US EARLY MORNING: US equity futures are slightly lower, conforming with a cautious global risk backdrop; heavy slate of Fedspeak ahead

US PRE-MARKETS: US equity futures are trading with small losses ahead of a heavy slate of Fedspeak, which includes FOMC Vice Chair Williams, Fed’s Vice Chair of supervision Barr, Fed Governor Waller, as well as Fed 2023 voter Logan and 2025 voter Schmid. Overnight, the RBA hiked its Cash Rate by 25bps, as expected, with forward guidance seeing a dovish tweak, while China trade data was mixed (imports posted surprise growth, but exports fell more than expected). In Europe, there has been another set of soft industrial data out of Germany. European stocks opened cautiously, in keeping with the subdued global risk appetite. Treasury yields are lower across the curve, taking its cue from risk dynamics rather than the upsized supply to be auctioned this week. The Dollar Index rises, as risk currencies snap their recent run of gains amid the caution. Oil futures are lower, taking their cues from China trade data rather than supply dynamics. In addition to the heavy dose of Fedspeak today, markets will note the US trade data for September, IBD/TIPP economic optimism survey for October, the Manheim used vehicles price index, and the NY Fed’s Q3 household wealth report. Elsewhere, the EIA’s STEO is due in the US afternoon, while the weekly inventory data from the API will be released after the US close.

EQUITIES' UNATTRACTIVE RISK-REWARD: JPM's Global Markets Strategist Marko Kolanovic notes that falling bond yields and the dovish central bank meetings are being interpreted by equity markets as a positive in the near term, but JPM believes "that equities will soon revert back to an unattractive risk-reward as the Fed is set to remain higher for longer, valuations are rich, earnings expectations remain too optimistic, pricing power is waning, profit margins are at risk and the slowdown in topline growth is set to continue." Kolanovic says that the ‘bad news is good news’ play may be quite narrow, as it is difficult to distinguish between a healthy slowdown and the initial stages of recession without the benefit of hindsight. "With the market now pricing in a full ease by mid-2024, valuations rich and the increase in supply, we turn tactically short on 7Y USTs, after taking profit on longs in 5Y USTs, and look for a steeper curve at the long end." He says US HG spreads should stay range-bound as yields decline, but ratings trend up, while US HY default activity increased in October. On currencies, JPM says US developments have opened a window for USD weakness, "but dollar bears would be well-served to ask for how long; US exceptionalism still lingers, with the rest of the world on more tenuous footing." and on energy, JPM says that oil prices have remained relatively subdued despite geopolitical escalation in the Middle East, "however, the conflict is not yet resolved and geopolitical risk is skewed to the upside," adding that geopolitical risk premium can also linger for European natgas because of weather conditions.

EQUITY NEWS:

07 Nov 2023 - 09:30- EquitiesData- Source: Newsquawk

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