US EARLY MORNING: Stock futures are below neutral; weekend newsflow generally leans cautious

SNAPSHOT: US equity futures are trading with a modest negative tone, perhaps taking a pause after the solid rally seen in wake of lower-than-expected US inflation data in October. The weekend was dominated by the FTC collapse, though this is not having any systemic fallout and financial market functioning has been uninterrupted, though will still herald a more activist regulatory stance; Democrats retain the Senate, though the House will likely flip to the GOP; the Treasury Secretary is already warning on the debt ceiling; there were also a number of reports focussing on job losses in the tech sector, while other pockets are also seeing pockets of layoff announcements (DIS on Friday, for instance). Treasury yields are rising 3-8bps, with cash markets having reopened after the Veteran’s Day holiday on Friday. The Dollar Index is trading above neutral, but remains capped by 107.00; activity currencies are mixed, as are EMFX majors; China’s yuan may be influencing the landscape, as the PBoC set the yuan fix at the strongest vs the USD since late September. China themes will remain at the forefront amid some pushback from officials that the country is on the cusp of jettisoning its COVID zero policies, while a meeting between Presidents Xi and Biden is scheduled to take place later this morning.

OUTLOOK: While there is an outsized amount of attention on the crypto complex in wake of the collapse of exchange FTX, it is worth noting that the broader financial market functioning has not been hit. And the news flow has taken the shine off a huge risk rally which has seen the ES bounce back towards 4,000 (fleetingly topping that level) as traders dovishly reprice the trajectory of Fed rate hikes after the lower-than-expected inflation data for October – many see lower inflation continuing: Goldman Sachs now sees a significant decline in inflation next year, and thinks that core PCE will pare back to 2.9% Y/Y in December 2023 from current levels around 5.1%. And fund managers are now reportedly increasing efforts to woo investors back into bonds, FT reports, noting that fixed income outflows have slowed as inflation eases and hopes rise of an end to jumbo Fed interest rate rises. Additionally, the FT reports that US companies are also rushing to raise cash as a steadier stock market and softer inflation data open a rare window to sell bonds and shares; last week was one of the busiest in months for bond markets, with about USD 2bln of shares sold in secondary deals; FT said that industry players were predicting the burst of activity would continue. Nevertheless, Bloomberg says that analysts are still pessimistic about what is to come; BBG says analysts have cut S&P 500 earnings estimates for nine straight weeks, and now see negative earnings growth in Q4, where they predict earnings will decline 0.4% Y/Y; when asked in August, these analysts were looking for +6% Y/Y in Q4. And JPMorgan CEO Dimon reiterated his downbeat view on the global economy, warning that the conditions for an economic storm, adding that we could see more surprises like the near meltdown of UK pension funds. Dimon told Nikkei that “the storm I was talking about [recently], or the potential storm, includes inflation, higher rates, global tightening, quantitative tightening and the effect of the war on the global economy, particularly oil prices, food prices, supply chain issues,” adding that “those things have all kind of happened.” He went on to say that “these are very serious issues we have had to deal with” and “we still don’t know what the outcome will be.” Companies are also responding to the uncertainty with job cuts; The Washington Post notes that in the last week, US tech companies have laid off 20k workers, ramping-up job cuts and hiring freezes that have been ricocheting through the tech industry for months, while others like Google and Amazon have recently instated hiring slowdowns and freezes.

DAY AHEAD: There is not much by way of scheduled data releases due on Monday, with only the Eurozone industrial production numbers for September standing out. Even the central bank speakers slate is quiet, with ECB's vice president de Guindos and Panetta to speak again, but both spoke last week and will likely have little to add. Fed's Williams makes an appearance after hours. On the supply front, the BoE short-term Gilt sale will be eyed. Leaders have begun arriving for the G20 summit, due to take place on Tuesday and Wednesday; we expect a lot of geopolitical headlines, though leaders will reiterate known positions: Russia is expected to be condemned over its invasion of Ukraine, there will be additional headlines on the oil price cap; US-Sino relations will be in focus as leaders Biden and Xi meet on Monday; Biden will raise North Korea, and tell Xi that if North Korea continues firing missiles, there will be more enhanced US military presence in the region; Taiwan will likely also get a mention, as will bilateral trade (we cover the themes in our weekly note, which can be accessed here). Elsewhere, this week, we'll get US retail sales, the UK Autumn Statement (expect tax increases and lower spending, with forecasts looking similar to the BoE's recent projections), and China activity data. Full Day Ahead schedule here.










14 Nov 2022 - 09:30- Research Sheet- Source: Newsquawk

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