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Falling yields continue to support equity market gains

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Europe

This week’s calmer tone is helping to keep European markets on the rise after the volatility of last week, with the FTSE100 popping its head above the 7,000 level for the first time since 7th October.

Today’s gains have been broad-based as sentiment settles down after the ructions of the last two weeks, with decent gains for the likes of Smurfit Kappa, Rolls Royce and DS Smith. 

Rio Tinto has underperformed after publishing Q3 production numbers that saw a decline of 1%, and 2% declines in aluminium and bauxite. The Australian miner also warned over the outlook as it comes against the prospect of rising costs and slowing demand out of China. Rio Tinto said it expects annual iron shipments to come in at the lower end of expectations, although they kept their full year guidance unchanged.

888 Holdings shares have slipped back after reporting a 7% decline in Q3 revenues to £449m. the weakness was primarily driven by the closure of the Dutch business, and new safety measures on online gaming in the UK. The integration of the non-US business of William Hill business has continued apace with UK retail shop revenues remaining stable.

The UK online business saw revenues decline by 14% to £125m, because of these new measures with the company saying that for Q4 they expected revenues to be similar to the levels they were in the same quarter last year.     

US

US markets opened strongly higher, after Goldman Sachs became the latest US bank to issue a decent set of Q3 numbers.

Q3 earnings saw revenues beat expectations, coming in at $11.98bn, with most areas of the business outperforming. Trading was an area which stood out with Q3 revenues coming in at $6.2bn, well above forecasts of $5.69bn. FICC sales was the main outperformer in this area, generating $3.53bn of that total, well above forecasts of $3.04bn. Investment banking fell short at $1.54bn. Goldman set aside another $515m in respect of credit losses, while costs also increased. Profits also beat expectations, coming in at $8.25c a share.

The Nasdaq 100 has been leading the market higher with decent gains for the likes of Tesla, Microsoft, Apple, Amazon and Nvidia.

After the bell Netflix is due to reports its Q3 numbers with expectations high that it will avoid another quarter of subscriber losses. The shares have seen a decent rebound in the last few weeks driven by an expectation that the new ad-based model will stop the bleed in subscribers. The new ad-based model is set to be introduced on November 3rd and cost up to $7 a month, however the fear is that this model could cannibalise its more premium offering as some customers trade down. For Q3 Netflix said it hoped to start adding back subscribers, with hopes that they will see growth of 1m, reversing the decline in Q2. For Q3 revenue forecasts were lower than expected at $7.84bn, although it’s still a 4.7% increase on the same quarter a year ago.

FX

The pound’s recent rebound has run into some resistance today on reports that the Bank of England could push back its timeline for selling off parts of its bond portfolio. This became inevitable in light of the recent volatility in the UK bond market. Some Bank of England officials have pushed back on this, saying that no such thing has been decided, however, to go forward now would be foolhardy in the extreme given that sentiment remains fragile. Having said that never underestimate the ability of the Bank of England to issue muddled comms. It’s become their speciality in the last few years. Nonetheless the prospect of a hefty rate hike in November hasn’t diminished with the market pricing in the prospect of a possible 100bps move.

The euro shrugged off another disappointing Germany ZEW survey, after the current situation index slipped to -72.2. The expectations index however edged higher, avoiding a record low in the process, rebounding from -61.9 to -59.7.

Commodities

Crude oil prices rolled over soon after US markets opened sliding to their lowest levels in two weeks, despite OPEC+ reiterating their unanimity in cutting production earlier this month. The slide appears to have been exacerbated by the announcement of another SPR release, as the US looks to push back on the production cuts announced by OPEC+. 

Concerns about the demand outlook also remain a factor, as markets parse yesterday’s decision by Chinese authorities to delay their September economic data. The delay doesn’t speak to an economy that is performing well, and perhaps they have something to hide in that the data is even worse than feared.

Gold is continuing to recover but the rally feels a little fragile despite the continued slide in yields, and a somewhat weaker US dollar. 

UK Natural gas prices have also continued to fall and are now close to their lowest levels since July, on the back of the continued mild weather. The UK government will be hoping that this trend continues with a fall below £200 potentially opening further losses towards £185.

Volatility

Subdued session sees vol focus on China and Hong Kong stocks

US listed stock in DouYu added more than 10% at one point during yesterday’s session as this continued its rally off last week’s all-time lows. Some of the gains were given back running into the close but the underlying trend does at least for now appear to be upward. One day volatility came in at 200.34% against 152.04% on the month.

Hong Kong’s Hang Seng index was one of the more active across the asset class on Monday as traders worked through a series of mixed messages. Having tested 11-year lows late last week, the market is picking up a little, but recession fears are weighing and the fact that the Hong Kong Dollar remains pegged to USD is also taking a toll. One day vol on the Hong Kong 50 sat at 35.75% against 32.95% on the month.

Elsewhere it proved to be a rather subdued start to the week. All currencies – both fiat and cryptos - were displaying one day volatility levels below the one-month equivalents, whilst across commodities there was little of note on offer, either. Energy prices remain volatile and that was most notably played out in the Gasoline contract which tested two-week lows during Monday’s session. One day vol came in at 48.07%, just a shade above the monthly print of 47.46%.


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