Are the cracks starting to show?

Thoughts of the Day

The US ADP Employment Change data reported just +89K job additions in September(EXP +153K). If this trend continues in the official labor market data, it could ease concerns of an overheated job market, reducing pressure on the Fed to maintain a hawkish stance amid moderating inflation. This, coupled with a drop in rising bond yields, might improve risk sentiment and squeeze short-sellers in the stock market.

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Day Ahead

Nothing noteworthy on the horizon today.

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What Happened Yesterday

Market Movements as of New York Close 4 Oct 23
  • The US ADP employment change was weaker than expected, showing that only +89K jobs were added, vs expected +153K and 180k prior (revised from 177k). US 10-year bond yield which was trading already at 4.76% prior to the data release, down more than 0.10% from the day’s high of 4.88% blipped down to 4.73% in immediate reaction.
  • The US Treasury Yield curve inversion narrowed to 0.32% as the US 2-year bond yield fell -0.10% to 5.05% while the 10-year bond yield fell -0.08% to 4.73% on a day of weaker than expected US labour data.
  • The US stock futures traded lower through the Asian trading session as US yields rose through Asian hours with the US bond 10 year yield rising +0.08% from 4.81% to a high of 4.88% As a result, the S&P 500 futures fell -0.62% from 4262 to a low of 4236 before the London trading session started. Risk sentiment then started to improve because the US 10-year bond yield eased off the highs to a low of 4.73% through the London trading session. As a result, the S&P 500 futures bounced +0.78% from the lows to 4269 before the NY trading session began. 
  • The US stock market opened slightly higher from Tuesday. It then rose on the day due to the weaker than expected ADP data. Consequently, the S&P 500 closed +0.81% higher (high: +0.92%, low: -0.21%), the Dow rose +0.39% (high: +0.47%, low: -0.39%) while the Nasdaq increased +1.45% (high: +1.63%, low: +0.18%).
  • The crypto market traded mixed on the day with Bitcoin up +1.3% but Ether down -0.5%.
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Headlines & Market Impact

Oil prices tick up after OPEC+ panel maintains output cuts

Notable Snippet: Oil prices inched up in early trade on Thursday, clawing back some of the previous session’s big losses after an OPEC+ panel maintained oil output cuts to keep supply tight amid concern about a looming slump in global economic growth.

The OPEC+ ministerial panel made no changes to the group’s oil output policy, and Saudi Arabia said it would continue with a voluntary cut of 1 million barrels per day (bpd) until the end of 2023, while Russia would keep a 300,000 bpd voluntary export curb until the end of December.

“We continue to see the market in deficit through the fourth quarter and the softer prices reduce the probability OPEC will ease supply constraints,” National Australia Bank analysts said in a note.

“Fuel prices may be closer to consumers’ pain threshold than inflation-adjusted prices might suggest,” JP Morgan said in a note, expecting the oil price to fall to $86 per barrel by year-end from this year’s peak of $97 per barrel hit in September.

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US government shutdown later this year would not hurt rating – Fitch

Notable Snippet: Rating agency Fitch, which downgraded the U.S. top credit rating in August, cautioned about a possible government shutdown after U.S. House Speaker Kevin McCarthy was ousted, but said it would not affect the U.S. sovereign rating because that already captured the country’s governance issues.

A handful of Republicans in the U.S. House of Representatives on Tuesday ousted Republican Speaker Kevin McCarthy – the latest factor to prompt worry on Wall Street about U.S. political governance after a near-miss with a partial federal government shutdown this weekend and a debt ceiling crisis earlier this year.

“Given the fact that the House speaker was ousted right after the continuing resolution was agreed, we expect political brinkmanship around government funding negotiations will remain tense and a shutdown later this year can’t be ruled out,” Richard Francis, a senior director at Fitch, said in a podcast.

But he added that a shutdown would not impact Fitch’s U.S. AA+ rating as the country’s “deterioration in governance” was already a key factor behind Fitch’s downgrade of the government by one notch in August.

Moody’s, the last major agency to maintain a triple-A rating, warned that a shutdown would harm the country’s credit standing as it would highlight how political polarisation in Washington was weakening fiscal policy making.

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Google launches Pixel 8, smartwatch with new AI feature

Notable Snippet:  Alphabet’s Google (GOOGL.O) on Wednesday launched Pixel 8 smartphones and a new smartwatch that integrate its artificial intelligence (AI) technology more deeply into the company’s consumer gadgets.

Google beefed up the Pixel line up with its latest mobile processor, Tensor G3. The new Google custom chip has more AI and machine learning capabilities, enabling users to crunch more data on the device itself and in the cloud.

The AI features can help with photography, summarising web pages and blocking out spam calls, executives said at the Made by Google event in New York on Wednesday.

The higher-end Pixel 8 Pro features a Thermometer app to measure body temperature, subject to approval by the Food and Drug Administration.

“Google was clearly focused on driving the mobile AI message in today’s event and having AI on the device/client will be a big topic for the industry going forward,” said IDC analyst Ryan Reith.

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Phan Vee Leung
CIO & Founder, TrackRecord