US stocks are declining on soft earnings, rising rates, and as the risks grow for a potential widening of the Israel-Hamas conflict. Today’s round of earnings from Morgan Stanley, JB Hunt, and United Airlines told a story of a weakening economy that has rising costs drive a weakening profit outlook. Investors are scrambling into safety as the next quarter looks like it has a lot of turbulence for earnings.
FX
Stubborn UK inflation and the risk of more BOE tightening in 2024 was unable to stop the British pound’s slide. Rising motor fuel prices were a key driver for the hot UK inflation data, which means disinflation might struggle if crude disruptions start occurring. Geopolitical tensions will remain elevated and will lead to a softer growth outlook that will drive safe-haven flows towards the dollar.
US Data
The housing market is showing signs of stabilizing. Housing starts rose in September as multi-family homes saw an increase of more than 17%. New home construction rose from 1.269 million to 1.358 million and building permits dropped from 1.541 million to 1.473 million.
This should be a rough year ahead for the housing market as mortgage demand plunges as interest rates for the 30-year fixed rate mortgage approaches 8%. Home buyers will have to face high rates, elevated house prices, and low inventories.
Oil
Crude prices held onto gains after the EIA crude oil inventory report showed the oil market is staying tight. US crude stockpiles fell by 4.4 million, matching the decline API reported yesterday. Demand improved across the board. Gasoline demand was strong as inventories fell by 2.37 million bpd. The standout data point was US oil exports, which surged by 5.3 million bpd. It is clear that now that we have two wars that are putting oil supplies at risk, which means European and Asian buyers will become more interested with US crude. US production also remained at 13.2 million bpd, which is still the highest level seen since 1983.
The oil market is going to remain very tight going forward and the next move with prices will depend on whether geopolitical risks disrupt crude flows. Overnight, oil rose after impressive Chinese data and reports that Iran wanted to impose an Israeli oil embargo.
Oil is going to remain a favorite trade on Wall Street as both the supply and demand side drivers are still mostly bullish. The latest round of US and Chinese data suggest the world’s two largest economies are supportive for steady or rising crude demand.
Gold
Everyone on Wall Street is becoming the gold guy in Austin Powers. “I love gold”, Goldmember, the fictional villain’s key quote is becoming the mantra for many traders. Gold is rallying on geopolitical risks, expected Diwali demand, bond market stress, and stock market selling pressure. The path to $2000 is clearly in play, but so might a move back to record territory.
Bitcoin
Bitcoin is hovering near the upper boundaries of its recent range as optimism grows that a spot Bitcoin ETF approval will happen before the end of the year. Yesterday’s surge to $30,000 on an erroneous Bitcoin ETF approval news shows you how the market is ready to act once Bitcoin becomes easier to access. The fundamental drivers for crypto however remain mixed. The macro backdrop is starting to turn positive for Bitcoin as Treasury market liquidity concerns grow, but the use case for crypto so far has yet to make any major breakthroughs.
