Futures Tumble As Yields Rise, Yen Plummets; ECB And GDP Loom

US equity futures tumbled, following global stocks lower, with Nasdaq contracts underperforming as Meta shares sinking 4% on an uncertain outlook and ugly reversal from gains to losses after the close added to earnings worries. As of 8:00am, S&P futures were down -0.8%, Nasdaq futs down -1.1% as the "Magnificent Seven" technology companies that have powered this year’s US stock rally are posting disappointing earnings, wiping about $200 billion off their market value. Amazon reports after hours. The bearish mood carried over to other markets, with European and Asian equities also recording steep losses. The greenback strengthened, gold added 0.6% and Treasury yields edged closer to 5%. The yen slumped back past 150 per dollar again, fueling speculation about government intervention in the currency market. On the economic front, a fresh US GDP print is part of a data flurry due later today. A policy decision is also due from the European Central Bank, which is expected to keep interest rates on hold for the first time in more than a year.

In premarket trading, Meta Platforms shares fell 4% as the Facebook parent’s fourth-quarter revenue forecast trailed the average analyst estimate at the midpoint. The company also dashed investors’ hopes for a long-term advertising recovery, saying it was at the whim of an uncertain economic environment. Google’s owner Alphabet Inc. lost 1.8%, extending a selloff on Wednesday on disappointing cloud figures. Amazon.com Inc., which reports results after the bell, slid 1.2%. Here are some other notable premarket movers:

Adobe edged 0.7% higher as Oppenheimer joins DA Davidson in turning bullish on the stock. The broker raised its recommendation on the software company to outperform from market perform.
Align Technology shares slid 24% after the maker of dental aligners cut its net revenue guidance for the full year. Some analysts lowered their price targets on the stock, flagging a slowdown in demand due to a tough backdrop, especially among adult orthodontic patients.
Endeavor Group shares soared 23% after private equity group Silver Lake Management said it’s considering a takeover bid for the talent agency and entertainment company. Endeavor also announced it would be undertaking a strategic review.
Ford rose 2.3%, set to extend gains to a second session, as the United Auto Workers reached a tentative labor agreement with the carmaker.
Mattel shares drop 10% after the toy manufacturing and entertainment company maintained its full-year sales outlook, citing softness in the industry and a weaker global economy.

There were fireworks in FX land after the yen blew past 150 per dollar, raising the risk of government intervention in the currency market and piling pressure on the Bank of Japan to adjust monetary policy.

“The yen’s persistent weakness also adds pressure on the BOJ’s policy settings, whether or not to raise the ceiling for yield-curve control, remove YCC or end the negative policy rate,” said Koji Fukaya, a fellow at Market Risk Advisory in Tokyo. He added that the yen is probably hemmed in for now with intervention risk limiting further losses and the yield gap preventing a recovery.

Earnings missteps at the biggest US tech companies — which have already seen $200 billion wiped off their market value — are causing ructions in equity markets as investors rethink sky-high valuations against a backdrop of rising Treasury yields. While the Nasdaq 100 has been seemingly immune to pessimism, with the index still up 31% this year, there’s now growing concern about its vulnerability in a wider stock market selloff.

On the economic front, US initial jobless claims and GDP numbers are part of a flurry of data later Thursday. A policy decision is also due from the European Central Bank, which is expected to keep interest rates on hold for the first time in more than a year.

A key report this morning is the Q3 GDP data: US economic activity will probably blow past already-high consensus estimates for the third quarter, according to Bloomberg Economics which predicts a 4.9% pace of expansion on an annualized basis, higher than the 4.5% average estimate in a survey of outside forecasters, largely because of a “frenzy of summer spending on travel and entertainment,” writes Bloomberg economist Eliza Winger. She warns that the pace of growth is unsustainable and likely to have been driven by one-off factors like the ‘Barbenheimer’ movie blockbusters and concert tours by Taylor Swift and Beyonce. Bloomberg Economics projects a shallow recession will begin in the fourth quarter.

“Earnings season has left much to be desired as typically economically sensitive stocks, that have held up well against a difficult backdrop, begin to creak under the pressure,” said Geir Lode, head of global equities at Federated Hermes Ltd. “Good results are no longer enough for these economically sensitive stocks to gain traction as investors are concerned about a weaker macroeconomic backdrop.”

European stocks are on the back foot after a flurry of disappointing corporate updates with automakers posting the biggest decline among sectors after Volkswagen, Mercedes-Benz and Volvo Cars all reported disappointing third-quarter reports. The technology subindex outperforms as chip stocks including BE Semiconductor and STMicroelectronics gain. Standard Chartered, BNP Paribas, Unilever, WPP and Mercedes are all in the red after their respective reports. Here are the most notable movers:

BE Semiconductor rises as much as 11%, the most in more than a year, after third-quarter results fueled optimism around hybrid bonding systems — an emerging tool used to connect chips
Neste gains as much as 7.2% after the Finnish oil and chemicals engineering firm reported solid third-quarter figures across all key performance indicators, analysts note
Jeronimo Martins advances as much as 9.3% after reporting a 3Q earnings beat, thanks to solid volumes and only a slight erosion of Ebitda margin as it mitigated competition pressures in Poland
Sodexo shares gain as much as 7.1% after the French catering company reported full year underlying operating profit that beat estimates. JPMorgan said the results were “decent”
Worldline rallies as much as 9% in Paris trading after a record 59% plunge on Wednesday that Chief Executive Officer Gilles Grapinet tells Les Echos is “uncorrelated” to the firm’s fundamentals
Siemens Energy shares slump as much as 36% to a record low after reports the German renewable energy company is in talks with the nation’s government for state guarantees
Standard Chartered shares slump as much as 18% in London after the bank’s third-quarter pretax profit missed estimates due to impairment charges related to investments in China
Evolution slides as much as 11% after the Swedish online gambling group reported third-quarter results that missed estimates, with analysts highlighting that FX headwinds were a big factor
HelloFresh shares drop as much as 14% after the meal-kit company missed estimates for active customer numbers in the third quarter
Swedbank drops as much as 9.2%, the worst performing stock on the Stoxx 600 Banks Index, as DNB Markets highlights the lender’s beat on profits as low quality, with NII growth looking “light”
Volvo Car falls as much as 13%, the most since the Swedish carmaker’s 2021 IPO, after worse-than-expected third-quarter earnings that were weighed down by electric-vehicle competition
Mercedes-Benz Group shares fall as much as 6.3% after 3Q revenues came in below consensus and Morgan Stanley says commentary from the German carmaker seems cautious
Volkswagen shares fall as much as 3% after the carmaker reported a miss for the third quarter after pre-releasing figures Monday

Earlier in the session, Asian stocks slumped with technology shares leading the declines following another surge in Treasury yields and weak earnings by some of the sector’s bellwether companies. The MSCI Asia Pacific Index slid as much as 1.6%, the most in a week. TSMC and Samsung were the biggest drags on the gauge while Chinese sportswear maker Li Ning was the top loser after it reported lackluster sales for the third quarter. Equity benchmarks in Vietnam, Korea and Japan tumbled the most amid a broad regional selloff that followed another surge in US Treasury yields on Wednesday, with the Kospi reaching its lowest level in almost 10 months. “Fears of elevated imported inflation and higher longer-term funding costs due to the renewed strength seen in the US 10-year Treasury yields overnight” are the main drivers behind Asia’s weakness, said Kelvin Wong, a senior market analyst at Oanda.

Hang Seng and Shanghai Comp opened lower, but their losses were shallower than those of their regional peers, potentially amid stimulus optimism, while reports, before the Chinese market opened, suggested that US President Biden was expected to meet with Chinese Top Diplomat Wang Yi on Friday at the White House.
Japan's Nikkei 225 also saw its losses led by the Tech sector, whilst the losses in the JPY vs the USD failed to cushion the downside for the index.
Korea's KOSPI saw its chip sector languish, facing added headwinds as SK Hynix slumped over 4% post-earnings.
Australia's ASX 200 was dragged lower by its Tech sector, mirroring a similar sectoral performance seen stateside. Energy, however, was among the better performers.

In FX, the Bloomberg Dollar Spot Index gained as much as 0.3% while the Treasury 10-year yield was steady at 4.97%. The US is expected to report a sturdy growth rate of 4.5% later Thursday with its third quarter gross-domestic-product data. USD/JPY soared to 150.40 after breaching the key 150 level without BOJ intervention.

Dollar is rising “as traders shift positions amid a global equity slump; the war is still going on and there’s also the China property market problem,” said David Lu, director at NBC Financial Markets Asia Ltd. The strong dollar trend will continue at least until US GDP data is released, and until we see any risk-on news, Lu said
The yen slumped back past 150 per dollar again, raising the risk of government intervention in the currency market and piling pressure on the Bank of Japan to adjust monetary policy. “The yen’s persistent weakness also adds pressure on the BOJ’s policy settings, whether or not to raise the ceiling for yield-curve control, remove YCC or end the negative policy rate,” said Koji Fukaya, a fellow at Market Risk Advisory in Tokyo. He added that the yen is probably hemmed in for now with intervention risk limiting further losses and the yield gap preventing a recovery.
The euro dropped 0.2% against the dollar to 1.0546 ahead of the ECB decision. Following 10 back-to-back increases, policymakers will leave the deposit rate at 4%, according to all 59 analysts surveyed by Bloomberg, amid growing evidence its tightening campaign is helping to bring down inflation.
The Australian dollar extended an intraday decline in the wake of RBA Senate testimony, which saw residual buy orders under 0.6290 filled, spurring CPI-inspired longs to exit, according to an Asia-based FX trader

In rates, treasuries are lower ahead of US GDP data with the curve steady as yields broadly hold within one basis point of Wednesday’s session close into the early US session. US 10-year yields around 4.97%, up 2bps on the day with bunds and gilts slightly outperforming in the sector; long-end Treasuries narrowly outperform, slightly flattening Treasury spreads on the day. Core European rates outperform Treasuries ahead of ECB rate decision. US session focus includes GDP data while this week’s auction’s conclude with $38 billion 7-year note sale at 1pm New York. The Treasury auction cycle concludes with $38b 7-year sale at 1pm, follows Wednesday’s sloppy 5-year auction which tailed the WI by 1.9bp. The WI 7-year trades around 4.975% is ~30bp cheaper than the September sale which tailed the WI by 0.3bp. More ominously, it appears that the bond market is freezing again: dollar IG issuance slate empty so far; Wednesday marks the third straight day with just a single issuer, taking weekly total to just $3.3b vs. $20b dealer estimates.

In commodities, oil prices decline, with WTI falling 0.8% to trade near $84.70. Spot gold adds 0.6%.

Bitcoin is slightly in the red but retains the bulk of the last few sessions upside which saw it convincingly eclipse the USD 35k mark; as it stands, BTC is holding around the USD 34k figure within relatively narrow bounds.

Looking to the day ahead. In terms of data, we have US Q3 GDP, personal consumption, core PCE, the October Kansas City Fed manufacturing activity, the September durable goods orders, advance goods trade balance, retail, and wholesale inventories, pending home sales, and initial jobless claims. Regarding central banks, we have the ECB decision, and we will be hearing from the BoE’s Cunliffe. Lastly, there will be earnings releases from Amazon, Mastercard, Merck and Co, Linde, Comcast, Intel, UPS, Honeywell, Bristol-Myers Squibb, American Tower, Northrop Grumman, Boston Scientific, Chipotle, Ford Motor, STMicroelectronics, Keurig Dr Pepper, Hershey, Kenvue, Newmont, Royal Caribbean Cruises, and Hertz.

Market Snapshot

S&P 500 futures down 0.6% to 4,183.25
STOXX Europe 600 down 0.9% to 431.49
German 10Y yield little changed at 2.90%
Euro down 0.2% to $1.0547
MXAP down 1.4% to 150.08
MXAPJ down 1.2% to 470.22
Nikkei down 2.1% to 30,601.78
Topix down 1.3% to 2,224.25
Hang Seng Index down 0.2% to 17,044.61
Shanghai Composite up 0.5% to 2,988.30
Sensex down 1.3% to 63,200.84
Australia S&P/ASX 200 down 0.6% to 6,812.32
Kospi down 2.7% to 2,299.08
Brent Futures down 0.7% to $89.54/bbl
Gold spot up 0.6% to $1,991.04
U.S. Dollar Index up 0.20% to 106.74

Top Overnight News

With China’s property bust threatening to sink the country’s economic recovery, Xi Jinping is looking for someone to blame. After putting the billionaire founder of Evergrande, a heavily indebted property firm, under investigation for possible crimes, Beijing is expanding its probes to include bankers and financial institutions that facilitated developers’ risky behavior, people familiar with the matter say. Among those under scrutiny: a former head of Bank of China, one of the country’s biggest lenders, the people said. WSJ
President Joe Biden will see Chinese Foreign Minister Wang Yi when he visits the White House on Friday, a courtesy gesture that could lay the groundwork for a leaders’ meeting next month, according to a person familiar with the matter. BBG
The head of Australia's central bank on Thursday said the strong third-quarter inflation report was around policymakers' expectations, and they were still considering whether it would warrant a rate rise. RTRS
Rishi Sunak said he would not “rush to regulate” artificial intelligence as he announced the creation of an AI Safety Institute in the UK which would examine, evaluate and test new technologies. FT
Israeli forces carried out a “targeted raid” in the north of the Gaza Strip in the early hours of Thursday, as they stepped up preparations for a ground operation in the coastal enclave to topple the militant group Hamas. FT
Siemens Energy plummeted 36% after saying it’s seeking about $16.9 billion in guarantees from the German government. BBG
MS announces Ted Pick will become CEO effective 1/1/24 (and join the board) while Gorman becomes executive chairman. Co-President Andy Saperstein will become the Head of Wealth and Investment Management with Dan Simkowitz named Co-President of the Firm and the Head of Institutional Securities. FT
The US economy probably grew at a 4.5% annualized pace in the third quarter but the boost came from mostly temporary factors. Bloomberg Economics expects today’s figures even higher at 4.9%, but sees a slowdown this quarter. BBG
The UAW reached a tentative deal with Ford, putting more pressure on Stellantis and GM. Ford agreed to a record 25% hourly wage hike over the life of the contract, which exceeds four years. Top pay will be more than $40/hour, UAW said. BBG

A more detailed look at global markets courtesy of Newsquawk

APAC stocks traded lower across the board, following the weak lead from Wall Street as participants juggle earnings, geopolitics, and data as major central banks line up for their next confabs, with the ECB due today, while the BoJ, FOMC, and BoE are slated for next week. ASX 200 was dragged lower by its Tech sector, mirroring a similar sectoral performance seen stateside. Energy, however, was among the better performers. Nikkei 225 also saw its losses led by the Tech sector, whilst the losses in the JPY vs the USD failed to cushion the downside for the index. KOSPI saw its chip sector languish, facing added headwinds as SK Hynix slumped over 4% post-earnings. Hang Seng and Shanghai Comp opened lower, but their losses were shallower than those of their regional peers, potentially amid stimulus optimism, while reports, before the Chinese market opened, suggested that US President Biden was expected to meet with Chinese Top Diplomat Wang Yi on Friday at the White House. US equity futures softened across the board, with the NQ (-1.1%) lagging after Meta shares initially rose almost 5% following earnings but later fell into losses of over 3% during the earnings call.

Top Asian News

RBA Governor Bullock said CPI was a little higher than expected but was about where we thought it would come. She added that goods prices coming down, but services inflation remains persistent, but she's still considering whether CPI was a "material" change to outlook. Bullock said services inflation is higher than what the RBA is comfortable with and will have to build this into forecasts. She said she would not like to say if CPI makes the rate rise more likely, and said there will be a change to the inflation forecast, but she's not sure if it will be material. Bullock said the RBA is wary of inflation and has made it clear that the RBA might have to hike again but has not yet decided whether a rise is needed, according to Reuters.
Westpac economists change their call on RBA, and now see a rate rise in November, according to Reuters.
Japan Finance Minister Suzuki said closely watching FX moves with a high sense of urgency, according to Reuters. Suzuki added they stick to previous currency policy, closely watching FX moves.
Japanese PM Kishida said BoJ's monetary policy aims to achieve sustainable inflation in tandem with wage hikes and does not contradict the government's inflation countermeasures, according to Reuters. Japanese PM Kishida says BoJ holds ETFs and JGBs as part of its monetary policy.
PBoC injected CNY 424bln via 7-day reverse repos with the rate at 1.80% for a CNY 80bln net daily injection.
PBoC set USD/CNY mid-point at 7.1784 vs exp. 7.3265 (prev. 7.1785)
SK Hynix (000660 KS) - Q3 (KRW) Revenue at 9.1tln (exp. 8.17tln). Operating loss 1.8tln (exp. loss 1.7tln). Net loss 2.2tln (exp. loss 1.5tln); Sees about 10% rise in Q4 DRAM shipments vs Q3 due to the rise in sales. Q3 DRAM average selling price is up about 10% vs Q2. Q3 NAND average selling price is down slightly vs Q2. 2024 CAPEX to be higher than 2023, but to keep the hike to a minimum. Plans a fall of teens % in Q4 NAND shipments vs Q3, aiming to cut low-profit sales. Semiconductor prices are starting to stabilize.
Chinese Commerce Ministry says consumption recovery has become more obvious since Q3.

European bourses are in the red, Euro Stoxx 50 -0.8%, with a blockbuster docket of earnings dominating action and the overall tone hampered by the soft Wall St. handover and subsequent pressure in Meta, -2.5% pre-market; from a macro perspective, the ECB looms. Sectors feature marked Autos/Parts pressure after Volvo Car (-9.2%), Mercedes-Benz (-5.5%) & Volkswagen (-1.0%) updates; Banking names pressured post-Standard Chartered (-10.2%) & BNP Paribas (-4.0%); more broadly, Utilities have been experiencing some modest relative outperformance, perhaps owing to their defensive nature in the absence of updates from the sectors heavyweights. Stateside, futures reside in the red ES -0.5% with the focus firmly on mega-cap corporates and the NQ -0.8% continuing to languish given the poor-reception to the Meta call; ahead, AMZN & INTC are the after-hours highlights

Top European News

Citi/YouGov Inflation Expectation Survey (Sep): Short-term expectations 4.2% (prev. 4.4% in August); 5-10yr ahead remains at 3.3%, according to Reuters.
Riksbank says it has decided to offer central counterparties that clear SEK and are participants in the RIX-RTGS system the opportunity to borrow money overnight from the Riksbank.

Dollar continues its resurgence with DXY extending towards 107.00 within a 106.520-880 range.
Yen loses the battle to defend 150.00 and stealthily arrests slide after hitting a sub-150.50 low; note, at 07:50BST USD/JPY moved sharply lower after advancing to a high of 150.77. Pulled back to 149.80 before trimming downside and moving back to circa 150.40.
Euro straddles 1.0550 amidst spread of decent option expiry interest ahead of ECB.
Franc and Sterling lose more ground vs Greenback before finding support circa 0.9000 and 1.2070 respectively.
Aussie undermined by not so hawkish RBA Bullock response to hot CPI data, as AUD/USD pivots 0.6300 and AUD/NZD cross sits under 1.0900.

Fixed Income

Debt futures regain a degree of composure in contrast to equities ahead of key risk events.
Bunds, Gilts and T-note all back just into positive territory within 128.18-127.56, 92.35-91.62 and 105-24+/15+ respective ranges pre-US GDP, IJC, durable goods and ECB.

Commodities

Crude benchmarks are modestly softer on the session but once again newsflow is relatively limited in nature ex-geopols; as such the December'23 contracts remain within familiar levels around 30-40 cents below the USD 85.00/bbl and USD 90.00/bbl marks for WTI and Brent respectively.
Main development has been rhetoric from Israel and Iran regarding the expected ground invasion of Gaza by Israel after the PM confirmed it would happen; in response, the Iranian IRGC warned Israel against such an operation.
Spot gold is firmer to the tune of USD 10/oz and is testing the USD 1990/oz mark to the upside with the focus on geopols; levels above largely coalesce around the USD 2050/oz figure before the YTD peak of USD 2081/oz.
Base metals are in the red as they are tracking the broader market tone and the accompanying underlying USD bid; though, the pace of the decline has slowed significantly in recent trade alongside a slowdown in macro developments and a steadying in broader price action ahead of a packed PM agenda.

Geopolitics: Israel-Hamas

"IDF carried out an unusual and extensive ground raid by infantry and armored forces inside the Gaza Strip", according to Israeli press citing Army Radio; "According to the report, the raid took place on a larger scale and deeper inside Gaza" "The objective of the raid was to attack Hamas targets from the Gaza Strip and strengthen the defense." "The defense establishment says that this is a more extensive operation than the raids carried out so far in the past two weeks inside the Gaza Strip." Thereafter, the Israeli Army said soldiers have since exited Gaza, according to Bloomberg.
The Israeli army announced the downing of a surface-to-air missile launched from Lebanon, according to Sky News Arabia.
Hamas fighters reportedly trained in Iran before the October 7th attacks, according to WSJ citing sources; roughly 500 Hamas and Palestinian militants received specialized combat training. Sources add they have no information suggesting the training was Intended for October 7th.
The Iranian Foreign Minister arrived in New York for international talks after the intensification of the crisis in Gaza, according to Al Jazeera citing Iranian press IRNA.
Iranian IRGC Commander warns Israel against commencing a ground operation within Gaza, saying "“the dragon of Gaza will devour them. If they set foot in Gaza, they’ll be buried there.".

Other

US President Biden is expected to speak with Chinese Top Diplomat Wang Yi on Friday at the White House, according to Reuters sources.
Russian Defence Minister Shoigu said "we are to start training on nuclear strike", according to Reuters.
An explosion was heard near a US base in the suburbs of al-Hasakah in north-eastern Syria, according to Iran International citing Syrian press.

US Event Calendar

08:30: 3Q GDP Annualized QoQ, est. 4.5%, prior 2.1%
- 3Q Personal Consumption, est. 4.0%, prior 0.8%
- 3Q Core PCE Price Index QoQ, est. 2.5%, prior 3.7%
- 3Q GDP Price Index, est. 2.7%, prior 1.7%
08:30: Sept. Durable Goods Orders, est. 1.8%, prior 0.1%
- Sept. Durables-Less Transportation, est. 0.2%, prior 0.4%
- Sept. Cap Goods Ship Nondef Ex Air, est. 0.2%, prior 0.7%
- Sept. Cap Goods Orders Nondef Ex Air, est. 0%, prior 0.9%
08:30: Oct. Initial Jobless Claims, est. 207,000, prior 198,000
- Oct. Continuing Claims, est. 1.74m, prior 1.73m
08:30: Sept. Advance Goods Trade Balance, est. -$86b, prior -$84.3b, revised -$84.6b
08:30: Sept. Retail Inventories MoM, est. 0.2%, prior 1.1%
- Sept. Wholesale Inventories MoM, est. 0.1%, prior -0.1%
10:00: Sept. Pending Home Sales YoY, est. -14.6%, prior -18.8%
- Sept. Pending Home Sales (MoM), est. -2.0%, prior -7.1%
11:00: Oct. Kansas City Fed Manf. Activity, prior -8

DB's Jim Reid concludes the overnight wrap

After not having a night alone/away with my wife from our kids for the 8 years since we've first had one, tonight is our second in just two weeks as some crazy parent at school has taken all three on a half-term sleepover. So we're going to watch the latest Scorsese film. The good news is it gets tremendous reviews. The bad news is it's 3 hours 26 minutes long. With my short attention span and tea and coffee habit during the day I'm not sure if and how I'll make it through. You'll hear tomorrow. I also can't remember the last time I went out in the week outside of a client dinner.

With recent developments, it’s anyone’s guess how much Treasuries will move in 3 hours and 26 minutes tonight. Indeed, if you have traded the daily swings in Treasuries well in recent days then you deserve a lot of credit or you’ve had an enormous slice of luck. I would pretend the former even if the latter is true. Whilst there has been no crazy moves, the daily swings in both directions have been wildly unpredictable even if the general direction has been higher. It was a bruising day yesterday for 60/40 portfolios as 10yr US yields rose +13.2bps with the S&P 500 -1.43% and the NASDAQ -2.43% (the worst drop since Feb and -10.7% from YTD highs in July) after the previous night’s tech results were digested. The sell-off continues overnight in Asia trading. The ECB meeting, Q3 US GDP and Amazon’s results after the bell are the highlights today .

If we start with the rates move, the long-end led the sell-off, as 30yr Treasury yields gained +14.8bps to 5.09% -- which is within a couple of bps of their 16-year closing high seen last week. 2yr yields were up a marginal +0.7bps. The 2s10s curve steepened +12.5bps, and the 2s30s by +13.7bps, with the spread of the latter a whisper away from zero again at -3.9bps having traded above zero for the first time in over a year intra-day on Friday. It hasn’t closed above it since last August. The latest refunding announcement occurs next week with fears over increased auction sizes creating some of the issues yesterday including a weak 5yr auction at 6pm London time which cemented the last leg of the sell-off last night. See our rates strategist's preview of the refunding here. Note that the last coupon auction before this takes place today with 7yr Treasuries being offered to the market.

Also adding support to the sell-off was the upside surprise to US new home sales, which came in at 759k (vs 680k expected), rising from 675k in August and up 12.3% month-on-month. This coincided with US 30-year mortgage rates hitting 7.90% yesterday, reaching fresh 23-year highs. So the data continues to be resilient in the face of everything thrown at it for now, with the next stop the Q3 US GDP growth and US PCE price index later today. Our economists expect an annualised 5.2% for GDP with consensus at 4.1% against 2.1% last quarter.

Earnings results from Microsoft and Alphabet on Tuesday night painted a mixed picture for big tech earnings last quarter, dragging down US equities more broadly. The NASDAQ fell -2.43% against this backdrop, its sharpest decline since February, while S&P 500 was down -1.43%. Both indices are down to their lowest levels since May, while the equal-weighted version of the S&P 500 (-1.12% yesterday) is now down to its lowest level in 12 months. After their results, Alphabet dropped -9.01%, the most since March 2020, and to its lowest level since July, whilst Microsoft moved in the opposite direction, up +3.07% to its highest level since the last week of July. Meanwhile, an outlook downgrade by Texas Instruments (-3.49%) from the previous night weighed on chipmakers with the Philadelphia semiconductor index down -4.13%. The VIX volatility measure jumped +1.2 points on the day to 20.2.

After the bell, Meta released its latest earnings report, which exceeded revenue and earnings expectations. The stock initially climbed in after-hours trading but then moved lower as the company cited macro volatility creating an uncertain revenue outlook for next year. We now have had Q3 earnings results from four companies out of the Magnificent Seven, representing over 15% of the S&P 500’s total market capitalisation. These have been mixed but overall have signalled an underwhelming outlook, with the Magnificent Seven index down nearly 7% since last Monday. NASDAQ 100 (-1.1%) futures are slipping again in Asia overnight with the S&P equivalent down -0.7%. All eyes will next be on Amazon, with earnings due after the bell later today. The last two of these seven to report are Apple and Nvidia who report next Thursday (2 November) and on 21 November, respectively.

Moving over to Europe and today’s ECB meeting. Market pricing and surveys overwhelmingly expect rates to stay on hold after 10 consecutive rates hikes totalling 450bps. Our economists see Lagarde avoiding saying that rates have necessarily peaked but with the first order focus being on achieving a sufficient duration of restrictive policy. They expect the ECB to discuss QT this week but to move gradually and conditionally when it comes to signalling any further acceleration of QT. See their preview piece here.

Ahead of the meeting the STOXX 600 traded sidewards (+0.04%) on Wednesday. The real estate sector particularly underperformed, down -1.98%, followed by consumer discretionary (-0.48%). In terms of data, Euro area M3 money supply fell -1.2% year-on-year (vs -1.8% expected) in September, consistent with continued tight credit conditions but with some evidence that bank credit flows are bottoming out. So one isolated argument against prospects of a hard landing for the euro zone. Euro banks relatively outperformed, climbing +0.56%, supported by strong earnings results in the sector.

Staying in Europe, the German October IFO business confidence index surprised to the upside at 86.9 (vs 86.0 expected), up from 85.7 last month as sentiment improved. It remains too early to declare a broad turnaround in sentiment, but the survey lends some optimism to the economic outlook after weak PMIs and subdued Gfk consumer confidence in the previous session. Against this backdrop, German 10yr bunds followed the US, as yields rose +6.3bps, with yields on OATs (+6.7s) and BTPs (+8.9bps) seeing a larger rise .

On the topic of geopolitics, newsflow regarding Middle East tensions remained fluid. Earlier in the day, WSJ reported that Israel will continue to delay its invasion of the Gaza strip to allow for the US to move additional air defences to the region, while Qatar’s foreign minister stated that talks on releasing Hamas’ hostages were moving forward. We then heard from Israel Prime Minister Netanyahu who said that Israel is preparing a ground invasion of Gaza. The headlines saw oil fluctuate during the day, with Brent trading around -1.5% lower below $87/bbl at one point, but ending the day up +2.34% to $90.13/bbl. WTI crude was up +1.97% to $85.39/bbl.

Asian equity markets are seeing a broad sell-off this morning, with the KOSPI (-2.28%) leading losses after shares of South Korean chip supplier SK Hynix dropped more than -3.5% as the firm reported a net loss for its third quarter. Meanwhile, the Nikkei (-2.13%) is also sharply lower while the Hang Seng (-0.82%), the CSI (-0.63%) and the Shanghai Composite (-0.29%) are also lower and largely wiping out the gains from the previous day after the latest stimulus package.

In FX, the J apanese yen weakened past the key 150 level against the dollar again, trading very close to its lowest level since August 1990, thus triggering the possibility of intervention from Japanese authorities and also putting pressure on the BOJ to consider tightening monetary policy. The yen has tumbled more than 12% so far in 2023, making it the worst currency among its G-10 peers .

In terms of overnight data, the South Korean economy expanded +0.6% q/q in the July-to-September period (v/s +0.5% expected), as against a similar quarterly growth in the previous three month period as exports rebounded, thus maintaining its growth momentum.

In US politics, Rep. Mike Johnson of Louisiana was elected as Speaker of the House Representatives yesterday afternoon with unanimous support among House Republicans. He had been the fourth Republican nominee for the position since Kevin McCarthy’s ouster three weeks ago. Johnson has spoken in favour of a new short-term spending deal so his appointment ought to improve the prospects of a government shutdown being avoided next month. And sticking to US news flow, overnight we heard from the UAW union that it had reached a tentative deal with Ford, one of the three US automakers affected by the now nearly 6-week-long autoworkers’ strike.

In other news yesterday, the Bank of Canada held its key interest rate steady at 5%, as expected, with the central bank now seeing the economy approaching balance. The bank left the door open for more tightening, but also focused on dampening effect of past hikes on activity and price pressures. Futures continue to price a roughly 40% likelihood of another hike by the BoC (similar to the Fed ), but the Canadian dollar did fall -0.25% versus the US dollar yesterday to its lowest since March.

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