Market Anticipation: Stocks, Euro, and Commodities

Stocks flat ahead of the European Central Bank meeting and the Arm IPO, which could test the market’s appetite for risk. The FTSE 100 rose a touch with oil higher again, shares in Frankfurt and Paris a shade weaker. The euro is steady around the $1.07 mark as investors wait to see whether the ECB follows through with another hike, Treasury yields lower with 10s at 4.24% after yesterday’s inflation print from the US with the dollar trimming gains from yesterday’s session, but gold off lower having cracked decisively at the 200-day line and with real rates moving up this morning. Wall Street was mixed with the DJIA slipping 0.2% and the Nasdaq making back some ground to rise 0.3%, the S&P 500 splitting the difference at +0.12% for the session. 

Arm's IPO: Riding the AI Wave

Arm will price its shares at $51 when it lists later in New York, implying a market cap of $54bn...it’s riding an AI wave, has lots of forced buyers as SoftBank plays the indices neatly and the broader market will be riding on this IPO to an extent. We’ve not really had a major tech IPO this year and it comes at an interesting time for the market.

ECB Decision Day: Hike or Pause?

ECB – this is one is a coin toss as to whether the central bank opts for another hike. I think it goes for a final 25bps move and lets the dust settle. It should use updated forecasts on inflation for next year as the cover to keep going despite a worsening economic backdrop. There is a good case to be made for both a pause and a hike today, which only underlines the kind of predicament the ECB is facing – similar to the Bank of England it’s in a stagflation situation with little room to manoeuvre. 

US Inflation Update and Fed's Potential Response

US inflation – yields initially spiked but the 10yr is now down quite a bit and the 2yr back to 4.97%. The CPI showed +0.3% month-on-month a tad hotter than expected and the Fed would have preferred a third +0.2% reading in a row...the implication may be that the Fed will be more minded to keep a rate hike on the table for this year even though I still think it will stand pat next week. Super core was still rather hot – core services ex-shelter at +0.5% mom from +0.2% in July. Year-over-year the core came down to 4.3% as expected from 4.7% which ought to be positive for the Fed. Gasoline contributed over 50% to the gain in the headline CPI, which rose +0.6% month-on-month in line with expectations for annual read to accelerate to 3.7% year-on-year from 3.2% in the prior month, ahead of the 3.6% expected. After this report the main question overhanging the Fed meeting is still on the dot plot. With the latest round of economic projections due we will see whether policymakers still see one more hike this year. If the dots are the same as June, markets could move to price in a higher likelihood the Fed hikes in November and push back on when the Fed starts to cut. If the median dot is lower than the 5.6% forecast in June, then it could be the signal to the market that the Fed is done.

Sector Snapshots: Oil, Banking, and Bitcoin

Oil has pulled back a bit from yesterday’s 10-month highs...EIA data showing a surprise build in US inventories. Looks more like a consolidation in the uptrend. Bulls still in charge.

Citi CEO Jane Fraser reorganised management, stripping out a layer and cutting jobs... I give her a year. Shares have underperformed. Staying on the banks, I would be careful here – the regional bank crisis has not gone away – the Fed’s BTFP back stop has papered over the cracks – watch the KRE regional banks ETF. Liquidity is draining away.

Bitcoin death cross – first since January 2022

Cocoa – new multi-decade high on very tight supplies – El Nino strikes.