Stocks flat in Europe after Wall Street dip, oil firmer, pound struggles

Euro Stocks: A Rocky Road! 

European stock markets are flattish after making tentative gains early on Wednesday following a rough day on Wall Street amid surging Treasury yields. German consumer confidence fell to -26.5 in October, the chances of a recovery in consumer sentiment this year have probably fallen to zero, notes GfK. A bit more positivity out of Asia as China industrial profits jumped 17% in August, whilst there are signs of a possible breakthrough on avoiding a US government shutdown. Australia’s inflation rate accelerated to 5.2% from 4.9%, likely to fuel debate about whether the RBA ought to hike again to cool it down…one data point won’t change things but we should keep this in focus as CBs around the world seek to pause their hiking cycles.  US durable goods orders are due later. 

Drill Baby, Drill 

Tullow, Harbour and other oil plays are catching bid as the UK approves the Rosebank field in the North Sea. Norway’s Equinor is behind the project along with Ithaca, which jumped 8%, but the signal to the rest of the industry is a positive one– some net zero common sense being shown! Energy policy cannot and should not be dictated by climate nuts. Oil rallied to best in a week and close to the 10-month high with WTI (Nov) above $91 and Brent to $93. API data showed US oil stockpiles rose 1.6m barrels, but gasoline and distillate inventories both fell. EIA data is due later.  Elsewhere gold is under renewed pressure on rising rates and USD, back below $1,900. 

Rate Rollercoaster! 

ECB’s Frank Elderson says rates have not necessarily peaked – a view shared by JPM boss Jamie Dimon, who said the world isn’t ready for the Fed going to 7%. For what it’s worth I don’t think they go that high...higher for longer will be restrictive enough when they are tacitly accepting that it won’t be worth pushing inflation down from 3% to 2%.  

Stock Shock! 

US stocks fell sharply yesterday as we saw technical support give way. The Dow Jones shed 388pts points, or 1.14%, for its worst day since March and closing below its 200-day moving average for the first time since May. The S&P 500 fell almost 1.5% to close below 4,300 for the first time since June. The Nasdaq Composite fell more than 1.5% and is down nearly 7% in September. The S&P 500 is off by 5% - traditional seasonal weakness, rising rates and possible government shutdown all part of the mix as they head for their worst monthly losses of the year.  

E-minis: The key neckline support of the head and shoulders has gone at 4,360 – now 4,200 comes into focus.  

Currency and Commodity Chaos! 

Sterling on course for worst month since the mini-Budget with cable taking out fresh 6-month cycle lows below 1.215 in yesterday’s session. Who do we blame now? Partly it’s coz the economy stupid and because peak rate expectations have nosedived as inflation cooled and the BoE chose to leave rates on hold. PMIs are cratering – fastest declines in well over two years – and it could get worse. We don’t yet know the extent of the damage from the multiple rate hikes already in the system. Meanwhile the US dollar is advancing on all fronts on rising Treasury yields and a bit of a haven bid coming through.

BoJ meeting minutes showed division over how soon they could end negative interest rates as "a few members pointed out that the pace of increase in services prices had been somewhat high" and "members concurred that inflation expectations had shown some upward movements again". Curve ball coming. USDJPY back above 149 – some verbal intervention from the likes of PM Kishida not enough to hold back the tide with USD steamrolling everything in its path right now.