US EARLY MORNING: US index futures a little higher; geopolitics in focus ahead of more key data and Fedspeak

SNAPSHOT: Equity futures are higher by 0.3-0.4%, led by the Russell and Nasdaq-100; stocks staged a recovery overnight after US officials suggested a Russian-made missile launched into Poland was probably not fired by Russians. Treasury yields are 0-2bps higher across the curve ahead of 20yr supply, as well as retail sales data (preview below) and Fedspeak. The Dollar Index is a little beneath neutral, though major peers remain flat against the greenback. Crude futures are higher after API weekly inventory stats reportedly printed a larger than expected draw in crude stocks: Crude -5.8mln (exp. -0.4mln), Cushing -0.8mln, Gasoline +1.69mln (exp. +0.3mln), and Distillate +0.9mln (exp. -0.5mln); Crude has also seen some upside in early European trade after reports that an oil tanker had been struck by an exploding drone attack off Oman.

ERP PUZZLE: Goldman Sachs notes that since the COVID crisis, equities have outperformed bonds due to both strong earnings and dividend growth, but more recently as equities have re-rated versus bonds. “For investors this is a material change to the last cycle, which was dominated by ‘TINA’ (There Is No Alternative), when low bond yields forced them up the risk curve and towards equities; now they are facing ‘TARA’ (There Are Reasonable Alternatives),” and notes that IG credit offers relatively high nominal yields with comparably low risk, while US TIPS allow investors to lock in purchasing power for the long run. GS explains that a less positive yield gap can point to strong expected growth, or a lower required equity risk premium. “The re-rating of equities vs bonds increases the risk of disappointment for equity investors, either because growth is weaker than expected from here and/or equities need to de-rate again vs bonds due to higher risk.” GS argues that ERP will likely be lower than the last cycle, with greater risks given the higher macro volatility today. “The likelihood of equities outperforming bonds in the coming decade remains high based on history but with less support from relative valuations the prospective ERP will depend on growth,” it writes. Currently, it sees implied long-term growth prospects as relatively optimistic, and as a result, and ERPs could see upward pressure from cyclical and structural headwinds. “With relatively high bond yields, peaking rates volatility but elevated growth uncertainty, the case for higher equity allocations is still mixed,” GS says, “we think with attractive yields in fixed income, the case for allocations to higher quality credit remains strong into next year with lingering growth risks.” It also points out that dividend swaps are pricing more negative growth than equities are.

DAY AHEAD: Geopolitics will likely be the key focus in the European morning, after reports that a Russian-made rocket landed in Poland on Tuesday; a NATO emergency meeting will take place at 09:00GMT/04:00ET, and SecGen Stoltenberg will hold a press conference at 11:30GMT/06:30EST. The Polish President said it will likely activate Article 4 of the NATO Treaty on Wednesday at the NATO meeting, which involves intensifying discussions between members, but does not guarantee NATO will take action. According to the Associated Press, a US official said its initial findings suggested that the missile that hit Poland was fired by Ukrainian forces at an incoming Russian missile. Elsewhere, the ECB’s financial stability review is the only notable data release out of Europe today. ECB speakers will include de Cos, Panetta and President Lagarde. From the UK, Governor Bailey, Broadbent, Mann and Dhingra will appear before the UK Treasury Select Committee regarding the November MPC meeting. Much attention will be on the North American day, which includes US October retail sales data, weekly MBA mortgage applications, October import and export price data, as well as October industrial and manufacturing production metrics. The Canadians will publish October inflation data. Today’s docket of Fedspeak features Fed’s Williams (voter), Barr (voter), and Waller (voter). On the energy front, the DoE weekly inventory data is due. Highlights of today’s US corporate earnings calendar includes LOW, TGT, TJX, CSCO, NVDA. Our full Day Ahead can be accessed here; our earnings expectations note can be accessed here.

US RETAIL SALES (13:30GMT/08:30EST): Analysts expect US retail sales to rise 1.0% M/M in October (vs 0.0% M/M in September); the ex-autos measure is seen rising 0.4% M/M (prev. +0.1%), and the ex-gas and autos measure is seen rising 0.2% (prev. 0.3%); the Control Group is seen rising 0.3% (prev. 0.4%). Credit Suisse estimates the deflator at 0.2%, which it says could imply retail sales growth of 1.0% in the month. The bank says auto sales will support the headline after unit vehicle sales rose strongly, while gasoline prices also ticked higher. Many analysts will be keeping an eye on the components relating to real estate activity, given the downside seen in home sales of late, which is likely to weigh on components relating to building materials and household durables. “High-frequency card spending data suggest consumer spending remained solid in October,” CS writes, “healthy balance sheets and excess savings should support consumption,” and adds that “results in-line with our expectation [for 1.2% M/M headline] suggest real sales remain above trend.”








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

Subscribe Now to Newsquawk

Click here for a 1 week free trial

Newsquawk provides audio news and commentary for over 15,000professional traders and brokers worldwide. Services include: