Symax Fintech Daily Market Insights 31.10.23

A Federal Reserve pause, seasonal tailwinds, an earnings-led rally. Many of the reasons that got Wall Street strategists increasingly bullish coming into the end of the year now look like wishful thinking. As Israel’s war with Hamas escalates, souring traders’ risk appetites and dragging the S&P 500 Index into a correction, some mainstay equity optimists are scaling back their positive views on what the final months of 2023 will bring. BB

The US Treasury reduced its estimate for federal borrowing for the current quarter thanks to stronger-than-expected revenues, offering some relief for investors concerned about the rapidly widening fiscal deficit. The Treasury Department cut its net borrowing estimate for the October-through-December quarter to $776 billion, against the $852 billion predicted in late July. The new projection still marks a record borrowing amount for the calendar fourth quarter. In Wednesday’s so-called quarterly refunding, dealers expect debt managers to lift coupon-bearing debt sales across the yield curve for the second straight time. BB

Markets are already stirring over the Bank of Japan statement due Tuesday. The yen jumped after Nikkei reported policymakers are considering letting the yield on 10-year government bonds rise above 1%.  If the central bank maintains its current policy of managing bond yields, known as yield curve control, the yen could face renewed selling from speculators. But major changes could invite further upward pressure on yields, possibly sending yields higher in the US and elsewhere. The S&P 500 rose and crude oil fell. BB

General Motors Co. reached a tentative contract agreement with the United Auto Workers union, bringing an end to a six-week-old strike that had upended US automobile production and cost the industry billions of dollars. The terms of the pact are broadly similar to the deals signed earlier by Ford Motor Co. and Stellantis NV, including a 25% hourly pay raise plus cost-of-living allowances over the more-than-four-year contract, the union said in a statement that confirmed an earlier Bloomberg report. BB

Despite roaring growth and a resilient job market, more middle-class Americans are worried about the state of the economy than a year ago, a Harris Poll for Bloomberg News has found. One big reason: The rapid increase in interest rates deployed by the Federal Reserve to rein in inflation. They are now expected to remain higher for longer. In the Harris poll, the latest in a series taken for Bloomberg over the past year, 57% of middle-class respondents said higher borrowing costs were having a negative impact on their household finances. Some 44% said they were stressed about the economy. BB

Inflation in UK stores fell to the lowest level in more than a year in another sign that the cost-of-living crisis is starting to ease. The British Retail Consortium said Tuesday that shop prices were 5.2% higher in October than a year earlier, down from 6.2% in September. It’s the fifth month in a row that inflation in stores has fallen, with the rate at its lowest since August 2022. The Bank of England will decide on Thursday whether to lift rates above 5.25%, with the economy suffering from tepid growth as well as lingering price pressures. BB

Germany slipped into contraction in the third quarter, while inflation slowed to its coolest level since June 2021 as the ECB’s rate hikes bite.

• Europe’s largest economy shrank by 0.1%, a slightly better-than-expected outcome, after struggling to bounceback from an energy-induced downturn last winter.
• Inflation slowed markedlythough and may fall further in coming months. That, plus growing wages, may aid a consumer-led rebound next year. Bloomberg Economics sees signs that activity may be stabilizing.
• Elsewhere, Sweden’s economy stagnated and Spain’s inflation acceleratedto the highest level since April, adding to the mixed data picture across Europe. Figures for the 20-nation euro-area are due tomorrow. BB

Alphabet’s Chief Executive Officer Sundar Pichai sought to downplay the portrayal of Google as the dominant internet search engine, saying it’s constantly challenged by rivals such as Apple. Pichai’s comments came as he took the witness stand Monday to defend his company against the US government’s antitrust claims. BB

Apple announced a new iMac, MacBook Pros and the third generation of its in-house Mac processor line, rolling out a first-of-its-kind M3 chip that boosts performance and graphics horsepower. The new chip lineup relies on advanced 3-nanometer manufacturing technology and more efficiently handles graphics processing, Apple said in a presentation Monday. New MacBook Pro models, also unveiled at the half-hour event, will run the new processors. BB

More of China’s consumers are buying Huawei’s made-in-China smartphones rather than go for Apple’s latest offering. The iPhone 15 series saw sales drop 6% in its launch month compared with the prior year, according to one market researcher, while another said Apple’s shipments were down in the third quarter. Huawei’s return to the mobile arena, with the abrupt release of its Mate 60 and 60 Pro smartphones, drew in buyers in the weeks leading up to the latest iPhone release. Huawei stunned Washington by unveiling an advanced phone processor made by Chinese chipmaker SMIC, triggering celebration in China and accusations in the US that a campaign to contain the country’s tech ascent had failed. Apple, which is set to publish earnings on Thursday, will announce two new Macs at an event later today. BB

It’s impossible to measure Xi Jinping’s popularity, but slumping property prices and high youth unemployment are enough to make many unhappy, Shuli Ren and Elaine He write. Unless the president shakes things up, China’s economy will probably fall off a cliff. BB

China’s Official PMI numbers fell in October, which comes as a slight shock as recent activity data had been firming, and this suggests that the economy is still struggling despite the better-than-expected 3Q23 GDP figures reported recently. 

China’s composite PMI dropped from 52.0 to only 50.7 – consistent with only very slow overall economic growth. Within this total, the manufacturing PMI index fell into contraction territory (49.5, down from 50.2). There was a bigger fall in the non-manufacturing index to 50.6 from 51.7, but it managed to remain in expansion territory (just). ING

Investors are gearing up for the Treasury Department’s new borrowing plan due Wednesday, only hours before the Federal Reserve’s policy statement. The quarterly refunding announcement will reveal the extent to which the Treasury will ramp up sales of longer-term debt to fund a widening budget deficit. Many bond dealers predict a refunding size of $114 billion, representing the same cadence of increases per each refunding security as laid out in the $103 billion August plan. An alternative view would be a smaller bump in longer-term debt, given the surge in yields, and greater reliance on short-maturity bills. Long-dated securities have been tumbling for weeks despite signals from Fed officials they’re “at or near” the end of rate hikes. The so-called real neutral rate — the interest rate that neither spurs nor slows the US economy — has at least doubled in the aftermath of the pandemic, say a majority of  respondents in the latest Bloomberg MLIV Pulse survey. They also said that both the S&P 500 and the Nasdaq are overvalued. BB

Benjamin Netanyahu ruled out a ceasefire with Hamas and dismissed calls for him to quit over security failures in the Oct. 7 attack. The region is seeing more unrest: Israeli forces exchanged fire with Hezbollah across the Lebanese border and Saudi Arabia’s military is on high alert following deadly clashes with Yemen’s Iran-backed Houthi rebels. BB

JPMorgan’s Marko Kolanovic said Wall Street projections for double-digit earnings growth are “divorced” from risks posed by tightening financial conditions and rising geopolitical tensions. BB