MARKET WRAPS
Watch For:
Canada Wholesale Trade for August; Canada Manufacturing Survey for August
Today's Top Headlines/Must Reads:
- A Recession Is No Longer the Consensus
- If the Economy Is So Strong, Why Are Consumer Stocks Tanking?
- Home Sales on Track for Slowest Year Since Housing Bust
Opening Call:
Stock futures were modestly higher on Monday as tensions in the Middle East and wariness over the third quarter corporate earnings season had traders in a tentative mood.
Hargreaves Lansdown noted that the war between Israel and Hamas was just another geopolitical fracture that, alongside the Ukraine/Russia war and continued tensions between the U.S. and China, could damage global economic growth.
Fundstrat said it was understandable that investors are wary given the geopolitical environment, but thinks equities will take supportive cues from three sources.
"First, the direction of yields and it seems like the US 10-year yield is drifting lower. Lower is constructive for stocks," it said.
The second factor is that expectations for a Fed rate hike is likely to fall from the current 30% to zero as fresh data comes in. "While many fear a resurgence of inflation, Fedspeak shows that the rise in longer term yields is accomplishing the tightening the Fed wants," Fundstrat added.
The third point is that a positive third quarter earnings season is likely to cause a flood of buying by investment managers who, according to Goldman Sachs, are short $47 billion of U.S. equities. "As GS points out, there is an asymmetry and an upside tape will bring in buyers."
Premarket Movers
Instacart was initiated with a Buy recommendation at Goldman Sachs and a price target of $48. Shares were up 1%.
Lululemon Athletica will join the S&P 500 Wednesday, S&P Dow Jones Indices said late last week. It replaces Activision Blizzard, after the company's takeover by Microsoft. Lululemon stock rose 4.6% premarket.
Stocks and ADRs of Pfizer, Moderna, BioNTech and Novavax fell in premarket trading. Late Friday, Pfizer cut its revenue outlook for the year by $9 billion due to fading demand for Covid-19 treatments.
Forex:
The dollar eased back as investors were hesitant to bet on more sustained gains of the currency, UniCredit Research said.
"The rise in inflation expectations included in the University of Michigan's survey for October lifted the USD across the board, but investors were still reluctant to ride a more sustained rise of the U.S. unit."
Markets remain skeptical about a final rate hike by the Federal Reserve by December, with less than 50% likelihood of such a move priced, it said.
Holding 1.05 and regaining 1.06 is important for EUR/USD to avoid a drop back to the year-to-date low of 1.0449.
RBC BlueBay Asset Management said the dollar might be losing momentum for now amid a somewhat less hawkish stance from the Fed.
"In many respects, it was surprising that the dollar failed to be lifted much by a flight to quality on geopolitical worries," it said.
With the dollar failing to gain from recent strong payrolls data, "it may be tempting to think that the trend towards a stronger dollar has run its course for the time being," RBC added.
Read Sterling Likely to Struggle Against Dollar on Increased Uncertainty
Bonds:
AXA Investment Managers Core said 2023 was supposed to be the year of the bond after the biggest increase in yields since 2020 but, instead, the market has given the doubters more reasons to question the value of fixed income.
AXA added that "next year will be the year of the bond." Bond yields are at multiyear highs; returns have been "awful" and the risk-return balance for putting money in today's bond market is the best it has been for a generation.
"Of course, higher cash rates for now will remain a challenge but once central banks go down the more dovish route, returns will pick up."
Read Approaching End of Interest-Rate Rises Bodes Well for Fixed Income
Energy:
Crude oil prices pulled back in Europe, following last week's late surge, as tensions in Israel and Gaza provided worry to markets.
"Market attention has now turned to the likely Israeli ground invasion of the Gaza Strip," Commonwealth Bank of Australia said.
CBA added that if Israel "dismantled" Hamas quickly and withdrew as soon as possible it should limit prices around the $90 a barrel mark.
Metals:
Base metals rose while gold fell around 1% in early London trading, as markets remained focused on the events in Israel and the Palestinian territories.
"A fall in Treasury yields will have provided some support to the gold market, while the ongoing uncertainty in the Middle East will likely have boosted demand for safe-haven assets," ING said.
ING added that ETF demand remains down with holdings 397,000 ounces lower last week to 86.7 million ounces.
TODAY'S TOP HEADLINES
Activist Builds News Corp Stake, Plans to Seek Changes
Starboard Value has built a stake in News Corp and the activist shareholder plans to push for strategic and governance changes at the Wall Street Journal parent.
Starboard believes News Corp, one of the two arms of Rupert Murdoch's media empire, trades at a significant discount to its fair market value due to its conglomerate structure, according to people familiar with the matter.
Albemarle's $4.16 Billion Lithium Bet Scuttled by Australia's Richest Person
ADELAIDE, Australia-Albemarle hoped to cement its position as the world's most valuable lithium producer with a $4.16 billion takeover of Liontown Resources. Australia's richest person had other ideas.
As the clock counted down on Albemarle's four weeks of due diligence on the deal, Gina Rinehart was active in the market, building a stake that has reached 19.9% by Friday. Rinehart's Hancock Prospecting was coy on its plans, but analysts noted it had acquired enough stock to frustrate Albemarle's intention to take the company private.
Charles Schwab Earnings: Why 'Cash Sorting' and Deposits Are Key
Charles Schwab reports earnings Monday morning, and shareholders will be looking for signs that the company's cash sorting woes are behind it.
One of the nation's largest brokerage firms, Schwab has been under pressure this year as cash sorting, or bank customers' inclination to move assets to higher-yielding options in today's higher-interest-rate environment, has caused its bank deposits to plummet and financing costs to rise. Plus, there was some attrition of TD Ameritrade customers in July and August.
Rite Aid Files for Bankruptcy, Undone by Years of Losses
Your local Rite Aid drugstore could soon disappear, a casualty of years of losses and failed mergers. In the end, Rite Aid was too small and too poor to pay the costs of lawsuits related to the opioid epidemic.
Rite Aid filed for bankruptcy on Sunday in New Jersey, unable to find the money to settle hundreds of federal, state and private lawsuits alleging it oversupplied prescription painkillers. The filing puts all those suits on hold.
China's Central Bank Steps Up Liquidity Support; Keeps Policy Rate Unchanged
China's central bank stepped up its support of the economy with an increased injection of liquidity into the financial system, even as it kept a key lending rate unchanged.
The People's Bank of China Monday injected 789 billion yuan ($108 billion) worth of liquidity into the banking system via its one-year medium-term lending facility at an interest rate of 2.5%, the same rate as at its previous operation.
Surge in Health-Insurance Costs Pose Next Challenge for Finance Chiefs
Companies are seeing health-insurance costs climb at the steepest rate in years, a trend that has finance chiefs looking for ways to remain competitive with job seekers while managing those higher expenses.
Health-insurance costs, which are among the largest expenses for many U.S. companies, are projected to rise around 6.5% for 2024, according to consulting firm Mercer. The surge, which The Wall Street Journal reported on last month, may add significantly to costs for employer plans that Mercer said already average more than $14,000 a year per employee. Many companies are expected to take on most of the increases, benefits consultants said.
These Companies Are Being Squeezed by Higher Rates
Soaring interest expenses are turning the bottom line red at an increasing number of companies with low credit ratings, a problem that is expected to worsen as the rates on their loans reset.
The recent surge in interest rates has had an outsize impact on companies that have issued speculative, floating-rate debt, such as education software company PowerSchool Holdings, auto-parts supplier Cooper-Standard Holdings and travel-software company Sabre.
Democrats Are at Odds on Israel. Republicans Can't Agree on Ukraine. Here's What It Means for America's Allies.
WASHINGTON-Republicans lawmakers are largely united on aiding Israel but divided over whether to help Ukraine. Democrats are largely united on assisting Ukraine but divided on supporting Israel.
Now the fates of the two issues may be linked in coming weeks on Capitol Hill, as the Biden administration weighs combining aid for those two countries, as well as funding for Taiwan and the U.S. border, into one complicated package that a still-to-be-named new House speaker would have to shepherd.
Jim Jordan's Backers for House Speaker Say This Time Is Different
WASHINGTON-Some Republicans say strong support from grassroots conservatives will help new House speaker nominee Jim Jordan (R., Ohio) win over dozens of GOP critics and take the gavel this week. But opponents are standing firm, Democrats are angling for a role and the math remains unforgiving, setting the stage for another unpredictable floor vote.
(MORE TO FOLLOW) Dow Jones Newswires
10-16-23 0608ET
