We don’t expect the Fed to hike today, as they have the luxury of receiving 2 more Jobs Reports plus CPI data before the Dec decision, and they know that hiking is not in current expectations, so markets would go bananas. Yes, that is a technical term… ADP announced this morning that the US added 113k jobs in Oct, which was softer than expected. But US job openings rose in Sep for a second month—hiring was up, and layoffs declined.
My team has the benefit of receiving research from a number of very smart folks from different organizations. While the divergence in research is what makes this job interesting, some mornings it leaves you scratching your head. GS is back out arguing for what I’ll call the Turkey Trot…expecting a rally in November, versus waiting for a Santa Claus Rally. They’re thinking that an estimated $2.5bn/day will come into the market via equity fund inflows in Nov, plus buybacks which should be at peak levels by the end of this week (potentially up to $5bn/day by later Nov), plus a potential short covering by CTAs of >$100bn…driving the market up. But after a sip of coffee, you can read UBS’ notes citing a reasonable VIX level, a reasonable risk control leverage level (dropping from 92% to 72% vs as low as 30% in past sell-offs), a reasonable gross/net exposure by hedge funds, caution around interest rate levels making equities less attractive, retail selling, and lower levels of single stock shorts—which drive toward an opposite conclusion: buying power could be limited.
The US Treasury slowed the pace of increased sales of longer-term securities in its quarterly debt-issuance plan, probably because they’re worried about higher rates on a widening fiscal deficit. The Treasury will sell $112 bn of longer-term securities at its refunding auctions next week, which span 3-, 10- and 30-year debt. Traders expected $114bn. The slowdown language brought yields down a bit.
Estee Lauder is down again after cutting its full year outlook based on weaker Asian business…and the Israel/Hamas war (still trying to figure this one out). Previously they thought rev would grow by 5-7%, and now they may decline by -2% or grow only by 1%.
The BOJ intervened when their 10yr yield touched 0.97% (imagine that!). They want to flex their muscle when the market moves significantly. The yen held below 151/USD, and bond futures pared some losses.
Chinese stocks experienced record foreign capital outflows last mo, even with gov support. Overseas funds exited 44.8 bn yuan ($6.1 bn) of shares. So, when is the non-consensus play going to start? UBS is making the call on China’s internet sector, with the caveat that timing is tough to determine. They reference 3 tailwinds (i) low valuations with improving shareholder returns from FCF, buybacks, dividends, tec. (ii) more earnings upgrades (roughly 15% YTD on their names, mainly on margin expansion in FY23) with additional benefits to come, (iii) supportive macro policies and low levels of investor exposure. Their picks include Meituan, Alibaba, Tencent, EDU, Trip.com, PDD, JD.
Down hard (-42% premarket) after the WSJ reported that the co plans to file for bankruptcy as early as next week, per Bloomberg.
Orsted also was down hard (-22%) after taking a $4 bn hit on abandoned US wind projects.
A jury ruled against NAR in the Sitzer/Burnett class action lawsuit, which is a big deal. It could remove buy side commissions (which is the primary source of ZG’s PA spending. For RDFN, a little over half of their transactions come from the buy side). Analysts don’t think it will change the cost to transact, but it could reshape the industry.
The UAW strikes cost Stellantis ~$3.2B in rev through Oct, per CNBC. Power definitely was held by the people in this instance.
Charlie Bilello has a few great charts on Americans continued spending. He asks whether the consumer is healthy or just unwilling to stop spending? (He thinks the latter, leading into our next two slides on credit cards)
Credit card debt is increasing by the quickest pace in >20 years.
Credit Card debt is now above $1trn.
