Stocks Jump, Yields Dump  

Powell was dovish – at least that’s how the market read it. The Fed left rates on hold with a little-changed statement aside from adding that there were tighter “financial” as well as “credit” conditions that might “weigh on economic activity”. So, are we at the top? Powell downplayed the dots and walked a fine line between them and the data. “We're not confident that we haven't, we're not confident that we have” reached sufficiently restrictive interest rates, he said. 

“A few months of good data are only the beginning of what it will take to build confidence”. The market took it as very cautious – this was less of the hawkish pause anticipated by many and a more balanced pause – risks are “more two-sided". 

Powell downplayed the +4.9% Q3 GDP growth and was cautious about the labour market.   

Rates were bid with the front end feeling the brunt of the market’s assessment – the 2yr sliding towards 4.9% before bouncing back to 4.98% this morning, whilst the 10yr slid towards 4.7%, now around 4.75%. Stocks rallied as rates slid, tech leading the Nasdaq up 1.64% and the S&P 500 rising over 1%.    

When to Cut?  

Doubleline’s Jeff Gundlach expects economy to roll over and sees Fed cutting by 200bps. This is the great fight – between those who think the Fed will revert to big cuts when the economy slides, and those who think it will stick the course on higher for longer. Maybe the bond rally has begun? I don’t buy it. I think we get weaker economy and sticky inflation and the Fed won’t be slashing rates. Gundlach’s comments probably reflect a total lack of confidence in the Fed and Treasury – much like Druckenmiller...a general sense that things are not right. The Fed probably won’t hike again, so the question is when to cut? The market will be front-running this now, which could see some short-term gains for stocks, but I don’t think the Fed is anywhere as close to cutting as the market thinks. If the Fed is going to have to accept higher inflation, as I have, you could also argue that it’s got to be more willing to cut sooner… 

Market Movers  

European stock markets picked up the baton early on Thursday morning – London, Paris and Frankfurt each up well over one percent. Shell rallied on positive earnings – down on last year but still +ve and it raised buybacks. Novo Nordisk reported thumping sales, +29% for the nine months so far with Wegovy +167% and Ozempic +45%. Sainsbo’s back on form -  expect to report underlying profit before tax between £670 million and £700 million, the upper half of its previous guidance range (£640 million to £700 million). The company also raised its retail free cash by £100mn to £600mn. It seems management has got a handle on the stores a lot better – grocery sales +10.1% for a record market share gain.    

BoE to Hold  

Bank of England is expected to hold today…not a lot to report so back to prior comments. Three hawks who voted for rates to rise last time to 5.5% may still vote this way – and it would be likely that the MPC would reiterate forward guidance suggesting it could raise rates again if required. Inflation held firm at 6.7% in September, but there are clear signs of labour market weakness and softening growth outlook which will stay the hand of the MPC. The unemployment rate rose to 4.2% between June and August, up from 4% in the March-to-May quarter, whilst signs of a slowdown in the economy seem to be building. It’s now a case of how long does the BoE keep rates at these levels rather than how high do they go.  

Apple Reports Today  

Revenues are seen down 1%, though a small profit rise is expected. The question mark over iPhone 15 shipments needs answering regards the current quarter. Fiscal fourth quarter earnings today only include a few days of new iPhone sales, so the focus is on any guidance from CFO Luca Maestri – there has been no formal guidance for three years but there’s usually enough clues. In August, Apple had flagged Mac and iPad revenue would decline by “double digit” percentages – just how bad will impact the brass tacks of the EPS, but the final assessment for the stock will be forward-looking. Mac business sales expected –26% to $8.5 billion. Consumer sentiment probably isn’t what it was, whilst strong comps and a strong dollar will be headwinds for the stock, which is up about a third this year. And China is of course a worry – can Apple assuage fears or is it struggling there as we think? Clearly there is pressure coming from the new Huawei devices but this could ease in time. And as ever what sort of growth is there from Services which has been seeing some deceleration in growth in recent quarters. Services are seen +11% to $21.4bn.