US futures were modestly higher - but well off session highs - at the end of a turbulent week after Amazon and Intel reported solid earnings. At 8:00am ET, S&P futures were up 0.3% while Nasdaq futures gained 0.6% after a selloff that drove the index to its lowest since May. The retreat also put the S&P 500 on the brink of a “correction,” with the gauge down nearly 10% from its July peak. The US outperformed Europe's Stoxx 600 which reversed earlier gains to trade at session lows, down 0.6% after French drugmaking giant Sanofi plunged 16% when it revealed a surprise forecast for lower profit. Crude oil rose 2% and back toward top of Thursday’s range as the US conducted strikes on Iran-linked facilities in Syria. Treasury yields resumed their tick higher as did the dollar.

In premarket trading, Chevron dropped  2.5% after the oil producer reported adjusted earnings per share for the third quarter that missed the average analyst estimate. Management cited lower upstream realization and lower margins. At the same time, it's bigger and more competent peer, Exxon was flat after it beat on revenue, reporter stronger cash flow and boosted dividends more than expected. Amazon rose 6.0% as the e-commerce and cloud computing giant posted  robust sales and profit growth and indicated that its cloud unit is regaining momentum. Ford fell 3.6% after the automaker reported adjusted earnings per share for the third quarter that missed the average analyst estimate. Here are some other notable premarket movers:

• Enphase Energy shares slumped 22% after the solar-equipment manufacturer’s forecast fourth-quarter revenue below expectations. The company also reported third-quarter revenue that missed estimates.
• Intel gained 7.3% after the chipmaker forecast adjusted EPS and revenue for the fourth quarter above estimates.
• JPMorgan shares declined 0.2% after it said chairman and CEO Jamie Dimon confirmed today that he and his family plan to sell a portion of their stock for financial diversification and tax-planning purposes.
• Rivian (RIVN) rises 2.2% as Cantor Fitzgerald raises the recommendation on the EV startup to overweight from neutral. The broker says it expects strong demand to continue into 2024.
• Roblox (RBLX) jumps 4.2% after Raymond James initiated coverage with a strong buy recommendation, seeing several “encouraging factors” positioning the video-game company for long-term growth. Meanwhile, Truist Securities upgraded their rating to buy from hold.
• Dexcom (DXCM) rallies 17% in premarket trading Friday after the company raised its revenue guidance for the full year, allaying Wall Street’s fears on the impact of weight-loss drugs on the diabetes-device maker.
• Enphase Energy (ENPH) shares slump 21% after the solar-equipment manufacturer’s forecast fourth-quarter revenue below expectations. The company also reported third-quarter revenue that missed estimates. Piper Sandler downgraded their recommendation on the stock and cut the price target to a Street low, noting the limited visibility. Meanwhile, TD Cowen flagged the significant deterioration in demand in Europe.
• PTC Therapeutics (PTCT) shares plummet as much as 22% after the company reported third-quarter revenue that missed estimates. Citi downgraded their recommendation on the stock to sell, flagging the increased uncertainty across the company’s pipeline programs.
• Regions Financial Corp. (RF) slips 1.5% after the firm was downgraded to neutral from overweight at JPMorgan, as analyst Vivek Juneja said deposit betas are catching up for the firm and he doesn’t see a positive catalyst.
• T. Rowe Price Group Inc. (TROW) gains 3.3% after the firm reported adjusted earnings per share for the third quarter that beat the average analyst estimate.

The Q3 earnings season has proved a mixed bag so far, with investors punishing misses more severely than they are rewarding beats. In the US, 78% of companies reporting so far beat estimates, compared with 57% in Europe, according to JPMorgan. But more firms than usual are flagging lower consumer demand and a deteriorating economic environment, they said, even as data Thursday suggested price pressures continue to dissipate in the US despite solid economic growth.

“The better-than-expected results from Amazon last night are brightening the mood,” said Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown. “However, the overall concern is what the too-hot-to-touch US economic read will mean for the next interest rate decision. The higher-for-longer interest rate narrative will become louder and more apparent.”

Attention now turns to a barrage of reports today, including the Federal Reserve’s preferred inflation measure, the core PCE, which will cement bets the central bank will pause next week. Treasury yields ticked higher and the dollar dipped for the first time in four days. Swaps contracts are projecting a roughly one-in-three chance of another Fed hike in the current tightening cycle, according to data compiled by Bloomberg.

European stocks also tried to stage a rebound but failed, and were last trading 0.6% lower as gains for the energy sector helped offset a slump in Sanofi, NatWest Group Plc and Moncler SpA after disappointing earnings. The energy and chemicals sectors were the biggest gainers while the healthcare subindex lagged. Drugmaker Sanofi plunged 16% after a surprise forecast for lower profit next year overshadowed optimism about a plan to spin off the consumer health division. Among other single stocks, UK lender NatWest plummeted after it cut its margin guidance, while Italy’s Moncler became the latest luxury company to disappoint this season as analysts noted weaker trends into the latter part of the year. Drinks company Remy Cointreau SA also fell after cutting its annual sales guidnce. Here are the most notable European movers:

• Equinor shares climb as much as 2.8% after third-quarter profit beat that was boosted by high oil production and strong performance at Norwegian integrated oil company’s trading unit
• Aker BP shares climb as much as 2.3% after the Norwegian oil and gas company narrowed its guidance for 2023 production and beat net income estimates. The results also lift European sector peers, including Equinor, TotalEnergies and Repsol
• Eni gains as much as 2.3% after the Italian oil and gas giant reported what analysts called strong third-quarter results, with profit that came in ahead of expectations and increased full-year adjusted Ebit guidance
• Montea advances as much as 6.7%, the most since Sept. 2022, as ING describes the real estate development company’s results as good, with strong underlying trends and momentum
• Sanofi shares drop the most on record, falling as much as 16%, after the French drugmaker unexpectedly forecast a drop in profit next year and reported third-quarter earnings that missed estimates
• NatWest slumps 18%, as the UK bank’s shares hit lowest since Feb. 2021. Analysts highlight implied exit net interest margin significantly below consensus expectations, with Citi describing today’s results as a “major disappointment”
• Universal Music shares plunged as much as 8.4%, the biggest drop since October last year, after the record label reported Ebitda for the third quarter that missed the average analyst estimate
• Moncler shares drop as much as 8%, their worst day since March 2022, after in-line third-quarter sales were overshadowed by the Italian luxury company seeing weaker trends into the latter part of the year, according to analysts
• Metso Oyj falls as much as 8.3% after the Finnish machinery producer’s third-quarter adjusted Ebita fell short of the average analyst estimate
• Remy Cointreau shares plunged as much as 12%, the most since April, after cutting its full-year organic revenue guidance by much more than analysts had expected
• Electrolux shares fall as much as 14%, the most since July, after the Swedish home appliances manufacturer reported third-quarter results that Citi descibed as “much worse than feared,” with no improvement expected in 4Q
• Air France-KLM shares drops as much as 7.6% to the lowest intraday level on record, after a miss on third-quarter Ebitda overshadowed a rise in profit. Capacity at 94% of the comparable pre-pandemic quarter in 2019 came in a touch below target

Earlier in the session, Asian stocks rebounded as the latest results from US tech majors and positive data on the China economy helped drive a rebound. The MSCI Asia Pacific Index rose as much as 1.2% Friday, with Alibaba, Toyota and TSMC among the biggest contributors. Shares in Hong Kong and Japan led the advances in Asia, while Australian and South Korean stocks were also in the green. Mainland Chinese shares edged higher after data on industrial companies’ profit showed growth, though slightly softer than in the prior period. China’s industrial profits in September rose 11.9% from a year earlier, marking the second-straight month of expansion, also helping boost risk appetite. Still, the Asian benchmark was on track for a second weekly loss with a 0.9% decline this week.

• Hang Seng and Shanghai Comp opened mixed with the former firmer as its earnings season picked up and as the Hang Seng Tech index rose over 2%. Sentiment for the Mainland was initially muted but improved, while reports via China’s Securities Journal suggested China was likely to reduce the reserve requirement ratio in Q4 to support government bond issuance.
• Japan's Nikkei 225 saw its gains driven by its Industrial sectors, potentially following the US GDP metrics, while the Pharma sector lagged as Takeda shares slumped over 7% following their earnings.
• Australia's ASX 200 supported by its Consumer Staples sector, while an uptick in M/M PPI had kept the Industrial Sector’s gains capped, and Tech had resided as the laggard.
• India stocks rebounded on Friday to snap their six-day plunge but still closed lower for the week, dragged by selling of local shares by overseas investors. Reliance Industries was among key gainers on Friday ahead of its release of its quarterly earnings. The S&P BSE Sensex rose 1% to 63,782.80 in Mumbai, while the NSE Nifty 50 Index advanced by a similar measure. The gauges posted their biggest single day rally since June to partly recoup the losses during the last six sessions.

In FX, the Bloomberg Dollar Spot Index falls 0.2%. USD/JPY drops 0.3% to ~150. The Swiss franc is the weakest of the G-10 currencies, falling 0.1% versus the greenback. The Dollar Index “appears to be in a holding pattern ahead of tonight’s release of the US PCE deflator data,” said Philip Wee, a senior currency economist at DBS Bank in Singapore. “The potential for unexpected announcements from the Fed remains a factor to consider in the upcoming FOMC meeting.”  The yen was up first day in four as data showed consumer price growth in Tokyo unexpectedly quickened for the first time in four months in October USD/JPY slipped 0.2% to 150.15, edging closer to the 150 handle where $4.35 billion worth of options expire.

In rates, treasuries are cheaper across the curve, with the long-end leading losses on the day. US yields cheaper by up to 2bp across long-end of the curve with 2s10s, 5s30s spreads steeper by 1bp and 2bp on the day; 10-year yields around 4.87%, cheaper by 2bps vs. Thursday close with bunds and gilts outperforming by 4bp and 5bp in the sector. Treasuries lag price action in core European rates after a release of Brandenburg inflation figures for October came in below median estimates for the national figure, which will be released on Monday. The US session will focus on data including personal income and spending along with PCE deflator.  Friday's dollar IG issuance slate empty so far; M&T Bank was the only issuer to sell IG bonds Thursday, the fourth one-deal session this week as primary issuance has ground to a halt.

In commodities, oil rallied as traders monitored the Israel-Gaza conflict ahead of the weekend. WTI rose 2.5% to trade near $85.30. Spot gold adds 0.1%.

Bitcoin was unchanged on the session, trading in close proximity to $34k. Action that is much steadier than that seen across the week as a whole where ETF optimism has driven BTC from a $29.67k base to a $35.18k peak.

Looking to today's event calendar, we have US September personal spending, personal income, PCE deflator (8:30am), October University of Michigan sentiment (10am) and Kansas City Fed services activity (11am); we also get the Italian September hourly wages, October economic sentiment, consumer, manufacturing confidence, August industrial sales, and French October consumer confidence. We will also have earnings releases from Exxon Mobil, Chevron, AbbVie, Charter Communications, and Colgate-Palmolive.

Market Snapshot

• S&P 500 futures up 0.6% to 4,181.25
• STOXX Europe 600 little changed at 433.54
• MXAP up 1.2% to 151.96
• MXAPJ up 1.1% to 475.58
• Nikkei up 1.3% to 30,991.69
• Topix up 1.4% to 2,254.65
• Hang Seng Index up 2.1% to 17,398.73
• Shanghai Composite up 1.0% to 3,017.78
• Sensex up 1.1% to 63,816.27
• Australia S&P/ASX 200 up 0.2% to 6,826.86
• Kospi up 0.2% to 2,302.81
• German 10Y yield little changed at 2.85%
• Euro little changed at $1.0559
• Brent Futures up 2.1% to $89.80/bbl
• Gold spot up 0.1% to $1,986.48
• U.S. Dollar Index little changed at 106.61

Top Overnight News

• Japan’s Tokyo CPI for Oct accelerates and overshoots the Street consensus, placing additional pressure on the BOJ ahead of its 10/30-31 meeting. RTRS
• Li Keqiang died, less than a year after stepping down as China’s premier. The reformer who found later found himself sidelined by Xi Jinping, suffered a heart attack and passed away in the early hours today in Shanghai. He was 68. BBG
• The U.S. said it launched strikes Thursday night on two bases in eastern Syria it believed were used by Iranian groups, the first U.S. offensive military response to a wave of drone and rocket attacks on troops based in Iraq and Syria, the Pentagon said. WSJ
• Russia’s central bank raised interest rates by 2 percentage points to 15 per cent on Friday, higher than the 14 per cent analysts had predicted, citing high inflation and the weak rouble as it hiked for the fourth consecutive meeting. FT
• Berkshire Hathaway faces accusations it violated the terms of a more than $10 billion acquisition of Pilot Travel Centers by changing the accounting methods used to value part of the deal. BBG
•  Speaker Johnson suggests passing another interim funding bill (getting the gov’t to mid-Jan or mid-April) to avoid a shutdown and create additional time for fiscal negotiations. RTRS
• Its troops are massed on the Gaza border and described as ready to move, but Israel’s political and military leaders are divided about how, when and even whether to invade, according to seven senior military officers and three Israeli officials. NYT
• Jamie Dimon confirmed he and his family plan to sell 1 million JPMorgan shares next year for diversification and tax-planning purposes. It’ll be Dimon’s first such stock sale during his tenure at the company. BBG
• Pimco’s Richard Clarida expects the Fed to hike further to fight stubborn inflation. But another increase would be “crazy,” Nobel Laureate Paul Romer said. He instead made the case for a cut, saying the 2% inflation target will be met within a year. BE forecasts a hold at next week’s FOMC meeting. BBG

A more detailed look at global markets courtesy of Newsquawk

APAC stocks eventually traded firmer across the board as the well-received earnings from Amazon and Intel pushed sentiment into the positive after the mostly lower close on Wall Street. ASX 200 supported by its Consumer Staples sector, while an uptick in M/M PPI had kept the Industrial Sector’s gains capped, and Tech had resided as the laggard. Nikkei 225 saw its gains driven by its Industrial sectors, potentially following the US GDP metrics, while the Pharma sector lagged as Takeda shares slumped over 7% following their earnings. Hang Seng and Shanghai Comp opened mixed with the former firmer as its earnings season picked up and as the Hang Seng Tech index rose over 2%. Sentiment for the Mainland was initially muted but improved, while reports via China’s Securities Journal suggested China was likely to reduce the reserve requirement ratio in Q4 to support government bond issuance.

Top Asian News

• China is likely to reduce the reserve requirement ratio (RRR) in Q4 to support government bond issuance, according to China Securities Journal citing analysts.
• China's former Premier Li Keqiang has passed away, according to state media CCTV; reportedly died of a heart attack at 68 years old.
• Fantasia Holdings (1777 HK) is entering into a framework cooperation agreement which could assist the group in alleviating its liquidity pressure and facilitate communication with its onshore creditors, according to Reuters.
• Japanese Finance Minister Suzuki said it is important for currencies to move stably reflecting fundamentals; No comment on forex levels, no comment on currency intervention; Will take thorough steps on FX with a strong sense of urgency, according to Reuters.
• Japanese PM Kishida said he thinks companies' willingness to raise wages is very strong, and said the next 2-3 years will be a crucial period for wage hikes, according to Reuters.

European bourses are modestly firmer on the session, DAX 40 +0.5%, but pronounced post-earning stock movements are resulting in marked divergence across some bourses; namely, the post-results/spin-off downside of 15% in Sanofi is weighing on the Euro Stoxx 50 +0.1% and CAC 40 -0.4% where the stock has respective 3.5% and 7.1% weightings. Sectors are mixed with Energy echoing benchmarks and outperforming while Health Care lags given Sanofi, Media pressured post-UMG and Food, Beverage & Alcohol names hit on Remy Cointreau. Banks reside in the green as NatWest's marked downside is offset by Danske Bank, Caixabank & Sabadell. Stateside, futures are in the green, ES +0.5%, with the NQ +0.9% outperforming following AMZN (+6.1% pre-mkt) and INTC (+7.8% pre-mkt) earnings after hours. Ahead, US PCE dominates the schedule.

Top European News

• ECB Survey of Professional Forecasters: 2024 inflation seen at 2.7% (same as prev. release), 2025 projection lowered to 2.1% from 2.2%. Click here for more.
• ECB's Vasle says inflation rate will curb inflation.
• ECB's Muller (hawk) says the rate of price increase remains too fast. EZ in stagnation, not a deep economic crisis. Deep recession not required to tame inflation. Economy to determine how long rates stay at the peak for

FX

• Greenback grinds awaiting pointers from US PCE data as DXY sits tight within 106.50-67 confines.
• Yen continues to hover around 150.00 vs Buck and supported by even bigger option expiry interest as 5.1bln rolls off at the NY cut.
• Aussie reflated as PPI picks up pace and AUD/USD probes 21 DMA at 0.6351.
• Euro hovers above 1.0550 against Dollar and flanked by another range of expiries, Sterling toppy as Cable wanes ahead of 1.2150 again and EUR/GBP holds above 0.8700.
• Loonie fuelled by rebound in oil as USD/CAD eases back through 1.3800 from 1.3831.

Fixed Income

• Bonds braced for US PCE, but retaining a pre-week and month end bid.
• Bunds recover ground between 128.31-82 parameters, Gilts regroup within 92.33-62 range and T-note nearer 106-11 top than 106-03 bottom, albeit narrowly.

Commodities

• A flare up in geopolitical tensions has sparked a concerned bid for the crude benchmarks after relatively contained action across the last few sessions; though, XAU is relatively unreactive.
• As it stands, WTI Dec'23 and Brent Jan'24 are at the top-end of circa. 1.50/bbl parameters that have seen the contracts eclipse USD 85.00/bbl and test USD 89.00/bbl respectively.
• XAU remains in narrow ranges around the USD 1985/oz mark after testing but failing to eclipse the USD 2k/T figure on Thursday while base metals are firmer and feature LME Copper back above USD 8k/T. A move what is seemingly a function of broader risk appetite beginning to return to the market.
• Codelco posted a 2.1% Y/Y increase in Q3 copper production, according to Bloomberg.
• Peru is reportedly planning to cut red tape for the mining sector as part of a package expected to be unveiled next week to stem recession, according to Reuters citing the Economy Minister.
• Kazakhstan says it could increase oil exports to Germany to 2mln/T year via the Druzhba pipeline, via the Energy Minister.
• BHP Iron Ore rail workers within Australia have approved plans for industrial action, incl. work stoppages of up to 24hrs. Further talks with union next week.

Geopolitics

US-IRAN

• "US military carried out airstrikes on Iranian proxy forces in Syria in response to recent attacks on US bases since Oct 17", according to sources via Fox News' Griffin.
• US President Biden ordered strikes against two facilities in Syria used by Iran’s IRGC and Iran-backed groups and will take additional measures if attacks by Iran's proxies continue, according to Reuters citing the Pentagon.
• US Defense Official said Iran is responsible for strikes by its proxies against US troops in Iraq and Syria, according to Reuters.
• "Two IRGC facilities near Abu Kamal in Syria struck in US airstrikes; no word as to whether any Iranians were present at the facilities at the time, according to senior military official. “This has nothing to do with the conflict in Israel and Gaza”; Fox News
• US did not coordinate strikes in Syria with Israel, according to an official cited by Reuters

ISRAEL-HAMAS

• Israel's military said it was aware of a security incident near its Red Sea border with Egypt early on Friday, which follows reports of an explosion in the Egyptian town of Taba, according to Reuters.
• Egyptian media noted a rocket falling in the Egyptian city of Taba and wounding five people, according to Al Arabiya; reportedly hit a residential building, according to BNO News.
• Since, a projectile reportedly fell in the Red Sea town of Nuweiba, Egypt, via Reuters citing security sources.
• IDF spokesman: Warplanes have been called in to deal with an air threat in the Red Sea region, via Sky News Arabia.
• Israeli Defence Minister said forces are fully prepared and will start military ground operation in due course, according to Reuters.
• Israeli fighter jets flew over Jenin city and its camp in West Bank, according to Al Jazeera.
• US Pentagon said 900 troops are deploying or have deployed to the Middle East from the continental US, including air defence operators. US troops have been attacked at least 12 times in Iraq and four times in Syria in the past week by Iran-affiliated groups. US troops were targeted in Iraq earlier on Thursday but the attack was unsuccessful, according to Reuters.

US Event Calendar

• 08:30: Sept. Personal Income, est. 0.4%, prior 0.4%
  • Sept. Personal Spending, est. 0.5%, prior 0.4%
  • Sept. Real Personal Spending, est. 0.3%, prior 0.1%
• 08:30: Sept. PCE Deflator MoM, est. 0.3%, prior 0.4%
  • Sept. PCE Deflator YoY, est. 3.4%, prior 3.5%
  • Sept. PCE Core Deflator MoM, est. 0.3%, prior 0.1%
  • Sept. PCE Core Deflator YoY, est. 3.7%, prior 3.9%
• 10:00: Oct. U. of Mich. Current Conditions, prior 66.7
  • U. of Mich. Sentiment, est. 63.0, prior 63.0
  • U. of Mich. Expectations, prior 60.7
  • U. of Mich. 1 Yr Inflation, est. 3.8%, prior 3.8%
  • U. of Mich. 5-10 Yr Inflation, est. 3.0%, prior 3.0%
• 11:00: Oct. Kansas City Fed Services Activ, prior 2

DB's Jim Reid concludes the overnight wrap

So I braved 3 hours and 26 minutes of the new Martin Scorsese film "Killers of the Flower Moon" last night. It was a pretty good film but probably around 1 hour 45 minutes too long. It could have done with a good edit. After reading the below I hope you won't say the same thing about today's EMR.

However concise we try to be, there's no getting away from spending yet more time on the zig-zagging nature of bond yields with the volatility continuing yesterday. 10y Treasury yields were down -11.1bps to 4.85%, outperforming a decent rally for 2yrs (-8.1bps) and 30yr (-10.0bps) yields. Most of the gains happened before a firm 7yr auction but this did help flatten the curve late in the day.

This rally came even as Q3 US GDP was strong yesterday with the PCE deflator having more influence as it came in a tenth below expectations. Meanwhile, US equities suffered, led by the tech sector with the Magnificent Seven down -2.98%. All this overshadowed a relatively dull ECB meeting as they paused for breath after 10 successive hikes.

The tech sector got a reprieve after the bell last night, as Amazon beat revenue and earnings estimates for Q3, and offered encouraging guidance on the outlook for its key cloud computing business. Together with positive results for Intel, the news helped Nasdaq futures +0.74% higher overnight as I type with S&P futures up +0.50%.

Prior to this overnight rebound, Meta dropped -3.73% after results the night before highlighted an uncertain revenue outlook for the following year. Alphabet and Microsoft also fell -2.65% and -3.75%, respectively. As a result, the tech heavy NASDAQ was dragged down -1.76%, the Magnificent Seven -2.98%, and the FANG+ index -2.66%. The Magnificent Seven are now down -11.7% in the past 15 days, with two more members left to report. Apple and Nvidia will report next Thursday (2 November) and on 21 November, respectively.

The underperformance of big tech weighed on the S&P 500, which fell -1.18%. Earnings reports from other key corporates failed to bring much relief, as UPS, which is often interpreted as a measure of economic activity, cut its profit target yesterday, falling -5.93% on the day. Mastercard declined -5.62% as the revenue outlook came in below expectations. Having said all that, even though the tech sector slumped, taking the index with it, 48% of S&P 500 constituents were actually up on the day, with non-tech interest-sensitive sectors (utilities, real estate) and banks outperforming. So outside of those seven big stocks it was a fairly neutral day for US equities, with the equal weight S&P 500 down a modest -0.17% and the Russell 2000 small cap index actually up +0.34%. However, those seven stocks made it feel like a bad day in the opposite way to how they made many ordinary days very good for the index in the first 7 months of the year.

Over in Europe, the STOXX 600 slid -0.48% after weak earnings reports from top European firms such as Mercedes-Benz (-5.77%), and Volkswagen (-3.08%), as well as confirmation from Siemens Energy (-35.49%) that it was speaking with the German Government and former parent Siemens (-4.54%) due to its struggling wind energy arm.

Turning back to the US data, core PCE for Q3 came in below expectations at 2.4% quarter-on-quarter (vs 2.5% expected), down from 3.7%. This brings the measure to its slowest pace since 2020, a promising sign for the Fed. We have the September PCE data today, which will bring further colour to the pace of falling inflation. Yesterday’s quarterly data suggests a touch of downside risk to our US economists’ projection for a +0.3% month-on-month core PCE deflator print today.

GDP growth for Q3 came in at 4.9% annualised quarter-on-quarter, an upside surprise from the 4.5% expected, and the fastest pace in nearly two years. The strength was largely driven by consumer spending, with the personal consumption index at 4.0% (as expected), from 0.8% in Q2. Government spending was also strong at 4.6% annualised, with some questioning whether the government and consumer can continue to propel growth ever higher from here, especially as private non-residential investment saw zero growth in Q3. In other data, durable goods orders for September were also strong, at 4.7% (vs 1.9% expected), a rise from 0.1% from the previous release. Weekly continuing claims saw a larger-than-expected increase to 1,790k (vs 1,740k expected), though initial jobless claims were largely benign at 210k (vs 207k expected).

Taken together, yesterday’s data reaffirmed the likelihood of a Fed pause next week, and the Fed rate priced in by fed fund futures for the final meeting of 2023 in December fell -1.7bps, which equates to a 19% likelihood of a hike before we move into 2024 .

In the eurozone, as widely expected, the ECB kept rates unchanged at 4.00%. The central bank retained its data dependent approach and guidance that “rates will be set at sufficiently restrictive levels for as long as necessary”. There were some dovish tilts, with Lagarde noting in prepared remarks that “inflation dropped markedly in September” while yields “had risen markedly since our last meeting”. She also struck a cautious tone on the near-term growth outlook. Nonetheless, Lagarde was emphatic that any discussion of rate cuts was “absolutely premature” and would not rule out the possibility of another hike. Our economists continue to expect a prolonged pause but see the softer data, and ECB’s greater acknowledgement of it yesterday, as skewing risks to an earlier cut than their September 2024 baseline. See their reaction piece here.

Following the meeting, markets moved to price in an increased likelihood of ECB rate cuts next year, with Jun-24 OIS futures (-6.1bps) now fully pricing in a 25bp cut. On the back of this European bonds saw a steepening rally, with 2yr bund yields down -5.0bps, while 10yr bund yields ended the day -2.8bps lower at 2.86% .

Looking beyond the rates decision, there was nothing new on the balance sheet front from the ECB, with Lagarde saying that changes to PEPP reinvestments or minimum reserves were not discussed. Around the market close, Reuters reported that the ECB policymakers agreed to discuss QT early next year. The lack of any signal towards a faster unwind of the ECB’s bond portfolio was moderately beneficial for Italian BTPs, with 10yr yields falling -4.5bps, and the spread to 10yr Bund yields tightening -1.7bps. It briefly dipped below 200bps in intraday trading before closing at 201bps, 5.5bps below its recent wides.

Switching to the commodities space, oil more than reversed its gains of the previous day to close at its lowest level in two weeks, with Brent crude down -2.44% to $87.93/bbl and WTI down -2.55% to $83.21/bbl. By contrast, gold was up +0.31% to $1,984/oz, its highest since May .

Asian equity markets are trading higher this morning shrugging off overnight weakness on Wall Street although most of the region’s markets are still heading for weekly losses. The Nikkei (+1.54%) is the best performer across the region after sharply rebounding from previous session losses while the Hang Seng (+0.94%), the CSI (+0.50%), the Shanghai Composite (+0.35%) and the KOSPI (+0.40%) are also trading in positive territory as US Treasury yields eased.

Early morning data showed that Tokyo’s headline inflation rate came in at +3.3% y/y for October (v/s +2.8% expected), compared with an increase of +2.8% seen in September. At the same time, consumer prices excluding fresh food rose +2.7% y/y in October, edging up from +2.5% in September, thus putting the Bank of Japan (BOJ) in spotlight amid signs of broadening price pressures as the central bank prepares to set policy next week. Moving to China, industrial profits dropped -9.0% in the first nine months narrowing from a -11.7% contraction in the first eight months indicating that the world’s second biggest economy is stabilizing helped by the authorities policy support.

Looking ahead to today. In terms of data, we have US September personal spending, personal income, PCE deflator, October Kansas City Fed services activity, the Italian September hourly wages, October economic sentiment, consumer, manufacturing confidence, August industrial sales, and French October consumer confidence. We will also have earnings releases from Exxon Mobil, Chevron, AbbVie, Charter Communications, and Colgate-Palmolive.