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North American Morning Briefing: Stock Futures Tumble as BOE Intervention Bounce Fades

09/29/2022 | 05:21am EST

MARKET WRAPS

Watch For:

Weekly Jobless Claims; GDP estimate for 2Q; Canada GDP for July; EIA Weekly Natural Gas Storage Report; Nike earnings

Opening Call:

Stock futures fell back on Thursday as the positive impact on bond markets from the Bank of England's intervention began to fade and yields again moved higher.

"Despite the BOE's insistence that these are targeted, temporary purchases designed to ease market dysfunction, global pricing reacted as if they were launching a new QE program to ease financial conditions," said Jim Reid, macro strategist at Deutsche Bank.

"It might not be the last time a central bank buys government bonds...given how much debt there is and how much there's likely to be going forward," he added.

Still, the underlying trend remains higher borrowing costs, as most of the world's big central banks battle to combat inflation--and this was continuing to weigh on sentiment in early Thursday trading.

Indeed, there were signs that the positive impact of the BOE's action was already starting to fade. The benchmark 10-year Treasury yield was up 12.7 basis points to 3.863% and the equivalent duration U.K. gilt rose 13.3 basis points to 4.146%. The Stoxx 600 index of European stocks fell 1.5% and the dollar resumed its advance.

"The USD still exhibits a strong, negative correlation to global equities because, in a world where monetary and fiscal policy are now at odds with each other, the value of collateral is being tested," Citi said.

"The whole reason central banks are hiking rates is to tighten financial conditions, which implicitly means that the Fed is targeting a lower equity market."

Investor anxiety could be seen in the CBOE Vix index. The Vix, whose long-term average is around 20, was hovering near 31, having stood above 30 for much of this week.

U.S. economic updates set for release on Thursday include the weekly initial jobless claims and second quarter GDP data. St. Louis Fed President James Bullard is due to speak at 9:30 a.m. and San Francisco Fed President Mary Daly will make some comments at 4:45 p.m.

Read Barrons.com: What the Bank of England's Emergency Move Means--And Doesn't--for the Fed

Forex:

Although markets have stabilized moderately since the BOE intervened in the gilt market, the dollar will remain investors' currency of choice and strong demand is likely on any dips, ING said.

"The dollar will continue to be favored--especially if it is soon to be paying 4% on deposits."

Meanwhile, a narrowing U.S. trade deficit means the dollar "does not look as vulnerable as it could," ING said.

ING also said the Bank of England's intervention to stabilize gilt markets will have only a limited positive impact on sterling, which looks vulnerable to a drop back toward Monday's record low of $1.0349.

"We doubt cable [GBP/USD] holds gains to 1.08/1.09 and the bias has got to be for a 1.0350/1.0500 retest. There is only so much the BOE can do to support cable, since we think FX intervention and emergency rate hikes are not on the table."

Energy:

Oil extended its losses in Europe, with prices recently down almost 2%, as demand concerns linked to slowing global growth continued to weigh on sentiment.

With OPEC+ set to meet next week, many analysts now expect a sizable output cut from the group that should support prices. SEB expects a cut of between 500,000 and 1 million barrels daily.

"Bearish demand concerns likely to dominate in the near term," it said. But in the longer term, "supply side issues will be worse than demand side issues unless there is a severe global recession."

Metals:

Base metals were lower in London trade as tightening monetary policy across the world continues to pose a headwind to prices, although Marex said hopes of infrastructure spending in China offered some support.

Chinese media reports that Beijing would allocate 500 billion yuan to infrastructure projects is encouraging metals demand on the Chinese mainland, Marex added.

Other News:

Lithium prices have tripled in a year, and the chemical element, which is used in batteries for electric vehicles, faces a long-term supply shortage.

The increase "is largely due to increasing demand for electric vehicles and the inelastic nature of supplies," Global X said. Bringing new production capacity online can take three to five years or more, "for studies, permitting, capital raising, and capital expenditure before any lithium is produced."

Read more here.


TODAY'S TOP HEADLINES


Porsche Shares Trade Almost 2% Above IPO Price in Debut

Porsche AG's shares opened almost 2% higher on their first day of trading Thursday, supported by investors who missed out in one of Europe's biggest initial public offerings to get a piece of the luxury car brand.

The trading debut contrasts with an otherwise downbeat global market for initial public offerings. The total value of IPOs is down 70% globally to $135 billion so far in 2022 from the comparable period last year, according to data from Dealogic. Activity has suffered from a combination of equity volatility that makes valuing companies more challenging and the poor performance of recently listed companies


Chinese EV Maker Leapmotor Flops in Hong Kong Market Debut

Two new listings stumbled in their Hong Kong trading debuts after raising a total of $1.5 billion in tumultuous market conditions, casting a cloud over a growing pipeline of companies preparing to go public in the Asian financial hub.

Shares of Zhejiang Leapmotor Technology Co., a Chinese electric-vehicle maker, fell as much as 42% below their initial public offering price within their first few hours of trading on Thursday. The seven-year-old company raised $800 million in its IPO-significantly less than the $1.5 billion it had previously aimed for-after pricing its shares at the bottom of a guided range.


Chevron Sells Global Headquarters, Pares Back in California Amid Texas Expansion

Chevron Corp. has sold its current headquarters in California and plans to move into a nearby leased space about one-third of the size, as it continues to relocate employees to Texas.

The second-largest U.S. oil company closed the sale Wednesday of its Chevron Park campus in San Ramon, Calif., its global headquarters for two decades, to Sunset Development Co. The family-run company had originally sold the 92-acre parcel to Chevron in the early 1980s.


Tesla Adds Airbnb Co-Founder Joe Gebbia to Board of Directors

Tesla Inc. on Wednesday said it added Airbnb Inc. co-founder Joe Gebbia to its board, effective this past Sunday.

The electric-vehicle maker's board size had shrunk to seven seats from eight after Oracle Corp. co-founder Larry Ellison didn't stand for re-election.


Tyson Overhauls Management as Meat Giant's Profits Are Pressured

Tyson Foods Inc. is overhauling its executive ranks as the largest U.S. meat supplier's costs rise and some sales slow, pressuring the company's bottom line after two years of soaring margins.

The Arkansas company this week shifted executives into new roles heading finance, commercial operations and prepared foods, including appointing John R. Tyson, the 32-year-old great-grandson of the company's founder, as chief financial officer.


Smith & Wesson Sued by Families of Highland Park Shooting Victims

The families of victims of the Fourth of July mass shooting in Highland Park, Ill., are suing gun maker Smith & Wesson Brands Inc. for its alleged role in the attack that left seven dead and dozens injured.

The civil lawsuits, filed Wednesday in Lake County Circuit Court, allege Smith & Wesson used deceptive and unfair marketing strategies that violate Illinois law and target "the risk-seeking-and often troubling-desires" of "disturbed young men."


Amazon Raises Pay for Hourly Employees as It Prepares for Holidays

Amazon.com Inc. is raising pay for its hourly employees as the company prepares for the crucial holiday shopping season.

The company on Wednesday said it was increasing average starting pay for its front-line warehouse employees from $18 to more than $19 an hour, with many employees earning between $16 and $26 an hour depending on their location in the U.S. Amazon said the raises represent a nearly $1 billion investment over the next year.


Developing Countries Face Stiff Economic Headwinds, World Bank Chief Says

WASHINGTON-The head of the World Bank warned that developing nations face an extremely challenging near-term outlook, as the sharp slowdown in global growth raises the risks of a prolonged recession.

Speaking Wednesday at Stanford University, David Malpass said the challenges for the developing world are shaped by higher food, fertilizer and energy prices caused by the war in Ukraine, as well as rising interest rates, currency depreciation and capital outflows, which could result in a shortage of funds needed to support people's lives and economic activities.


Crypto Fugitive Do Kwon's Firm Accuses Korean Prosecutors of Overreach

The firm behind failed cryptocurrencies TerraUSD and Luna accused South Korean prosecutors of overreaching their authority, two weeks after they issued a warrant for the arrest of its chief executive, Do Kwon.

Terraform Labs Pte. Ltd. laid out Mr. Kwon's defense in a statement sent to The Wall Street Journal on Wednesday. A spokesman for the Singapore-based firm said in the statement that Luna wasn't legally a security, which would mean that it isn't covered by South Korea's capital-markets law.


Lithium Demand From EVs Is Strong. Shortages Will Keep Prices High.

Lithium prices have tripled in a year, and the chemical element, which is used in batteries for electric vehicles, faces a long-term supply shortage.

(MORE TO FOLLOW) Dow Jones Newswires

09-29-22 0520ET

Stocks mentioned in the article
ChangeLast1st jan.
AIRBNB, INC. -2.32% 95.425 Delayed Quote.-41.34%
AUSTRALIAN DOLLAR / BRITISH POUND (AUD/GBP) 0.01% 0.55639 Delayed Quote.4.01%
AUSTRALIAN DOLLAR / US DOLLAR (AUD/USD) -0.31% 0.66888 Delayed Quote.-7.05%
BRENT OIL 1.24% 84.48 Delayed Quote.7.57%
BRITISH POUND / US DOLLAR (GBP/USD) -0.28% 1.20179 Delayed Quote.-10.61%
CANADIAN DOLLAR / BRITISH POUND (CAD/GBP) 0.14% 0.619533 Delayed Quote.5.66%
CANADIAN DOLLAR / US DOLLAR (CAD/USD) -0.14% 0.74444 Delayed Quote.-5.53%
CHAINLINK (LINK/USD) -3.59% 6.895 End-of-day quote.-66.77%
CHEVRON CORPORATION -1.58% 180.87 Delayed Quote.56.54%
DEUTSCHE BANK AG -1.77% 10.206 Delayed Quote.-5.70%
EURO / BRITISH POUND (EUR/GBP) 0.45% 0.86383 Delayed Quote.2.31%
EURO / US DOLLAR (EUR/USD) 0.15% 1.03815 Delayed Quote.-8.57%
FEEDER CATTLE FUTURE (GF) - CMG/C1 -0.32% 178.675 End-of-day quote.6.85%
INDIAN RUPEE / BRITISH POUND (INR/GBP) 0.57% 0.010181 Delayed Quote.2.01%
INDIAN RUPEE / US DOLLAR (INR/USD) 0.09% 0.012253 Delayed Quote.-8.84%
LIVE CATTLE FUTURE (LE) - CMG/C1 -0.16% 153.1 End-of-day quote.9.57%
MSCI SINGAPORE (GDTR) -0.36% 5607.31 Real-time Quote.-10.68%
NEW ZEALAND DOLLAR / US DOLLAR (NZD/USD) -0.29% 0.61964 Delayed Quote.-8.65%
NIKE, INC. -0.43% 105.31 Delayed Quote.-36.43%
ORACLE CORPORATION -1.15% 81.725 Delayed Quote.-5.15%
PORSCHE AG -2.10% 104.9 Delayed Quote.0.00%
S&P GSCI NATURAL GAS INDEX -1.16% 339.1704 Real-time Quote.96.51%
STOXX EUROPE 600(EUR)(TR) -0.65% 1011.01 Delayed Quote.-7.38%
TESLA, INC. 2.90% 188.1863 Delayed Quote.-48.09%
TYSON FOODS, INC. -3.06% 65.26 Delayed Quote.-22.75%
UK 10Y CASH -0.01% 3.1311 Delayed Quote.246.00%
UNITED STATES DOLLAR (B) / CHINESE YUAN IN HONG KONG (USD/CNH) -0.08% 7.22849 Delayed Quote.13.81%
US DOLLAR / BRITISH POUND (USD/GBP) 0.27% 0.832224 Delayed Quote.11.87%
WTI 2.03% 77.719 Delayed Quote.1.56%
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