Stocks flat to start the session

Morning Note

European stocks are flat in early trade as risk remains on watch for a range of factors, including earnings, inflation and expectations central banks will tighten the screw. The S&P 500 notched a 4th straight day of gains, but the Dow Jones fell. The Nasdaq rallied with megcap growth performing solidly. Asian shares rallied with tech leading the way. Meanwhile what we might call cyclical/steepener trades are suffering a bit.

US industrial production fell 1.3% in September, manufacturing down 0.7%. Autos and parts fell 7.2% as shortages of semiconductors continued to hurt operations, while the lingering effects of Hurricane Ida hit mining. Supply chains remain the big problem for now – a shortage of semi-conductor supplies could affect the car industry well into 2022, the head of French car sector body PFA said today.

Also worrying markets are central banks – the Bank of England has put the cat among the pigeons with its hawkish talk, nudging markets to price in some hikes in the next year that just weren’t expected a few weeks ago. That’s seen the yield curve flatten with many arguing that CBs shouldn’t be hiking into a supply-side inflation crunch. That may be so, but with inflation at 5% or more, should they really be trying to grease the wheels as much as ZIRP and QE is doing now? UK 2yr gilt yields jumped to a two-and-a-half year high on Monday, as traders bet on the BoE hiking rates as early as next month and following up with more in 2022 so the base rate is seen reaching 1% by next summer. Ten-year rates have not kept pace. It shows the BoE’s boss, Andrew Bailey, is believed when he says the bank will act to curb inflation, but it also shows markets don’t think it’s necessarily the best step for achieving growth in the long run. Both markets and central banks have been wrong in the past.

Some big names reporting earnings today, including Netflix, United Airlines, and Tesla. We know it was a good quarter for deliveries: Tesla made approximately 238,000 vehicles and delivered over 240,000 in the third quarter. But as ever with Tesla there are questions still. Eg, What about the self-driving feature and investigations? What about delays in delivering new products – it has only started delivering latest model X SUV after months of delays? There will be a focus on China – EV sales there are booming but Tesla’s sales in the market have slumped. But if Tesla can show it’s profitable with emissions credits again and show it can find chips where no one else can, it’s maybe going to satisfy the market just enough.

Bitcoin trades at a new high, inching closer to its all-time high, with prices close to $63k overnight. In addition to the launch of the ProShares Bitcoin futures ETF, Interactive Brokers said it will allow Registered Investment Advisors in the US to invest in Bitcoin and other cryptocurrencies. This opens the gates on billions of dollars of potential investment in the sector.