Stocks Shrug off Rising Yields, Earnings Up

Up in the Air; Pricing Risk Still Difficult

President Biden will visit Israel tomorrow “to stand in solidarity in the face of Hamas’s brutal terrorist attack”, before travelling onwards to Jordan. Quite what the weak-minded, weak-willed doddery old fool hopes to achieve is beyond me. America under Biden has become a byword for failure; from Afghanistan to Gaza, from the Texas border to Ukraine… I think the point to make here regards the ‘markets’ is just how bad investors are at pricing geopolitical risk, and how hard it is to try to price in the tail risks of a wider conflict – no one really knows if it escalates, if Iran gets involved etc etc. We don’t yet know how this plays out, so we are discounting lots of potential outcomes and working through it day by day. As for oil, which is more sensitive to the risks of a conflict, geopolitical risk premia don’t tend to dominate for long but nevertheless we saw crude oil futures hit their highest in two weeks yesterday.

Markets Cautiously More Positive

Asian stocks rose following the solid session on Wall Steet, whilst European indices were generally higher in early trading on Tuesday morning. The S&P 500, Dow and Nasdaq all climbed around 1% on Monday despite a rise in Treasury yields. Earnings thus far – only about 7% of SPX companies – looking good with about four-fifths beating expectations. RBC raised its 2023 S&P 500 earnings per share outlook to $223 per share from $220. It also hiked its 2024 forecast to $232 per share from $229. The new EPS forecasts imply that the S&P 500 could surpass 4,700 by year-end 2023 and 5,300 by year-end 2024. Bank of America (BAC), Goldman Sachs (GS), Johnson & Johnson (JNJ) report later.

Market Provocations Calming

Treasury yields firmed up again as some of that haven bid seen on Friday unwound into a kind of unclenching sigh of relief on Monday. The US10yr yield was at 4.75%, its highest level in a week as some of that geopolitical premium came off. Gold has drifted back to around $1,920 after running into the 200-day SMA resistance at $1,930 yesterday. Oil and the US dollar also fell yesterday. DXY futures are a bit firmer this morning above 106 but we see some bid coming through early doors for major peers since 7am. Bitcoin jumped to $30k on fake news the SEC had approved a spot ETF before retracing the move back to $28k as BlackRock said the application for the product was still under review.

UK and NZ Still Wait for Data

UK wage growth cooled only a little bit to 8.1%, close to the record high. It probably doesn’t move the BoE needle too much – sterling trading lower against the dollar at $1.2170 after nearing $1.2220 yesterday. RBA meeting minutes were hawkish, noting that interest rates could rise again “should inflation prove more persistent than expected”. The board looked at lifting rates earlier this month but determined “there had not been sufficient new information”.

US Still Proving Robust

Today, US retail sales figures will offer a glimpse on the health of the consumer, which is so far proving far more resilient than first assumed. American consumers spent more than expected in August, with retail sales up 0.6%, but this was mainly down to higher gasoline costs and the underlying spending on goods slowed. Expectations for spending to be +0.3% today. October’s Empire Manufacturing Index was back in contraction at -4.6 vs. -6 est. & +1.9 prior … new orders and delivery times fell into contraction; shipments fell sharply but still expanding, employment was back in expansion.

USDJPY – looking for another attempt at 150?