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Macro News Flow not working in Stock Market’s Favor

Posted October 18, 2023
Patrick J. O’Hare

There is a good bit of news flow this morning, but as of now, there isn’t a good bit of flow in the equity futures market.

Currently, the S&P 500 futures are down 23 points and are trading 0.6% below fair value, the Nasdaq 100 futures are down 113 points and are trading 0.7% below fair value, and the Dow Jones Industrial Average futures are down 101 points and are trading 0.3% below fair value.

Buyers have been slow to step up this morning for a variety of reasons, yet we would argue that geopolitical worries are at the top of the list. President Biden is in Israel. He had been scheduled to have a summit with Arab leaders in Jordan, but that summit got called off in the wake of yesterday’s bombing of a Gaza hospital.

It was unclear who perpetrated the attack on the hospital, but President Biden said what he has seen leads him to believe that it was Palestinian militants, and not Israel, that fired the missile that blew up the hospital. That finding aside, the finger-pointing and the saber-rattling has increased, including a contention from Iran, according to Reuters, that there should be an oil embargo against Israel.

The energy market isn’t boiling over on account of the latest developments, but it is simmering. WTI crude futures are up 1.6% to $88.04/bbl and Brent crude futures are up 1.7% to $91.39/bbl.

Geopolitics, which includes Presidents Xi and Putin glad-handing each other at China’s Belt and Road Forum in Beijing, have created an uneasy backdrop for the equity market, which is also contending with the uncertainty of the House Speaker position here at home.

Rep. Jim Jordan (R-OH) failed in the first ballot yesterday to secure the 217 votes needed to be elected Speaker. Another vote is slated to be held today at 11:00 a.m. ET.

Other “newsy” happenings include the Bank of Japan conducting another unscheduled bond purchase operation to try to keep Japanese government bond yields in check, China reporting some better than expected GDP, retail sales, and industrial production data, and the Mortgage Bankers Association reporting a 6.9% week-over-week decline in its mortgage applications index, driven by a 6% decline in purchase applications and a 10% decline in refinance applications.

In other economic news, housing starts increased 7.0% month-over-month in September to a seasonally adjusted annual rate of 1.358 million units ( consensus 1.380 million) while building permits declined 4.4% month-over-month to a seasonally adjusted annual rate of 1.473 million ( consensus 1.448 million).

The key takeaway from the report is that the weakness was concentrated in multi-unit dwellings. Single-unit starts were up 3.2% and single-unit permits rose 1.8%, which is welcome for a supply-challenged housing market.

There has been a fair share of micro news to go along with today’s macro news. Several companies have reported their quarterly earnings results since yesterday’s close, including Dow components Procter & Gamble (PG) and Travelers (TRV), as well as U.S. Bancorp (USB), Morgan Stanley (MS), and United Airlines (UAL).

A fourth quarter profit warning from United Airlines, which it attributed to higher costs and the uncertainty of the Israel-Hamas War, has captured a good bit of the headline attention. That seems only fitting since there is a macro component to that warning. Shares of UAL are down 4.9% and the stocks of other airlines are also weaker in sympathy.

Finally, stocks in general are looking weaker with Treasuries again looking weaker. The safe-haven bid isn’t necessarily flowing there, as deficit concerns presumably continue to weigh on sentiment. The 2-yr note yield is unchanged at 5.20% after flirting with 5.15% earlier, and the 10-yr note yield is up one basis point to 4.86% after skimming 4.81% earlier.

Originally Posted October 18, 2023 – Macro news flow not working in stock market’s favor

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