Brand Favored by the Stars
PARIS-LVMH Moët Hennessy Louis Vuitton has agreed to buy Los Angeles-based eyewear maker Barton Perreira, part of the luxury conglomerate's push to extend its reach to goods with mass-market appeal.
Eyewear has emerged in recent years as one of the first purchases that aspiring luxury consumers make before moving on to more expensive items such as handbags. That is prompting LVMH and other luxury-goods companies to wean themselves off licensing agreements with third-party manufacturers and develop in-house eyewear operations.
Bain Close to Buying Guidehouse in $5 Billion Deal
Bain Capital is close to acquiring Guidehouse, a consulting firm that advises government organizations and businesses, in a deal valuing it at $5.3 billion including debt.
An agreement could be announced as soon as Monday, according to people familiar with the situation, barring any last-minute delays.
Tesla Raises Wages for German Workers Amid Union Pressure
BERLIN-Tesla is boosting factory worker pay in Germany amid an aggressive unionization drive, a move that comes as Chief Executive Elon Musk may face similar organizing attempts in the U.S.
Tesla's management in Germany late last week unveiled a package of wage increases for workers during Musk's visit to the so-called Gigafactory on the outskirts of Berlin, according to people familiar with the matter. Musk also promised the assembly plant would build its next-generation vehicle.
BOJ Gov. Ueda Suggests Low Possibility of Negative Rates Ending This Year
NAGOYA, Japan-The likelihood that the Bank of Japan will end negative interest rates in the immediate term is low, Gov. Kazuo Ueda suggested Monday, given uncertainty over the outlook for consumer prices and wages.
"Theoretically speaking, [abolishing the negative-rate policy] can happen at any meeting," Ueda said at a news conference Monday. "But if you ask whether it can happen this year, we only have less than two months left, although I cannot say that such a possibility is zero."
How Russia Games Oil Sanctions for Big Profits
A Western price cap on Russian oil meant to curb Moscow's war spending is increasingly losing its punch.
The latest evidence: Oil and gas tax revenue to the Russian budget in October more than doubled from September and rose by more than a quarter from the same month last year, according to data released Friday. That represents a stark turnaround from the beginning of the year when energy revenues tumbled.
Blinken Rushes to Reassure Anxious Arab Allies in Surprise Trips to West Bank, Iraq
BAGHDAD-The U.S. is rushing to support Middle East leaders facing domestic turmoil over the Israel-Hamas conflict, with Secretary of State Antony Blinken making two surprise visits Sunday to the West Bank and Iraq, as the Biden administration comes under pressure to secure a pause in fighting and ease regional tensions.
The unannounced stops, first to the West Bank city of Ramallah, and then, to Iraq's capital, Baghdad, followed a summit of Arab leaders Saturday in Jordan, where Blinken reassured Middle East allies that the U.S. would work to keep the conflict from spreading and help Palestinian civilians caught in the unfolding humanitarian crisis. Blinken departed Baghdad late Sunday for Ankara, where he was expected to hold discussions with his Turkish counterpart about humanitarian aid and the collective interest in preventing a broader conflict.
Escalating Militia Attacks on U.S. Troops Risk Washington-Tehran Confrontation
When a drone laden with explosives was found late last month lodged in the upper floors of U.S. barracks in Iraq, Pentagon officials quickly realized how close the suspected militia-launched weapon came to killing American personnel.
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11-06-23 0618ET
