Corporate news lifts the S&P500 to a new high; breakevens edge higher; Japanese stocks rebound today but Asian markets mostly quiet
The US equity market started the week on the front foot yesterday, with a surge in Tesla’s stock helping to propel the S&P500 to a 0.5% gain and so to a new record high. After moving higher in European time, UST yields retraced early in US trading with the 10Y yield subsequently closing virtually unchanged at 1.63%. However, with inflation worries remaining at the forefront, the 10Y breakeven edged higher to a new 15-year high of 2.67%. The greenback was little changed against most currencies, while holding onto gains made against the euro following Germany’s somewhat disappointing ifo report.
The positive sentiment in the US stock market has continued since the close. News of a seemingly cordial and constructive meeting between Treasury Secretary Yellen and Chinese Vice Premier Liu didn’t hurt sentiment. Meanwhile, Facebook stocks moved up 2% in extended trading after reporting higher than expected user numbers. With S&P mini futures a couple of tenths higher (and Nasdaq futures up 0.5%), UST yields have nudged higher too. Nevertheless, it has been another mixed session in Asia. After weakening yesterday, Japan has led the gains, with the TOPIX climbing 1.2%. On a quiet day for Japanese data, sentiment may have been boosted by an Asahi newspaper survey, which, in contrast to an earlier poll, provided reassurance that the LDP would likely secure more than the necessary 233 seats required to maintain its majority at the coming weekend’s lower house election. In South Korea, the KOSPI has firmed almost 1% despite news of a disappointing 0.3%Q/Q lift in GDP in Q3. Stocks have been steady in Australia, but bond yields have nudged higher with investors perhaps looking ahead a little nervously to tomorrow’s Q3 CPI report. And at the time of writing stocks were slightly weaker in mainland China and Hong Kong.
Japan’s service sector PPI inflation eases in September but trimmed mean CPI inflation rises to a 26-month high
A quiet day for economic data in Japan brought the release of two inflation-related reports from the BoJ. First up was the services PPI for September, which continued to contrast sharply with the steep increase in prices for producer goods (the latter driven by rising commodity prices, and compounded by the weakening yen). The overall services PPI recorded no change in prices in September – a weaker than expected result that lowered the annual inflation rate by 0.1ppt to a six-month low of just 0.9%Y/Y. Weighing on the index this month was a 0.5%M/M decline in transportation prices, with a particularly large decline in prices for domestic air fares. However, this was balanced by a 3.6%M/M rebound in prices for advertising services as providers presumably anticipated a recovery in demand in light of the expected removal of state of emergency conditions in late September. For the year, two-thirds of the 0.9%Y/Y increase in overall prices was explained by surging prices for freight transport – including a near 35%Y/Y increase prices for ocean freight – and a rebound in prices for advertising services.
Later in the day, and following on from Friday’s national CPI report, the BoJ released its analytical measures of underlying inflation for September. Unlike the regular exclusion-based measures of core inflation, these are impacted less by extreme relative price shifts such as the steep decline in mobile phone call charges that occurred in April, and thus can help better identify the inflation trend. The trimmed mean inflation rate, which the BoJ’s research suggests is best correlated with the state of the economy, increased 0.3ppt to 0.6%Y/Y in September, marking the highest reading since July 2019. While still nowhere near the BoJ’s inflation target, this at least compares favourably with its preferred exclusion-based measure of core inflation (CPI excluding fresh food and energy), which stood at -0.5%Y/Y in September. The weighted median and the modal increase in prices both stood at 0.2%Y/Y in September, so also suggesting that the underlying inflation trend was indeed fractionally positive. Meanwhile, the net proportion of items recording annual price rises – just over 22% – was the most since January 2020.
A quiet day ahead in Europe, with the ECB’s bank lending survey for Q3 and the UK’s distributive trades survey the main diary entries
Ahead of Thursday’s ECB Governing Council announcement, the ECB’s latest quarterly bank lending survey today will provide insights into financial conditions in the region over the past quarter and expectations for credit standards and demand over the coming three months too. Meanwhile, Spanish PPI figures – which in August saw the headline inflation rate jump to 18.0%Y/Y the highest since the early 1980s – are likely to illustrate persistently high price pressures at the factory gate on the back of rising energy costs.
In the UK, after Friday’s disappointing retail sales report, which showed sales declining for the fifth consecutive month in September, the longest losing streak on the series, today’s CBI distributive trades survey will provide an update on conditions in the sector at the start of the fourth quarter. But the survey will also likely continue to flag ongoing challenges facing the distribution sector.
A busy day for corporate earnings and economic data in the US
In contrast to Europe, in the US a reasonably busy day lies ahead. A key focus will be corporate earnings announcements, with today’s line-up of reports including the likes of General Electric, Alphabet, Twitter, Microsoft, AMD and 3M. On the economic data front, today brings the release of the Richmond Fed’s manufacturing survey and the Conference Board’s consumer survey (both for October). If the preliminary findings of the University of Michigan’s consumer survey are any guide, the latter may indicate a further softening of sentiment due to inflation and virus-related concerns. Today will also see the release of new home sales data for September and the S&P/Corelogic and FHFA house price measures for August. In light of last week’s upbeat NAHB survey, Daiwa America’s Mike Moran anticipates a near 5%M/M lift in new home sales in September.
Aussie consumer confidence broadly steady last week
On the data front, the only news in Australia today was the release of the weekly ANZ-Roy Morgan consumer confidence index. After increasing for six consecutive weeks, the overall index nudged down an immaterial 0.2% to 106.8 last week. While respondents were more upbeat about the long-term economic outlook and buying conditions for major household items, they were less positive about the year-ahead financial outlook – a development that may reflect the rebound in term interest rates and APRA’s macro-prudential policy tightening designed to slow pricing pressures in the housing market.