|Rebound enthusiasm cools down|
In two days, the major indices have risen between 5.5% and 6.9%. In a manner of speaking, the market's mood shifted seemingly from thinking that everything is bad (hence, the new low for the year on Friday) to everything is good (hence, the huge rally we have seen to start October).
Everything, of course, is not good, but when the stock market thinks to itself that the Fed might soon pivot to a less aggressive policy stance, then it sees potential for a much better outcome for stocks.
That is what the stock market has thought the past few sessions. That is not necessarily what the Fed is thinking. The divide here -- or the sobering reality really -- is presumably why the equity futures market is on the weaker side this morning.
Currently, the S&P 500 futures are down 38 points and are trading 1.0% below fair value, the Nasdaq 100 futures are down 128 points and are trading 1.1% below fair value, and the Dow Jones Industrial Average futures are down 287 points and are trading 1.0% below fair value.
Market participants are being forced to contend with the possibility that the Fed won't acquiesce to the stock market's hopeful wishes. That is sapping some of the rebound momentum and feeding a reversal in other markets, too.
Specifically, the dollar is perking up again, evidenced by a 0.8% gain in the U.S. Dollar Index to 110.99. The 2-yr note yield is is up five basis points to 4.13% and the 10-yr note yield is up eight basis points to 3.70%.
There is some halting overlap in other places as well. The 10-yr UK gilt yield is up 12 basis points to 3.98% after Prime Minster Truss defended her plan to cut taxes. The British pound is down 1.3% against the dollar to 1.1323.
Oil prices are still simmering, meanwhile, as reports suggest OPEC+ could agree to cut production anywhere from 500,000 barrels per day to two million barrels per day at today's meeting. WTI crude futures are up 0.3% to $86.80 per barrel after settling September at $79.49 per barrel.
This isn't just a meeting with implications for oil prices. It is also a meeting with implications for inflation pressures, consumer spending pressures, and geopolitical pressures. Accordingly, it is laced with uncertainty and that uncertainty is helping to rein things in this morning.
The same goes for an ugly 14.2% decline in weekly mortgage applications and an ADP Employment Change Report for September that was still on the solid side of things. Granted the employment change headline was softer than expected at 208,000 (Briefing.com consensus 220,000), but after accounting for the upward revision to 185,000 from 132,000 for August, it was actually stronger than expected.
It wasn't the type of report that would convince the Fed to take a softer approach with its monetary policy -- not yet anyway. The Reserve Bank of New Zealand did not take a softer approach today. It raised its cash rate by 50 basis points to 3.50%, as expected, and debated whether it should raise rates by 75 basis points at today's meeting.
In other economic news, the U.S. trade deficit narrowed to $67.4 billion in August (Briefing.com consensus -$67.9 billion) from an upwardly revised -$70.5 billion (from -$70.6 billion) in July.
The key takeaway from the report is that it does point to some softening in global economic activity as both imports and exports were less than they were in July.
There wasn't a big response to this data point. A question on everyone's mind is, how will the stock market respond to the early weakness? Will it step up and buy the weakness or will it succumb to a recognition that it has gotten a little too silly with its two-day rally effort in a world where hope and reality have yet to collide?
-- Patrick J. O'Hare, Briefing.com