Wall Street pulled back from record levels after weak earnings updates - Newsquawk Asia-Pac Market Open

• US stocks predominantly closed lower with underperformance in the Nasdaq amid declines in tech as weak guidance from ASML added to the headwinds for semiconductors which were already on the back foot following reports that the US is looking to curb chip exports to some countries from Nvidia and AMD in the interest of national security. Furthermore, Energy was the worst performing sector amid the recent fall in oil prices, while a woeful earnings report from LVMH added to the downbeat mood.
• USD was ultimately flat in choppy trade with early support alongside the subdued risk appetite and with comments from former President Trump who towed the usual enthusiasm surrounding tariffs, although the gains were limited as participants also reflected on weak Empire Manufacturing data, while the NY Fed's SCE maintained 1yr inflation expectations at 3% but the 3yr and 5yr view rose.
• Looking ahead, highlights include New Zealand CPI & RBNZ Sectoral Factor Inflation, South Korean Unemployment Rate, Australian MI Leading Index, Japanese Machinery Orders, Comments from RBA's Hunter, RBNZ's Silk, Fed's Bostic & BoJ's Adachi, Supply from Australia.

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LOOKING AHEAD

• Highlights include New Zealand CPI & RBNZ Sectoral Factor Inflation, South Korean Unemployment Rate, Australian MI Leading Index, Japanese Machinery Orders, Comments from RBA's Hunter, RBNZ's Silk, Fed's Bostic & BoJ's Adachi, Supply from Australia.
• Click for the Newsquawk Week Ahead.

US TRADE

• US stocks predominantly closed lower with underperformance in the Nasdaq amid declines in tech as weak guidance from ASML added to the headwinds for semiconductors which were already on the back foot following reports that the US is looking to curb chip exports to some countries from Nvidia and AMD in the interest of national security. Furthermore, Energy was the worst performing sector amid the recent fall in oil prices, while a woeful earnings report from LVMH added to the downbeat mood.
• SPX -0.76% at 5,815, NDX -1.37% at 20,160, DJIA -0.75% at 42,740, RUT +0.05% at 2,250.
• Click here for a detailed summary.

NOTABLE HEADLINES

• Fed's Daly (2024 voter) said Fed policy is still restrictive and working to lower inflation, while continued progress on the Fed’s goals is not assured and the Fed must remain vigilant. Furthermore, she said talk of gradual rate cuts means less than it appears and if forecasts are met, she sees one or two more rate cuts this year.
• Fed Discount Rate Minutes noted requests by five reserve banks to maintain the existing primary credit rate and requests by seven reserve banks to decrease the rate. Federal Reserve Bank directors commented on labour market conditions in which most noted improved labour availability overall, lower employee turnover, and moderate wage growth, while many directors said employers in their Districts were taking a more cautious approach to hiring, but there were few reports of widespread layoffs.
• NY Fed SCE (September) showed 1yr inflation expectation was unchanged at 3.0%, 3yr expectations rose to 2.7% (prev. 2.5%) and 5yr expectations rose to 2.9% (prev. 2.8%).
• Republican Presidential Candidate Trump said regarding tariffs that 10% is hundreds of billions of dollars and the tariff has to be higher than 10% if you want companies to come into the US, while he added that if they make it 50%, companies are going to come in. Furthermore, Trump said he has the right to tell the Fed what to do on interest rates, but not order it.

DATA RECAP

• US NY Fed Manufacturing (Oct) -11.9 vs. Exp. 3.85 (Prev. 11.5)

FX

• USD was ultimately flat in choppy trade with early support alongside the subdued risk appetite and with comments from former President Trump who towed the usual enthusiasm surrounding tariffs, although the gains were limited as participants also reflected on weak Empire Manufacturing data, while the NY Fed's SCE maintained 1yr inflation expectations at 3% but the 3yr and 5yr view rose.
• EUR mildly weakened against the dollar and failed to hold on to the 1.0900 status despite mostly better-than-expected data, while the attention for the single currency this week remains on Thursday's ECB policy meeting.
• GBP was underpinned on the back of the stronger-than-expected UK employment data which gradually boosted GBP/USD briefly above the 1.3100 where it was then met with resistance.
• JPY outperformed in which USD/JPY momentarily slipped beneath the 149.00 handle amid softer US yields.
• Canadian CPI Inflation YY (Sep) 1.6% vs. Exp. 1.8% (Prev. 2.0%)

FIXED INCOME

• T-notes caught a bid throughout the session supported by lower oil prices and soft Canadian inflation data.

COMMODITIES

• Oil prices declined with Israel reportedly to avoid striking Iran's oil and nuclear facilities, while China demand woes lingered.
• IEA OMR (Oct) lowered the 2024 world oil demand growth forecast to 860k bpd (prev. forecast 900k), while it noted that China is the main drag on global oil demand growth with China's demand expected to increase by only 150k bpd in 2024.

GEOPOLITICAL

MIDDLE EAST

• Israeli Broadcasting Corporation reported that a full agreement was reached on the method, timing and strength of the response to an attack on Iran, while the strike plan is awaiting the approval of the Ministerial Council for implementation, accompanied to Al Jazeera.
• The political level in Israel has decided which targets will be attacked in Iran, while Iranian targets that will be attacked are clear to the Israelis and it is only a matter of time, according to Sky News Arabia citing Israel Broadcasting Corporation.
• Israel PM Netanyahu will hold security consultations on Friday with ministers and representatives of the defence establishment, while a meeting of the Political Security Cabinet was scheduled for Sunday, according to Kann News.
• Israel’s Defence Minister Gallant said their response to Iran will be soon, accurate and lethal, according to Al Arabiya. Gallant also said that he, PM Netanyahu and the Chief of the General Staff see "eye-to-eye" on the issue and response in Iran, according to Kann News's Stein.
• Israeli officials briefed on the planning noted that even if Israel avoids Iran’s nuclear enrichment and oil sites, Israel could still hit a wide array of military targets, as well as military bases and major government buildings, according to NYT.
• Israel reportedly briefed the Biden administration on the general goals of the planned attack on Iran but not on specific targets, while sources aware of the details said the goals can change even in the 90th minute, according to Kann News.
• Washington believes it has obtained guarantees that Israel will not target nuclear or oil sites in Iran, but warned these guarantees are not conclusively confirmed and circumstances may change. Officials also noted that Israel’s track record on fulfilling assurances is mixed and has often reflected politics that have upended Washington’s expectations, according to AP.
• US reportedly sent a message to Israel that they need to solve the humanitarian crisis within Gaza or an arms embargo will be implemented. However, a Pentagon official told Sky News Arabia shortly after that US Defense Secretary Austin never hinted at an arms embargo on Israel.
• US State Department said the US has raised the issue of the bombing campaign in Beirut with Israel, while they have seen strikes diminish in recent days and will continue to watch carefully.
• Pentagon said the THAAD missile system began to reach Israel yesterday and will be fully operational in Israel soon.

OTHER

• White House said reports of North Korean troops being used by Russia are concerning.

ASIA-PAC

NOTABLE HEADLINES

• China's Housing Ministry, MoF, and PBoC will hold a briefing on Thursday.
• China and NDRC are to hold a meeting on financing for small businesses on October 21st.
• US Commerce Department added three Chinese firms to the unverified list.
• German official said do not expect discussion about EU punitive tariffs on EVs from China at summit.

EU/UK

NOTABLE HEADLINES

• UK Chancellor Reeves identified a GBP 40bln funding gap ahead of her Budget in two weeks which is much larger than the GBP 22bln previously expected, as she prepares big tax rises to patch up the NHS. Furthermore, leading think-tank IFS said this week that Reeves would need to raise GBP 25bln in tax if she wanted to boost spending increases to a rate that was in line with the growth of the overall economy, according to FT.

DATA RECAP

• UK Employment Change (Aug) 373k vs. Exp. 250k (Prev. 265k)
• UK ILO Unemployment Rate (Aug) 4.0% vs. Exp. 4.1% (Prev. 4.1%)
• UK Average Earnings (Ex-Bonus) (Aug) 4.9% vs. Exp. 4.9% (Prev. 5.1%)
• German ZEW Economic Sentiment (Oct) 13.1 vs. Exp. 10.0 (Prev. 3.6)
• German ZEW Current Conditions (Oct) -86.9 vs. Exp. -84.5 (Prev. -84.5)
• EU ZEW Survey Expectations (Oct) 20.1 (Prev. 9.3)
• EU Industrial Production MM (Aug) 1.8% vs. Exp. 1.7% (Prev. -0.3%, Rev. -0.5%)
• EU Industrial Production YY (Aug) 0.1% vs. Exp. -1.0% (Prev. -2.2%, Rev. -2.1%)