Risk off

Stock markets in Europe fell in early trade Friday but within recent ranges. US markets dipped for a second day as Treasury yields continued to march higher as robust US labour market data cemented the case for the Fed to keep hiking interest rates. Hawkish commentary from Fed officials has also underpin a bias for yields to follow the path of least resistance higher. Tesla’s miss also weighed as the stock fell 6% or so – hard for the market to rally against that. The dollar held the ascendancy in the FX market with USDJPY surging higher to test 151 as US Treasury yields rose again with the 10yr breaching 4.25% and going higher.

Snap fizzles

Shares in Snap plunged again after it reported weaker-than-expected revenues in the third quarter. Daily active users rose 19% but revenues were up just 6% and the net loss widened to $400m. Shares plunged 25% after-hours and this will have a read across for others in the social media and digital advertising space – not least because Snap's average revenue per user fell 11%. Pinterest shares fell 7% after hours, with Facebook -4% and Alphabet -2%.

4d chess? 

There's a theory that Elon Musk is trying to be named a national security threat to get the US to scuttle the Twitter deal. Nuts? Yes but we know Musk doesn’t actually wont’ to buy Twitter and he’s tried many different ways to get out of it. On the Tesla earnings call the other night he sounded resigned (“excited”) to own Twitter. But at the same time he’s been chatting to Putin and tweeting all kinds of ‘crazy’ stuff that kind of sounds quite pro-Russian. And he’s threatened to cut Starlink for Ukraine. Is there a plan? Usually with Musk things are not what they seem on the surface – hence chatter that it’s all a grand plan to sound pro-Russian enough to get the US government to help him out. And he might pull it off. Bloomberg reports officials are in the early stages of considering whether to review Musk’s deals – including Twitter - from a national security perspective. Twitter deal is due to complete next week...Watch this space. Twitter shares fell 13% in pre-mkt trading.

Odds-on Boris? 

The former prime minister has over 50 MPs backing him; Sunak has about 40. As part of an ‘expedited’ process they each need 100 to go to a members vote, if it ever comes to that. ‘They’ probably thought that requiring 100 MPs might make it straightforward to anoint Sunak. If Boris gets in, can he command the Parliamentary party? By the same token, could Sunak? Can anyone? Boris has the original mandate from the voters and ‘Levelling Up’ is an economic strategy designed to increase GDP per capita. This is important: growth for growth’s sake – importing people, mainly cheap labour, to boost headline GDP (the policy of the last 30 years) - benefits very few. Levelling Up sounds like what southern Tory heartlands say to Northern regions to win their support. But it is an economic strategy – or it can be, and it could be once again the way for the Tory party to unite.

Too high?

Far more interesting now is the monetary policy as it responds to the changing currents of Westminster and tries to tackle inflation; and Bank of England deputy governor for monetary policy Ben Broadbent gave an interesting speech yesterday in which pushed back against notion the MPC would hike all the way to 5% as implied by markets. His speech yesterday was one of the most assertively direct attempts to say the market has overdone it when pricing rate hikes by the Bank. 

“Whether or not that response needs to be as large as the shift in market interest rates, since our last set of forecasts, remains to be seen,” he said. The Bank seems to be worried about the hit to growth. “If Bank Rate really were to reach 5.25%, given reasonable policy multipliers, the cumulative impact on GDP of the entire hiking cycle would be just under 5% - of which only around one quarter has already come through,” Broadbent added.