Market Report.
🗳️ The LDP (Liberal Democratic Party) wins the Japanese elections but loses the majority it had been counting on and will have to look for a coalition to govern. The market has responded with a rise of the Nikkei index and a fall of the yen. The criticism of some important members of the LDP, such as Toshimitsu Sanae Takaichi, to the BoJ’s rate hike policy may be behind this market movement. In addition, the possible coalition government with other parties, DPP or JIP, which have also spoken out against the BoJ’s rate hike policy, increases the perception of a shift in monetary policy to a more accommodative stance and a weaker yen.
🏭 China’s industrial profits fell 27.1% in September year-on-year, the steepest decline since early 2020, due to slow growth, weak demand and property crisis. Profits were already down 17.8% in August, and fell 3.5% in the first 9 months overall. Weak demand and producer price deflation weighed on profitability, highlighting the need for stronger policy responses. The economy grew 4.6% in Q3, the slowest pace this year, and 4.8% in the first 3 quarters, slightly below the first half rate. The data underscores challenges for China to meet its 2024 growth target of around 5% amid multiple headwinds. That is the biggest decline since the outbreak began in March 2020.
🛢️ The WTI barrel has fallen sharply, losing $68 and is currently trading at $67.23, while the Brent barrel, more internationalised, has not responded to the falls and is close to $76. The main reasons for the fall of the WTI would be a reduction in the fear that the Israeli attack on Iran would disrupt oil supplies, given that the Israeli attack on Iran has turned out to be very limitless.
📈 Five of the Magnificent Seven companies report earnings this week. Netflix could overpass Tesla in the group. Netflix’s free cash flow has steadily risen since 2020 to over $6.9B in 2023 and is forecast to grow further, seen as a stock catalyst.
💶 Eurozone bank lending rebounded more than expected in September, while a German business survey improved more than forecast, indicating the economy could have bottomed out. Lending to companies grew 1.1% in September, the highest since mid-2023, while household lending rose 0.7%, its best since October 2023. The German Ifo business climate index increased more than expected in October, providing some relief for the major economy. However, if a deep recession is not there, a stagnation in winter followed by an anemic recovery in spring would be the scenario as government action is lacking.
💸 Boeing is set to launch a capital raising plan as early as Monday to raise more than $15 billion, a source told Reuters. The plan will include the sale of common stock and convertible preferred shares, with the total amount able to rise based on demand. Last week, machinists voted nearly two to one to reject Boeing’s latest offer seeking to end an ongoing strike halting 737 MAX production. Boeing has been burning cash all year and last week reported a new $6 billion quarterly loss. Earlier this month Boeing secured a $10 billion credit agreement and said it would cut 17,000 jobs and delay its 777X jet deliveries. Credit ratings agencies have said Boeing’s ratings could be cut to junk if it raises new debt without retiring some $11 billion in existing debt.
✈️ Major European airlines like Lufthansa and Air France-KLM are expected to report more quarters dragged down by rising costs and limited planes due to ongoing delivery delays. Delivery delays, forcing use of older planes burning more fuel, are the biggest headache and Lufthansa now expects a 5-year delay on Boeing 777X jets. British Airways warned of more long-haul cancellations due to engine maker Rolls-Royce delays. Challenges have dragged shares down in the last 6 months, with only IAG seeing a substantial recovery on its strength in the North Atlantic market.
Market View:
📊 Mini S&P 500 futures continue to trade below 5900 points. The Nasdaq 100, on the other hand, buoyed by the upcoming earnings reports from major tech companies this week, surpassed 20,500 points a few hours ago and is inching closer to its all-time highs.
💱 The dollar index DXY is down for the second time after reaching 104.50 points, currently trading at 104.15. The EUR/USD also lost 1.08 for the second time, although it has regained it in the last few hours and is now trading at 1.0825. US bond yields continue to rise; the 10-year bond is currently at 4.25%, pushing back the perception of imminent rate cuts.
🇪🇺 European markets are much more cautious. The DAX 40 is currently down to 19,435 points. The Eurostoxx 50 has not managed to conquer the 5,000 point mark and is currently trading at 4,940 points.
⚖️ In the crude oil market there has been a strong divergence between Brent and WTI barrels which invites to execute pair strategies, buying WTI and selling Brent until the price spread between both barrels narrows. We have discussed the reasons in detail above. Gold remains strong at $2,745 per ounce, but below the highs reached in recent days. Bitcoin continues to tighten and is pushing towards 69,000, reaching levels not seen since July of this year.
Geopolitics:
🌍 Talk of Donald Trump gaining in polls dominated discussions at the IMF/World Bank annual meetings, with concerns about his potential policies. Trump has vowed massive tariffs, including 10% on all imports and 60% on Chinese goods, which could trigger trade wars and raise costs globally. A potential trade war could challenge disinflation and ease of monetary policy globally. Markets are reflecting “Trump trades” with the dollar up sharply and impacts in countries like Brazil and Mexico. However, both institutions, IMF & WB, never voiced these criticisms of the Biden administration, despite holding the record for the largest spending expansion in history and the highest debt figures ever known.
🚀 Elon Musk briefly spoke at a Donald Trump campaign rally, saying he could save $2 trillion through a Department of Government Efficiency. Musk argued all government spending is taxation and that taxpayer money is being wasted. The department would get government “off your back and out of your pocketbook.” The current federal budget is $6.75 trillion, so Musk’s suggested cuts would represent close to a third of spending. Musk has discussed taking a cabinet role and is spending over $100 million to support Trump through his PAC.
🛡️ Last week, NATO defense chiefs discussed continuing the war if Trump wins, with Austin assuring aid will continue due to neocon commitment in Washington. America and Europe are accelerating efforts to arm Ukraine ahead of the election using frozen Russian assets, with billions invested in Ukraine manufacturing its own munitions. The Neocons have weeks to finalize a plan ensuring the Ukraine war continues if Trump becomes president, which may shock the world.
💼 JPMorgan hires former General Milley as advisor to the Bank’s board. CEO Dimon said inflation and interest rates don’t worry him as much as potential international conflicts, cyberattacks, nuclear proliferation and market disruptions.