Mixed tech stock earnings hit Nasdaq

Financial markets returned to their recent trend this morning, with the Nasdaq and Russell 2000 off 2.2% and 1.6%, respectively, and 10-year bond yields pushing back towards a five-handle at 4.95%. The dollar gained modestly, resuming a bullish trend in place since mid-summer. Disappointing results from Alphabet saw the stock down 9%, while better news from Microsoft saw its price rise by almost 3%. All eyes are on Meta’s earnings after the bell today and Amazon tomorrow.

Bottom line: Risk-off.

TODAY’S MAJOR NEWS

Tech stocks slide slide, ex Microsoft

Tech stocks are taking divergent paths as Q3 earnings are released.  Google/Alphabet slid almost 10% on revenue numbers and AI-related activities. Microsoft beat street estimates and spoke glowingly about AI revenues at its Azure cloud business, rising 3% this morning. Meta/Facebook results are due after the close (down 4% today), with Amazon reporting tomorrow (down 5.5% today).

Bitcoin holds on to ETF speculation

BTC held on to recent gains, up 3.2% to $36,682, given yesterday’s speculation of an imminent BlackRock Bitcoin ETF. BlackRock’s proposed ETF was added to the DTCC’s clearing-house eligibility file in August, but that body added that the move wasn’t a sign of regulatory approval. Unconcerned, Bitcoin bulls believe the fund will be created and broaden the crypto-currencies appeal.

Does an inverse yield curve still predict a recession?

We return to a theme we have tracked all year – does the so-called ‘inverse yield curve’ predict a coming recession? Traders follow the spread between 2-year and 10-year Treasury notes for signs of an inverted yield curve, now just 16 basis points. Economist Campbell Harvey's definition of three-month bills versus 10-year notes turned negative at the end of last year. Historically, this should have predicted a recession by now.

Did it give a false signal? "I've become more pessimistic since August," Harvey told Yahoo Finance. For Harvey, the reason the yield curve inversion is close to normalizing, with long rates above short rates, is concerning. He argues that the maximum risk of recession is when short rates fall, closing the inversion in anticipation that the Fed will soon cut official rates. Recessions typically follow.

China unveils stimulus package, yuan weakens

China offered 1 trillion yuan in sovereign bonds, $137 billion, to stimulate its economy in a surprise move to amend the budget outside the regular legislative session for the first time in a decade. Today’s announced funding program amounts to 1% of China’s gross domestic product, one-fourth the size of a stimulus package implemented later in 2008 in response to the global Great Recession. It indicates the seriousness of China’s current economic problems. The yuan continued to weaken, hitting a new low of USD/CNY 7.33. The US dollar is the real winner, proving its strength against Chinese, Japanese, and Eurozone currencies.

TODAY’S MAJOR MARKETS

Nasdaq leads market decline

• The Nasdaq fell sharply in morning trade, down 2.2% in morning trade, with the Russell 2000 and the S&P 500 down 1.6% and 1.3%, respectively
• Foreign equity markets were up modestly overnight, led by a 0.7% rise in the Nikkei 225, a 0.3% rise in the FTSE 100, with the DAX unchanged
• The VIX, Wall Street’s fear index, rose to 20.7

Bond yields resume upward march

• 10-year yields fell rose again to 4.95%, and 2-year yields rose to 5.11%
• The dollar index was up 0.2% to 106.5
• Versus the dollar, Sterling and the Euro were down 0.3%, while the Yen was unchanged

Oil, gold rally

• Crude oil prices bounced back, up 1.3% to $84.5 per barrel after recent profit-taking
• Spot gold prices were up 0.4% 1,995 per ounce, while Silver was down 0.2% to $23.1 per ounce
• Grain and oilseed prices were mostly lower
• Soymeal futures reversed lower after hitting new highs as traders worry about soft demand

Analysis by Arlan Suderman, Chief Commodities Economist: Arlan.Suderman@StoneX.com

Market outlook by Paul Walton, Financial Writer: Paul.Walton@StoneX.com