US Equity Markets Moderately Weaker

US equity markets are starting off moderately weaker despite a brief climb above yesterday’s highs in the early hours today. Global equity trading overnight saw markets declining outnumber markets trading higher, with the biggest loss forged in NASDAQ futures prices. Overnight economic news included a slight decline in New Zealand electronic credit card sales, a slight softening in BRC Like–For–Like retail sales, unchanged German CPI, a moderate decline in Swiss producer and import prices, softer UK employment numbers, a modest jump in UK claimant counts, weakness in German ZEW current situation/economic sentiment for October and a much softer euro zone ZEW economic sentiment reading for October. Today’s US scheduled economic report slate posted a softer than expected NFIB Business Optimism Index, the US Redbook Index and a plethora of “scheduled” US Federal Reserve speeches.

STOCK INDEX FUTURES

In the early going today US equity markets are giving back more than half of yesterday’s gains with the NASDAQ poised to lose 1% on the opening. Analysts in India described market action there as a “crash” after higher early trade reversed course in the second half of the Tuesday trade. While we see the path of least resistance pointing down in US markets and fear a slight increase in anxiety because of declining favor toward AI/tech issues we do not detect high anxiety at this hour. Not surprisingly US rate cut expectations are nearing 100% (97.2%) for later this month and are very lofty at 92.8% for the December meeting and that supportive force is likely to lose its supportive capacity as it has become a fixture. Furthermore, it appears the Democrats have voted to leave the government shutdown again and that certainly fans political and economic uncertainty in an environment already fraught with fresh trade war peril.

CURRENCY FUTURES

Surprisingly, the dollar appears to maintain a bullish track despite another failed attempt to reopen the government and in the face of comments from the Fed’s Paulson who anticipates at least two more US rate cuts to support the US jobs market. Perhaps the dollar is garnering some support from weaker global data from the UK and Europe. We also think the dollar is strengthening from views that a series of US rate cuts are already baked into the cake while ECB rate cuts are not imminent and could ultimately be much larger if the European Central Bank gets way behind the curve! While we see the path of least resistance pointing up in the dollar with initial resistance today pegged at 99.305 a return to five-month highs up at 99.60 could present a major “line in the sand” for the currency markets. In the meantime, the dollar looks to win by default perhaps because of the lapse in US scheduled data flow. Even though the euro recovered from a 2 ½ month low probe late last week, the currency broke out down this morning to the lowest level since August 1st.

INTEREST RATE MARKET FUTURES

With US Chinese trade relations deteriorating by the hour, equity prices off moderately and a lack of guidance on the economy from US scheduled data, December treasury bond prices have broken out to the upside and are approaching a very key seven month high resistance level of 118-21. While overnight US/Chinese trade developments were labeled as “tit-for-tat” by Bloomberg, seeing both countries levy port fees highlights relations are worsening instead of improving. However, Trump and Pres. Xi are still expected to meet in South Korea later this month to discuss trade and that leaves a sliver of hope in an environment deteriorating by the day. Adding to the upward track is comments from the Fed’s Paulson who indicated he expects rate cuts to support the job market. While US data is scarce, UK jobs data saw pay growth slow to 4.7%, which was the lowest since 2022 with US headline unemployment rising to 4.8%, the highest since May 2021. In a potential major historical development, talk in Europe is surfacing suggesting leaders are considering a one-off massive “tax levy” to solve runaway sovereign debt overload.

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