Are the Bears in control?

Thoughts of the Day

In the days after the Fed’s ‘higher interest rates for longer’ message, US 10-year bond yield has surged above 4.60%, the highest since 2007.
If bond yields continue to climb, risk assets may remain under pressure, although a shift could occur depending on the upcoming US inflation data (due on Friday).

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Day Ahead

The final print for the US GDP growth rate of Q2 is expected to show Quarter-on-Quarter growth of +2.2% expected.

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What Happened Yesterday

Market Movements as of New York Close 27 Sep 23
  • The US Treasury Yield curve inversion widened slightly to 0.49% as the US 2-year bond yield rose +0.06% to 5.10% while the 10-year bond yield rose +0.05% to 4.61%, the highest level since 2007.
  • The US stock futures rose gradually through the Asian and London trading sessions with the S&P 500 futures up 0.28% before the New York session began.
  • The US stock market had a whip saw in the New York session after opening higher, falling in the first half of the session as US bond yields crept higher. However, a reversal was seen in the latter half as the US bond yields started to stabilise and trade sideways.  Consequently, the S&P 500 was almost unchanged at +0.02% (high: +0.43%, low: -0.82%), the Dow slipped -0.20% (high: +0.34%, low: -0.93%) while the Nasdaq eked out a slight gain of +0.24% (high: +0.77%, low: -0.78%).
  • The crypto market traded in a subdued manner with Bitcoin up +0.6% and Ether up +0.3% on the day.
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Headlines & Market Impact

Microsoft technology chief says supply of Nvidia’s AI chips is improving

Notable Snippet: Microsoft technology chief Kevin Scott said on Wednesday that the company is having an easier time getting access to Nvidia’s chips that run artificial intelligence workloads than it was a few months ago.

“Demand was far exceeding the supply of GPU capacity that the whole ecosystem could produce,” Scott told The Verge’s Nilay Patel. “That is resolving. It’s still tight, but it’s getting better every week, and we’ve got more good news ahead of us than bad on that front, which is great.”

Scott declined to address the accuracy of media reports regarding Microsoft’s development of a custom AI chip, but he did highlight the company’s in-house silicon work. Microsoft has previously worked with Qualcomm on an Arm-based chip for Surface PCs.

“I’m not confirming anything, but I will say that we’ve got a pretty substantial silicon investment that we’ve had for years,” Scott said. “And the thing that we will do is we’ll make sure that we’re making the best choices for how we build these systems, using whatever options we have available. And the best option that’s been available during the last handful of years has been Nvidia.”

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House, Senate standoff raises chances of US government shutdown

Notable Snippet: Republican US House Speaker Kevin McCarthy on Wednesday (Sep 27) rejected a stopgap funding bill advancing in the Senate, bringing Washington closer to its fourth partial shutdown of the US government in a decade with just four days to go.

That would lead to the furlough of hundreds of thousands of federal workers and the suspension of a wide range of government services, from economic data releases to nutrition benefits, until Congress manages to pass a funding bill that President Joe Biden, a Democrat, would sign into law.

McCarthy’s House of Representatives was focusing its efforts on trying to agree on more of the 12 separate full-year funding bills, of which they have so far passed one.

“I don’t see the support in the House” for the Senate plan, McCarthy said, though the bill has the support of Senate Republicans, including Minority Leader Mitch McConnell.

McCarthy said House Republicans would probably bring their own stopgap measure to the floor on Friday.

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Bank of America CEO says Fed has won the near-term battle against inflation

Notable Snippet: The Federal Reserve has won the near-term battle against inflation, but interest rates are likely to stay higher for longer, Bank of America’s (BAC.N) CEO Brian Moynihan said on Wednesday.

While consumer spending growth has slowed from a year earlier the economy is headed toward a soft landing in which it avoids a recession, Moynihan told the Economic Club of New York.

In the Fed’s latest forecasts, officials continued to pencil in one more rate hike for this year, and said they expect rates to be higher for longer given a stronger-than-expected economy.

“They’re winning the fight right now” against inflation, Moynihan said. “They caught up fast, but now they’ve got the equal, opposite problem to be careful they don’t go too far” in restricting economic activity, he said.

While consumer spending is still rising, that growth has slowed from a year earlier, he said, citing the bank’s data on consumption patterns.

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Best,
Phan Vee Leung
CIO & Founder, TrackRecord