Breakfast Bites - Bitcoin soars while Europe signals recession

Rise and shine everyone.

The big news this morning is Bitcoin surging over 34,400. It was trading at 30,000 in yesterday’s pre-market. There seems to be discussion that BlackRock is getting closer to filing their Bitcoin ETF which has brought interest back.

Yesterday’s 10Y yield at 5% didn’t last very long either, pushing the market higher. This kind of a decline isn’t necessarily sustainable and caution is warranted. We now know that yields can cross 5% and we’re likely to experience this again. The market forces certainly remain ripe for the Yield Curve to steepen out of an inversion. Many seem to suggest the pull back in yields was driven by Bill Gross and Bill Ackman closing out their bond shorts. Bill Gross however, said he's buying Mar2025 SOFR futures expecting a recession by year end.

In Global Macro news, we continue to receive signs of a slowdown with PMIs (Purchasing Managers’ Index) falling back into contractionary territory for several countries (below 50). The PMIs are an indicator of the overall health of the economy.

Australia Composite PMI at 47.3 vs. 51.5 prior
Japan Jibun Bank Composite PMI at 49.9 vs. 52.1 prior
Eurozone HOCB Composite PMI at 46.2 vs. 47.2 prior
Germany HCOB Composite PMI at 45.8 vs. 46.4 prior

France and the UK are the only countries reporting today that showed a slight improvement. US numbers are set to be released at 9:45am ET.

We also have a heavy day of earnings with Coca-coca, GE, RTX, 3M, GM and Verizon before market open, and Microsoft, Google, Visa, Texas Instruments after market close.

US equity futures are trading higher this morning as long-end yields pulls back. We have a $51B 2Y-note auction today which may be pushing the 2Y yield higher. The Yield Curve has inverted further since yesterday and now stands at -0.23%. Gold, Oil and the US Dollar have all pulled back since yesterday on news of de-escalation. The latter two are off their lows now.

Asia and Australia

Asia equities finished mainly higher Tuesday with many selling off first thing before recovering into their respective closes. An exception was Hong Kong, which was partly marking-to-market from its holiday yesterday but still ended off its lows; mainland benchmarks finished higher although Shanghai Composite failed to recover its 3K level.
China's President Xi made his first known visit to PBOC Tuesday afternoon, sending a powerful signal that the government is intent on shoring up the economy and financial markets. Xi visited the PBOC, State Administration of Foreign Exchange, and the nation's sovereign wealth fund.
BOJ announced an unscheduled JGB purchase operation Tuesday comprised of JPY300B in 5~10y and JPY100B in 10-US~25y, marking the fifth adhoc move since the July YCC tweaks.
Korean PPI data slowed on a MoM basis from 0.9% to 0.4% but increased on a YoY basis from 1% to 1.3% in September. It was the sharpest increase in factory gate prices since April 2023, led by higher cost of services (2.2% vs 2.1% in August) while prices fell at a slower pace for manufacturing products (-0.7% vs -1.5%).
In her first speech as RBA governor, Michele Bullock said she will not hesitate to raise cash rate further if there is a material upward revision to the outlook for inflation as there are risks that could see inflation return to target more slowly than currently forecast.

Europe, Middle East, Africa

European equity markets mostly higher after moving off lows.
Digging a bit more into PMI data, the Eurozone composite PMI had its lowest reading in 3 years, as we saw above. This was driven by both manufacturing and services PMIs. Manufacturing came in at 43.0 vs 43.7 expected while services was 47.8 vs 48.6 expected. This reading folds into GDPNowcast Models that are now signalling a recession or two back-to-back quarters of negative GDP Growth. Given the circumstances, the ECB will likely choose to pause rake hikes at Thursday’s meeting.
Germany’s lower composite PMI was led by services PMI dropping back into contractionary territory. Backlogs were reported as weak but factory activity decline has slowed. France on the other hand, posted a marginally higher composite PMI due to improving services PMI. Manufacturing PMIs for France came in lower and now signals a flat GDP growth.
UK jobless claims came in higher amid further signs of labor market weakness. UK claimant count up 20.4K versus consensus 2.3K and prior 9.0K increase revised up from 0.9K initial reported. Unemployment rate increased to 4.2%, up 0.2% on quarter.
German GfK consumer confidence continued to show weakness with reading for November at -28.1 versus consensus -26.6 and prior revised to -26.7 from -26.5. Underlying details showed stabilization in expectations for economic outlook with slight increase noted. Income expectations fell 4 points to -15.3 with rising food and energy prices still squeezing household purchasing power and this is dampening appetite to buy.

The Americas

Mexico Activity Data grew by 3.7% year-on-year in August 2023, surpassing market expectations of 3.4% and accelerating from the 3.2% expansion in the previous month.
Deutsche Bank said its measure of aggregate equity positioning has edged lower to below neutral again (z-score -0.15, 34th percentile). Added that both discretionary investor positioning and systematic strategies positioning declined slightly and are a little below neutral.
Verizon Communications reports a double beat - Q3 EPS $1.22 ex-items vs FactSet $1.18; Revenue $33.3B vs FactSet $33.27B. REaffirmed EPS and adj. EBITDA guidance and improve FCF guidance by $1B to above $18B. Reaffirms total wireless service revenue growth of 2.5% to 4.5%.
RTX Corp. reports Q3 EPS $1.25 ex-items vs FactSet $1.22; Revenue $18.95B ex-items vs FactSet $18.60B; enters definitive agreement to sell its Cybersecurity, Intelligence and Services business within its Raytheon segment for $1.3B; accelerated $10B share buyback program.
Coca-Cola reports Q3 comparable EPS $0.74 vs FactSet $0.69; Revenue $11.95B vs FactSet $11.44B; Price/mix grew 9%, primarily driven by pricing actions in the marketplace; Improve organic growth revenue guidance to 10%-11% vs. 8%-9% earlier.
General Motors reports Q3 adj. EPS $2.28 vs FactSet $1.87; Revenue $44.13B vs FactSet $42.48B; General Motors withdraws f23 financial guidance and guidance for near-term electric production

Chart of the Day from JP Morgan

The Probability of Recession as priced according to various asset classes have declined considerably from one year ago. Base Metals are the only asset class that remains elevated signalling a recession according to JPM.