Invictus Asset Management

Overnight Asia

Asian stocks were steady on Friday and the Dollar slipped as a report that developer China Evergrande Group pulled back from the brink of default aided sentiment. Rallies in China’s technology equities and property shares were among the more notable moves. Local media said Evergrande paid a Dollar-bond coupon before a weekend deadline, easing concerns about possible contagion from any default by the firm. Chinese junk bonds and the Australian Dollar climbed.

The S&P 500 edged up to a record overnight but the mood soured after the cash session when Snap Inc. — owner of the Snapchat app — tumbled on a tempered earnings outlook, hurting other technology shares in late trading. Nasdaq 100 futures retreated, S&P 500 contracts were little changed and European ones advanced.

The 10-year US Treasury yield fell below 1.70% but remains higher for the week. The Federal Reserve is nearing a reduction in bond purchases and traders are ramping up bets on rate hikes to quell price pressures. Market-implied expectations for inflation have hit multi-year highs.

Global stocks are set for a third weekly advance, helped by the ongoing global recovery from the health crisis. The rally is being shadowed by the prospect of a faster-than-expected tightening of monetary policy to curb inflation, which is being stoked by an energy crunch and creaking supply chains. “The US economy is still on solid footing, but now inflation remains the biggest threat,” Edward Moya, senior market analyst at Oanda Corp., wrote in a note, adding that investors are waiting for more earnings reports as well as the final shape of President Joe Biden’s economic agenda.

Biden said he doesn’t think there are enough Democratic votes to raise tax rates in a deal on that agenda, but that he believes he’ll reach an agreement on the overall legislative package. A White House official said Biden was referring only to corporate tax rate increases. In Australia, the Central Bank bought A$1 billion ($746 million) of April 2024 bonds to defend its yield target. The yield fell towards the 0.1% goal.

Snap’s outlook included a warning that global supply chain issues are weighing on advertising spending. Shares in other tech firms exposed to digital advertising, like Facebook Inc. and Twitter Inc., weakened in late trading.

Elsewhere, Crude Oil was lower and Bitcoin steadied after slipping back from its recent record.

Events to watch this week:

• Fed Chair Jerome Powell takes part in policy panel discussion, Friday

Some of the main moves in markets:

Stocks:

• S&P 500 futures fell 0.10% as of 7.10 am in London. The S&P 500 rose 0.30%
• Nasdaq 100 futures retreated 0.50%. The Nasdaq 100 rose 0.70%
• Japan’s Topix Index was steady
• Australia’s S&P/ASX 200 Index was flat
• South Korea’s Kospi Index fell 0.10%
• China’s Shanghai Composite Index lost 0.20%
• Hong Kong’s Hang Seng Index increased 0.20%

Currencies:

• The Bloomberg Dollar Spot Index dipped 0.10%
• The Euro was at $1.1626
• The Japanese Yen was at 113.98 per Dollar
• The offshore Yuan was at 6.3944 per Dollar

Bonds:

• The yield on 10-year Treasuries dipped three basis points to 1.67%
• Australia’s 10-year bond yield was one basis point higher at 1.80%

Commodities:

• West Texas Intermediate Crude was at $81.92 a barrel, down 0.70%
• Gold was at $1,787.52 an ounce, up 0.30%

US Market Wrap

The S&P 500 set a record high on Thursday and extended its gains to a seventh day, as investors dive into the thick of earnings season and assess inflation risks. The benchmark gauge, which wavered between gains and losses throughout the day before finally drifting past the record level it had set on 2 September, finished the day higher by 0.3%. Seven of the 11 major industry groups rose, with the consumer discretionary and health care sectors leading to the upside, while energy and financials fell. The tech-heavy Nasdaq 100 Index rose 0.7%, while the blue-chip Dow Jones Industrial Average, which set an intraday record on Wednesday, was little changed.

Tesla Inc. closed at a record high after posting its ninth-straight profitable quarter while American Airlines Group Inc. and Southwest Airlines Co. reported narrower losses than expected. International Business Machines Corp.’s revenue missed estimates, sending the shares tumbling, and Freeport-McMoran Inc. produced less copper than expected last quarter. Meanwhile, Crocs Inc. surged after reporting a “stellar” third quarter. Blackstone Inc.’s assets under management hit a record for the firm at $731 billion and AT&T Inc.’s quarterly adjusted earnings per share beat estimates.

Reports in recent days from companies like Crocs Inc. and Procter and Gamble “showcase both how well companies are managing supply chain headwinds and how little investors care when firms suffer big supply chain hiccups,” Adam Crisafulli, Vital Knowledge analyst, wrote in a note. “With peak supply chain negativity, a market priced for Fed tapering, and Washington abandoning tax hikes, bulls have the baton,” he added.

On the economic front, weekly initial jobless claims came in below estimates and set a new pandemic-era low for the second week in a row. Continuing claims also clocked in lower than expected. The US 10-year yield rose, climbing as high as 1.68%. Tiffany Wilding, Pacific Investment Management Co.’s chief US economist, expects net job gains for October when the data is released in a few weeks.

“We do see some really encouraging signs that the economy is re-accelerating,” she said on Bloomberg Television on Thursday morning.

Sectors in Focus:

• Shares of Oil services firms tumbled on Thursday as the price of Oil slid by the most since August amid concerns around global economic growth
• Online dating companies Match and Bumble rallied following news that Alphabet’s Google is slashing the fees it takes from subscription services on its app store
• Transportation companies were in focus amid earnings. The Dow Jones Transportation Average jumped as much as 1% on Thursday, its sixth straight day of gains, after several companies, including railroad operator CSX and airlines American and Southwest, reported strong results
• Footwear retailers gained after Crocs beat third-quarter estimates and boosted the low end of its full-year revenue forecast in news seen as positive for the broader market. Crocs shares jumped 9.30%

Politics/Economy:

• The Federal Reserve will ban policy makers and other senior officials from buying individual stocks and bonds, and will also restrict active trading after an ethics scandal led to the departure of two regional presidents and risked confidence in the Central Bank
• Congressional Democrats are at odds over both the tax and spending sides of a bill to enact the bulk of President Joe Biden’s economic agenda, putting in question the goal of party leaders to strike a deal by the end of the week
• President Joe Biden’s pick to be ambassador to China drew sharp lines with Beijing over its “aggressive” actions in the Indo-Pacific but said “American strength” gives the US key advantages in the relationship between the world’s two largest economies

Markets

• S&P 500 Index up 0.30% to the highest level ever
• Dow Jones Industrial Average little changed
• NASDAQ Composite Index up 0.60%
• Russell 2000 Index up 0.30%
• Seven of 11 main S&P 500 sectors closed higher
• Consumer discretionary up 1.40%
• Health care up 0.40%
• US Generic Govt 10-Yr up 1.80%
• Bloomberg Dollar Spot Index (Rebased Version) down 0.20%