US MARKET WRAP: Abe bounce proves short-lived

EQUITIES: News overnight that Japan PM Abe’s coalition won a super-majority spurred risk sentiment, with most Asian and European equity indices rising.

However, risk sentiment proved to be short-lived; after opening at fresh record highs, gains were pared-back, and through the course of morning trade, US bourses was generally toying around the unchanged/slightly negative zone, threatening to snap last week’s run of record high finishes every session.

A few downgrades of GE weighed on the industrial sector. Toymakers Mattel and Hasbro were slammed on soft analyst forecasts for the Christmas period. Healthcare outperformed, building on six-weeks of gains, amid thin trade. 

Earnings were also in focus; the tone has generally been positive, with 73% of the 97 companies that have reported so far in earnings season beating profit expectations (vs 72% average over the last four earnings seasons), according to Reuters data. Tomorrow’s earnings slate includes some big-hitters, with McDonalds, Caterpillar and GM all set to report.

S&P 500 -0.39% at 2,565, Dow Jones -0.23% at 23,276, Nasdaq-100 -0.67% at 6,068
Best-performing sectors: Utilities +0.08%, Cons. Staples -0.09% Financials -0.12%
Worst-performing sectors: Telecoms -0.93%, Industrials -0.78%, Cons. Disc. -0.66%

TREASURIES: The Treasury complex was marginally higher, but volumes were thin and yields were only lower by around 1-2 bps across the curve, seemingly taking their cue from European fixed income; investors were said to have added to their positions after the last few days of selling ahead of this week’s ECB meeting.

The US Treasury will auction $103bln of 2s (Tues, $26bln), 5s (Weds, $34bln), 2yr FRN (Weds, $15bln) and 7s (Thurs, $28bln) this week vs $122.9bln maturing at the month-end settlement; additionally, the FOMC will be allowing $6bln of Treasuries to roll-off as it begins its balance sheet unwind. 

US 10-Year T-Note futures settled 3 ticks higher at 124-29+.

FOREX: The dollar was on the front-foot in pre-market trade, largely driven by a weaker yen which was lower against the dollar and the euro following the win for Abe’s coalition. Domestically, hopes of tax reform also contributed at the margin, with US President Donald Trump I Washington today driving his fiscal agenda.

The dollar saw some selling and retreated from afternoon highs, however, after Trump said that he was “very, very close” to making a decision on the next Fed chair, though there was no clear hint which way Trump is leaning. Axios reported earlier today that the race was down to current Fed Governor Jerome Powell, economist John Taylor, and incumbent chair Janet Yellen. Powell leads the race, and as such, the reaction was knee-jerk ‘dovish’, with gold also jumping from session lows around $1,272 towards the unchanged mark around $1,280.

In late trade, another bout of risk-on crept into play, whicgh saw stocks sell-off to session lows and USDJPY fall, closing the post-Abe election gap.

Elsewhere, even though NZD was horizontal, commodity FX was soft on USD strength.

The EUR was having an off-day and was lower against the dollar and sterling ahead of this week’s ECB policy meeting, where it is expected to extend the horizon of its asset purchases, but at a lower rate. 

Sterling therefore took advantage and rose against the single currency despite comments from BOE Deputy Governor Jon Cunliffe casting doubts over whether he’d be voting for tighter policy at the MPC’s meeting next week. There was also some knee-jerk GBP buying after the EU’s Barnier told Handelsblatt that good relations with the UK are of a “strategic interest”.

CRUDE: Very little by way of fresh news regarding crude crossed the wires today, and WTI was happy to trade sideways for most of the US session. Focus was naturally on Iraq, where crude oil flows through the Kurdistan pipeline into Turkey were reported to have risen by just over 30k BPD to 288k. Additionally, the Saudi Oil Minister visited Iraq over the weekend, and positive comments regarding OPEC cooperation were also the source of some optimism.

WTI futures settled 6 cents higher at $51.90 per barrel; Brent futures settled 38 cents lower at $57.37 per barrel.

23 Oct 2017 - 21:00- - Source: RANsquawk

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