Markets react to escalating hostilities
In the latest #TradewithDave update we look back at last week’s big events, and consider what’s happening in the week beginning 23rd October.
Markets react to escalating hostilities
• Wednesday saw investors react to a further escalation in hostilities between Hamas and Israel.
• In the aftermath the devastating explosions at the al-Ahli Hospital in Gaza City on Tuesday night, meetings between US President Biden and Arab leaders were cancelled, destroying any immediate hopes for a ceasefire and de-escalation.
• Crude oil flew higher with both WTI and Brent contracts rallying around 3%. Since then, prices have climbed high and both contracts are now up around 10% since the Hamas terror attack.
Check out crude oil…
Q3 earnings season picks up a gear
• We got a slew of important earnings releases last week, including Tesla, Netflix, Goldman Sachs, Johnson & Johnson, Bank of America, Morgan Stanley, Procter & Gamble, United Airlines.
• Although very early days, of the S&P 500 constituents that have reported so far, 80% have beaten expectations on earnings, and 70% on revenues.
• But once again, forward guidance is proving to be crucial in how markets react to Q3 results.
• For example, despite beating on both earnings and revenues, United Airlines slumped 4% as it warned of rising costs weighing on the fourth quarter.
Check out United Airlines…
Tesla disappoints
• Tesla was the first of the ‘Magnificent Seven’ to report earnings this quarter.
• In the face of rising interest rates, Tesla has announced a string of price cuts to boost demand.
• While deliveries are up 27% year-on-year, earnings fell 44% over the same period on revenue growth of just 5%.
• Tesla’s share of the US electric vehicle market is now 50%, down from 60% in the first quarter of 2023.
• The stock was already selling off ahead of the earnings report, but fell an additional 12% after the news.
Check out Tesla…
Federal Reserve speakers
• We heard from a number of members of the Federal Open Market Committee (FOMC) last week, including the Federal Reserve chairman, Jerome Powell.
• On Thursday evening he reiterated his opinion that inflation was still too high while interest rates were not.
• Traders are taking that as an indication that the US central bank is relaxed about raising rates should data continue to indicate robustness in the US economy.
• That’s certainly the case at the moment where we’ve recently seen unexpectedly strong payrolls, retail sales, consumer demand and an uptick in headline inflation.
• Powell was explicit when he said that he expects growth to cool and the labour market to soften for the Fed to hit its 2% inflation target.
• US stock indices sold off sharply, adding to the decline which began on Tuesday.
Check out the US 500…
🔸 Looking ahead to next week
Bond yields continue to shape trade
• Keep an eye on the bond market, particularly US Treasuries, as bond prices fall and yields rise.
• Investors sold bonds, typically regarded as the ultimate safe-haven.
• The yield on the key 10-year Treasury note traded above 5% - a milestone level and also a fresh 16-year high.
• There are fears that US debt levels are too high and that the political will to address this matter doesn’t exist.
• This situation could also undermine the US dollar which has fallen back from recent highs.
Check out the EURUSD…
Ahead of the next FOMC meeting
• There’s a difference of opinion developing between members of the US Federal Reserve’s FOMC.
• Some feel that the central bank must continue to raise rates to ensure that inflation continues to fall back to the 2% target.
• Others believe that the Federal Reserve has done enough, and that the surge in government bond yields is doing the work for them.
• On one hand, there are signs that inflation isn’t yet beaten, and the recent pick-up of Headline CPI is evidence of that.
• They also believe that the US economy is robust enough to cope with higher interest rates.
• On the other hand, rising interest rates act with a lag, so another pause may be in order.
• It’s also worth remembering that the Fed is still tightening monetary policy in that it continues to reduce its balance sheet, thereby withdrawing liquidity.
• The danger of overtightening is that it dampens economic activity to such an extent that the Fed itself triggers a recession.
• The next monetary policy meeting takes place on the 31st October and 1st November. The markets don’t expect the Fed to raise rates at this meeting.
• But according to the CME’s FedWatch tool, there’s a 35% probability of a 25 basis-point rates hike in December.
This week’s key Q3 earnings
Monday:
Cadence Design, Brown & Brown, WR Berkley.
Tuesday:
Microsoft, Alphabet, Visa, Coca-Cola, Verizon, General Electric, 3M, General Motors, Halliburton, Spotify, PulteGroup, Snap, Teladoc Health.
Wednesday:
Meta Platforms, T-Mobile, Boeing, ADP, Hilton, eBay, CNX, Horizon Bancorp.
Thursday:
Amazon, Mastercard, Linde, Comcast, Intel, UPS, Honeywell, Altria, Northrop Grumman, Chipotle, Royal Caribbean, Southwest Airlines, WPP, Hasbro,
Friday:
Exxon Mobil, Chevron, AbbVie, Activision Blizzard, Charter Comms, Stellantis, Colgate-Palmolive, Ford Motor Corp, NatWest Group, CBRE, AutoNation.
Markets react to escalating hostilities
• Wednesday saw investors react to a further escalation in hostilities between Hamas and Israel.
• In the aftermath the devastating explosions at the al-Ahli Hospital in Gaza City on Tuesday night, meetings between US President Biden and Arab leaders were cancelled, destroying any immediate hopes for a ceasefire and de-escalation.
• Crude oil flew higher with both WTI and Brent contracts rallying around 3%. Since then, prices have climbed high and both contracts are now up around 10% since the Hamas terror attack.
Check out crude oil…
Q3 earnings season picks up a gear
• We got a slew of important earnings releases last week, including Tesla, Netflix, Goldman Sachs, Johnson & Johnson, Bank of America, Morgan Stanley, Procter & Gamble, United Airlines.
• Although very early days, of the S&P 500 constituents that have reported so far, 80% have beaten expectations on earnings, and 70% on revenues.
• But once again, forward guidance is proving to be crucial in how markets react to Q3 results.
• For example, despite beating on both earnings and revenues, United Airlines slumped 4% as it warned of rising costs weighing on the fourth quarter.
Check out United Airlines…
Tesla disappoints
• Tesla was the first of the ‘Magnificent Seven’ to report earnings this quarter.
• In the face of rising interest rates, Tesla has announced a string of price cuts to boost demand.
• While deliveries are up 27% year-on-year, earnings fell 44% over the same period on revenue growth of just 5%.
• Tesla’s share of the US electric vehicle market is now 50%, down from 60% in the first quarter of 2023.
• The stock was already selling off ahead of the earnings report, but fell an additional 12% after the news.
Check out Tesla…
Federal Reserve speakers
• We heard from a number of members of the Federal Open Market Committee (FOMC) last week, including the Federal Reserve chairman, Jerome Powell.
• On Thursday evening he reiterated his opinion that inflation was still too high while interest rates were not.
• Traders are taking that as an indication that the US central bank is relaxed about raising rates should data continue to indicate robustness in the US economy.
• That’s certainly the case at the moment where we’ve recently seen unexpectedly strong payrolls, retail sales, consumer demand and an uptick in headline inflation.
• Powell was explicit when he said that he expects growth to cool and the labour market to soften for the Fed to hit its 2% inflation target.
• US stock indices sold off sharply, adding to the decline which began on Tuesday.
Check out the US 500…
🔸 Looking ahead to next week
Bond yields continue to shape trade
• Keep an eye on the bond market, particularly US Treasuries, as bond prices fall and yields rise.
• Investors sold bonds, typically regarded as the ultimate safe-haven.
• The yield on the key 10-year Treasury note traded above 5% - a milestone level and also a fresh 16-year high.
• There are fears that US debt levels are too high and that the political will to address this matter doesn’t exist.
• This situation could also undermine the US dollar which has fallen back from recent highs.
Check out the EURUSD…
Ahead of the next FOMC meeting
• There’s a difference of opinion developing between members of the US Federal Reserve’s FOMC.
• Some feel that the central bank must continue to raise rates to ensure that inflation continues to fall back to the 2% target.
• Others believe that the Federal Reserve has done enough, and that the surge in government bond yields is doing the work for them.
• On one hand, there are signs that inflation isn’t yet beaten, and the recent pick-up of Headline CPI is evidence of that.
• They also believe that the US economy is robust enough to cope with higher interest rates.
• On the other hand, rising interest rates act with a lag, so another pause may be in order.
• It’s also worth remembering that the Fed is still tightening monetary policy in that it continues to reduce its balance sheet, thereby withdrawing liquidity.
• The danger of overtightening is that it dampens economic activity to such an extent that the Fed itself triggers a recession.
• The next monetary policy meeting takes place on the 31st October and 1st November. The markets don’t expect the Fed to raise rates at this meeting.
• But according to the CME’s FedWatch tool, there’s a 35% probability of a 25 basis-point rates hike in December.
This week’s key Q3 earnings
Monday:
Cadence Design, Brown & Brown, WR Berkley.
Tuesday:
Microsoft, Alphabet, Visa, Coca-Cola, Verizon, General Electric, 3M, General Motors, Halliburton, Spotify, PulteGroup, Snap, Teladoc Health.
Wednesday:
Meta Platforms, T-Mobile, Boeing, ADP, Hilton, eBay, CNX, Horizon Bancorp.
Thursday:
Amazon, Mastercard, Linde, Comcast, Intel, UPS, Honeywell, Altria, Northrop Grumman, Chipotle, Royal Caribbean, Southwest Airlines, WPP, Hasbro,
Friday:
Exxon Mobil, Chevron, AbbVie, Activision Blizzard, Charter Comms, Stellantis, Colgate-Palmolive, Ford Motor Corp, NatWest Group, CBRE, AutoNation.
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