Topsy-Turvy Action in Futures Market and UK Politics

Articles From: Briefing.com
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Chief Market Analyst

The equity futures market is pointing to a mixed start for the major indices. There is some skittishness in the early trade because of the volatility that has been seen in the Treasury market.

The 10-yr note yield climbed as high as 4.18% overnight before getting rolled back to 4.11%. It is now at 4.16%.

Market participants recognize that stocks languished Wednesday as Treasury yields rose, so there is a bit of anxiousness about the “next turn” in the Treasury market. However, because the latest turn has been higher, the equity futures market has floundered from earlier.

IBM (IBM), Lam Research (LRCX), AT&T (T), American Airlines (AAL), and Danaher (DHR) have led a brigade of companies reporting mostly better-than-expected earnings results since yesterday’s close. Those stocks are all trading higher. Tesla (TSLA), though, is not in their company. It is indicated 6.3% lower after coming up shy of third quarter estimates, although the company said it has excellent demand for the fourth quarter.

The weakness in TSLA has been a drag on the Nasdaq 100 futures and it will be a drag on the S&P 500 consumer discretionary sector when trading begins.

Currently, the S&P 500 futures are down six points and are trading 0.2% above fair value, the Nasdaq 100 futures are down 42 points and are trading 0.4% below fair value, and the Dow Jones Industrial Average futures are up nine points and are trading in-line with fair value.

It has been a topsy-turvy morning in terms of interest rates and equity futures movement. Moments ago, things got even more topsy-turvy on the political front as Liz Truss announced her resignation as UK prime minister after roughly six weeks on the job. She will remain as prime minister until a successor has been named pending a leadership vote to be held in the next week.

The 10-yr UK gilt yield is down one basis point to 3.86% and the British pound is up 0.4% against the dollar to 1.253.

Ms. Truss’s resignation won’t cure what ails the UK economy, but at the least it might calm the financial markets for the time being, which would be a positive, assuming there isn’t a sense of dismay about the leadership uncertainty affecting one of the world’s largest economies.

There are big issues looming for the UK and elsewhere, like rising interest rates that are seen as a headwind for the global economy and global equity markets.

The Bank of Japan doesn’t like those rising rates and has announced an emergency JGB purchase program in adherence to its yield curve control policy. The yen, meanwhile, continues to get trampled by the low rates the Bank of Japan wants to maintain. Earlier, the yen hit a 32-year low against the dollar when it reached 150.09.

The latest initial jobless claims report isn’t going to help the yen since it was essentially dollar positive.

Initial jobless claims for the week ending October 15 decreased by 12,000 to 214,000 (Briefing.com consensus 233,000). The low level of initial claims is somewhat remarkable given the seeming lack of claims in the wake of Hurricane Ian. Continuing jobless claims for the week ending October 8 increased by 21,000 to 1.385 million.

The key takeaway from the report is that it covers the week in which the survey for the October employment report was conducted. The low level of initial claims will feed expectations for another solid increase in nonfarm payrolls. In turn, it will drive a belief that the Fed is going to stay aggressive with its rate hikes.

Originally Posted October 20, 2022 – Topsy-turvy action in futures market and UK politics

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