Breakfast Bites - It's Fednesday!

Rise and shine everyone.

It’s Fednesday. Today is the Fed’s rate decision at 2pm ET and while everyone’s almost certain that the Fed will skip a hike, we never say never. But, this then opens the door for a hike in December, because they still have one hike projected for this year. They will likely want to keep the pressure on so that financial conditions remain tight. We’ve seen conditions tighten considerably in the last 3 months.

The other rate decision we’re watching today is Brazil at 5:30pm ET. Emerging Markets were set to outperform on the basis that they were going to start to ease. Brazil has cut rates twice since August but, we now view the easing decision to be a tough one and Central Banks will think twice before cutting.

Finally, tomorrow we have the Bank of England’s rate decision which we think will be a hold.

In the US, the other item everyone’s watching is the Treasury’s Refunding Announcement out at 8:30am ET. We also get JOLTS and ISM numbers later today.

In case you missed it… I was on Bloomberg TV this morning.

US Equity Futures are trading lower this morning after yesterday’s month-end mark up. The SPX still closed lower for the third straight month, something we didn’t even see during the bear market of 2022. Bonds yields are recovering from yesterday’s pullback and the yield curve is at -0.16%. Gold has pulled back to $1992/oz, while oil is seeing some strength after yesterday’s strong pullback. The US Dollar index is higher at 106.83 as of this morning.

Asia and Australia

• Asian equities traded mostly higher Wednesday albeit in a subdued session. Region led higher by a strong surge in Japan post yesterday's BOJ moves. Greater China mixed as Shanghai gained while Hong Kong rallied to the flatline. Strong gains for Seoul and modest gains for Taipei. Australia seeing a strong day.

• The People’s Bank of China drained a net 109 billion yuan ($14.9 billion) from money markets Wednesday by doling out a smaller amount of new short-term loans than was maturing. This move came during the month-end funding demand. Bloomberg reports that at one point the overnight rate had surged to as high as 50% in isolated transactions Tuesday. But the PBoC has brushed this off saying it’s a one-time phenomenon.

• China’s Caixin Manufacturing PMI number dropped to 49.5 in October, versus consensus 50.8 and 50.6 in prior month, back into contractionary territory after expansion in August and September, dragged by fresh fall in production amid slower growth in overall sales dampened by weak foreign demand. The Caixin survey covers a narrower range of companies and more export oriented companies so this decline in activity is reflected in new export orders dropping for 4 months in a row.

• Asia manufacturing activity contracted again in October as cost pressures start to rise again, particularly oil:

  • South Korea reading at 49.8 from 49.9 and production outlook much improved;

  • Taiwan's PMI at 47.6 from 46.4, slowest contraction since March.

  • Thailand PMI at 47.5 from 47.8 in September

  • Vietnam 49.6 from 49.7

  • Malaysia PMI unchanged at eight-month low 46.8

  • Indonesia at eight-month low but still expansive 51.1 from 52.3

  • India PMI unexpectedly declined but was still an expansive 55.5 down from 57.5

Europe, Middle East, Africa

• European equity markets slightly higher, though off the best levels. Follows mostly positive close on Wednesday.

• The UK’s Nationwide measure of house prices unexpectedly increased in October with a 0.9% rise versus expectations for a 0.4% drop and unchanged reading in September. YoY however, there’s been a drop in prices to 3.3% from prior 5.3%. This acceleration is not however, what the BoE wants to see before their rate decision as a cooling housing market is imperative for them to hold. I doubt however, this will change their decision for tomorrow.

• UK manufacturing PMI revised down to 44.8 versus flash 45.2 and prior 44.3. Manufacturing activity still entrenched at weak levels, but possible signs of stabilization after production dropped for eight consecutive months.

The Americas

• WeWork files for bankruptcy and share fall 42% in pre-market trading. Before they botched their first IPO, the company was valued at $47B. If you haven’t watched “WeCrashed”, I’d highly recommend - it’s the story of Adam Neumann, and WeWork from AppleTV+.

• Paycom’s stock plunges 32% as payroll company downgrades projections. The company expects $420 million to $425 million in revenue for the fourth quarter, while analysts were modeling $452 million. Once again, the theme of being punished for even the slightest bad news is playing out.

• Spirit AeroSystems on Wednesday cut its full-year forecast for 737 fuselage deliveries, one of its biggest programs, as it grapples with a production defect involving improperly drilled holes on the aft pressure bulkhead. The expect to deliver 345 to 360 narrow body fuselages in 2023, compared with its prior forecast of 370 to 390 units.

Chart of the Day

I created this chart from data on the Fed’s website, so quite likely this is what they are watching

. As of 29 September 2023, financial conditions have tightened considerably and this should have a negative impact on GDP for the fourth quarter.

Calendars

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