Today’s Outlook:

• Global stocks were flat while long-term US Treasury yields edged higher in directionless trade on Thursday (10/10/24) as investors weighed the interest rate path of the Federal Reserve after US Inflation figures and comments from central bank officials were released. On Wall Street, stocks ended in negative territory but did not stay at their session lows, with the rate-sensitive real estate index being the worst performer of the 11 major S&P sectors. The Dow Jones Industrial Average shed 57.88  points, or 0.14%, to 42,454.12, the S&P 500 slipped 0.21%, to 5,780.05, and the Nasdaq Composite edged down 0.05%. The global MSCI stock index fell 0.18 points, or  0.02%, to 848.46; while in Europe the STOXX 600 index closed down 0.18% ahead of France’s 2025 budget announcement.

• MARKET SENTIMENT:

– US consumer prices rose slightly higher than expected in September as food costs rose, but the annual increase in inflation was the smallest in more than 3.5 years. The Labor Department said US CPI rose 0.2% mom after rising 0.2% in August, slightly above expectations of economists polled by Reuters for a 0.1% increase. On an annualized basis, US CPI rose 2.4% yoy compared to the estimate of 2.3%, though easing from the previous month’s 2.5%. Market analysts such as Morgan Stanley interpreted this data that although Inflation is not yet fully under control, it may not jeopardize the anticipation of a rate cut in November and December. US CPI is still seen accelerating at a mild pace but the cost of shelter, particularly rent, fell significantly. Despite a slight rise in core goods prices, analysts maintain their forecast for a consistent 25 basis point decline until Q1 2025. Following the CPI data, later tonight will be the release of US PPI (Sept) which is expected to ease to 1.6% from 1.7% on an annualized basis; complemented by the next 6 months Inflation & Consumer outlook from the esteemed Univ. of Michigan.

– Other data showed weekly INITIAL JOBLESS CLAIMS jumped 33,000 last week to 258,000, quite materially above the 230,000 estimate, although the rise was partly due to distortions from Hurricane Helene.

– The above jobless claims data initially helped strengthen expectations that the Federal Reserve will cut interest rates next month, but expectations retreated slightly to a nearly 80% chance of a 25 basis points (bps) cut after comments from several Federal Reserve officials, from nearly 90% immediately after the figures were released, according to CME’s FedWatch Tool. Expectations for a 25 bp cut then increased again and were last at 86.3%. Atlanta Federal Reserve Bank President Raphael Bostic said in an interview with the Wall Street Journal that he would be “absolutely comfortable” not cutting rates at the upcoming US central bank meeting, adding that “instability” in recent data on inflation and employment might justify keeping rates in place at the November FOMC MEETING. The market had estimated a 32.1% chance of an aggressive 50 bps cut a week ago.

– This week’s focus is also on the 3rd QUARTER FINANCIAL REPORT Season, with a series of major banks due to report on Friday, such as: JPMorgan Chase, Wells Fargo, and Bank of New York Mellon will report on Friday, while Goldman Sachs, Bank of America, and Citigroup will report earnings next week. Market participants will also be looking for evidence that investments in artificial intelligence (AI) at S&P 500 companies are starting to pay off as the reporting season progresses, although analysts expect profit growth to slow from the previous quarter. S&P 500 earnings are expected to increase 5.3% compared to Q3 last year, but down from Q2/2024’s 13.2% increase, but the Communications Technology and Services sector is expected to experience the strongest annual growth, according to LSEG data.

• CURRENCY & FIXED INCOME: The 10-year US TREASURY YIELD edged up 0.4 basis points to 4.071% after reaching 4.12%, while the 2-year bond yield, which usually moves in line with interest rate expectations, fell 5.6 basis points to 3.962%. The DOLLAR INDEX (DXY) fell 0.03% to 102.85 after earlier rising as much as 0.27%, with the EURO down 0.03% at USD 1.0936. Against the JAPAN YEN, the Dollar weakened 0.51% to 148.53. Bank of Japan Deputy Governor Ryozo Himino said on Thursday that the central bank would consider raising interest rates if the board has “greater confidence” that economic and price forecasts will materialize. On the other hand, POUNDSTERLING 0.07% to USD 1.3061.

• COMMODITIES: OIL prices returned to the boil after 2 sessions of declines, driven by a surge in fuel demand as Hurricane Milton hit Florida, at a time when Middle East supply risks lurk and signs that demand from the US and China could improve. US WTI crude closed surging 3.56% to USD 75.85/barrel and BRENT prices lifted to USD 79.40/barrel, up 3.68% on the day.

• ASIA & EUROPEAN MARKETS:

– BANK OF KOREA: is expected to cut its first interest rate since the pandemic, starting the easing cycle with a 25 basis point cut to 3.25%, as predicted by 34 out of a total of 37 economists in a Reuters poll, with the rest saying they expected no change. Analysts generally expect the BOK to move more slowly than its peers in the ASIA region in the coming months. SOUTH KOREA inflation eased rapidly to 1.6% in September from 2% in August, the lowest since early 2021 and below the BOK’s target of 2%, but household debt and property prices are high.

– Ahead of Saturday, all eyes will be on Beijing, where CHINA’S Finance Minister will detail fiscal stimulus plans to boost the economy. It is unclear whether this means new fiscal measures to revive growth will be taken (the market’s preferred option), or that the recently announced stimulus package will be explained in more detail. The astonishing rally in Chinese stocks over the past 2 weeks may react very sensitively and reverse direction significantly early next week.

– In continental EUROPE, GERMAN Retail Sales in Aug soared to the highest level in more than 2 years, at 2.1% yoy. Later in the day, we will look forward to GERMAN CPI (Sep) as well as data from the UK: GDP (Aug), Industrial & Manufacturing Production (Aug).

• JCI’s position is increasingly precarious with the lowest Closing below 7500 level in about 2.5 months, amidst the onslaught of consistent foreign outflows, yesterday amounting to IDR 766.93 billion in RG market (YTD: Foreign Net Sell IDR 2.54 trillion); further confirming that the next crucial Support point lies at 7430 up to 7400. NHKSI RESEARCH advises investors/traders to take more of a WAIT & SEE attitude at the end of this week, especially since there are still many uncertain factors lurking such as : US PPI, Q3 earnings reports of major US banks, as well as the most awaited by global market participants is what the Chinese Government has to say regarding their latest series of stimulus next weekend.

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