Global Equity Markets Evenly Divided

Global equity markets were evenly divided last night with winners slightly outnumbering losers. Overnight economic news included a 0.9% decline in Japanese machinery orders for August, a slightly softer than expected Australian employment change of +14,900, a 0.2% jump in the Australian unemployment rate, a 0.4% decline in Japanese Tertiary Industry Index for August, an expansion of the UK goods and trade gap deficit, a minimal 0.1% gain in UK GDP, a 0.4% gain in UK industrial production, and a -0.2% Italian Consumer Price Index reading for September. If the US government were open, the markets today would have been presented with US claims, PPI, retail sales and business inventories.

STOCK INDEX FUTURES

While the equity markets continue to recover from the recent aggressive washout, we get the sense the bull trade is more hesitant than prior to the October 10th washout. However, US bank earnings have been solid this week, and investors have largely discounted equity market bubble talk. However, with a lack of scheduled data flow, today’s corporate earnings should maintain a prominent position in the headlines. In fact, the trade will see another wave of bank earnings, brokerage earnings and earnings from cyclical companies like CSX Corporation, Taiwan semiconductor, Snap-on Inc. and Manpower group Inc.

CURRENCY FUTURES

While the dollar managed to largely reject the new low for the move early today, the path of least resistance remains down with dovish takeaways from Fed headlines likely the genesis of the current slide in the greenback. The bear track in the dollar is surprising considering continued soft international data flow, residual strength in US equities and positive US bank earnings. Nonetheless, the previous 48 hours has presented numerous indications from the Fed (speeches and the Beige Book) that more US rate cuts are ahead and that should result in a dollar trade below 98.00. However, there should be some dollar support from overnight economic news which included a 0.9% decline in Japanese machinery orders for August, a slightly softer than expected Australian employment change of +14,900, a 0.2% jump in the Australian unemployment rate, a 0.4% decline in Japanese Tertiary Industry Index for August, an expansion of the UK goods and trade gap deficit, a minimal 0.1% gain in UK GDP, a 0.4% gain in UK industrial production, and a -0.2% Italian Consumer Price Index reading for September.

INTEREST RATE MARKET FUTURES

Even though US treasuries have generally lost upside momentum, a pattern of higher lows has remained in place, and several short-term technical indicators remain in “buy mode”. A Bloomberg analyst made a good point overnight when he suggested that the “US Fed and US banks seem to be in different worlds” with respect to forward views. The Fed chairman yesterday saw a softening jobs market but also sees tightening liquidity within money markets. Bank earnings reports this week told a slightly different story with good earnings and ideas of abundant liquidity remaining in place. Nonetheless, the Fed chairman added to recent speculation of an ongoing wind down of the Fed’s balance sheet. Most importantly the Fed chairman seemed to indicate the Fed’s quantitative tightening efforts would end in the coming months. With global economic data continuing to throw off signs of slowing, some international inflation readings softening, a US slowing bias the bull camp generally holds serve. Furthermore, the US Beige Book release yesterday clearly solidifies expectations of two additional rate cuts before the end of the year.

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