Here are five things you need to know for Monday October 3rd:
1. — Stock futures mixed as investors head into final quarter of 2022
U.S. stock futures were mixed on Monday after ending a dismal September as investors came off the worst month for the S&P 500 since 2008 and gauged whether the Federal Reserve’s aggressive rate-cutting efforts to combat the… inflation to continue.
Friday ended a negative month and quarter for all major averages, with the Dow falling 500.10 points, or 1.71%, to close below 29,000 for the first time since November 2020. For the month, the Dow fell 8.8%, while the S&P 500 and Nasdaq Composite lost 9.3% and 10.5%, respectively.
The inflation outlook as well as planned central bank interest rate hikes remain the market’s key concerns, with September’s US payrolls data the focus for next week. Meanwhile, the VIX index, Wall Street’s so-called “fear gauge,” remains elevated, trading up another 3.17% at 32.85 on Monday.
The index is up more than 32% over the past month on rising bond yields amid prospects that the economy is likely to slip into recession on the back of the Fed’s aggressive move to make borrowing more expensive for consumers and businesses to curb inflation.
Benchmark 2-year bonds were tied at 4.208% in overnight trade, dragged lower by a weaker US dollar. Bond yields move inversely with prices. Benchmark 10-year Treasury yields were 3.797%. The note had a particularly volatile week last week, climbing to a near 14-year high before posting its steepest daily decline since 2020 during last Wednesday’s session.
European equities, meanwhile, started the month of October lower, hurt by gloomy sentiment in Asia-Pacific and a 9% decline in Credit Suisse.
Credit Suisse shares fell almost 10% during morning trade in Europe after the Financial Times reported that Swiss bank executives are trying to reassure big investors about their financial health.
Balancing some of the negative sentiment and helping the ailing pound was a linchpin for the UK government, which said on Monday it would not proceed with the scrapping of a 45% top tax rate.
Prime Minister Liz Truss’ new government had pledged to cut the top tax rate on incomes over £150,000 ($166,770) to 40%, although the move sparked a violent market reaction that pushed the pound to record lows and forced the Bank to intervene. The pound was up 0.3% against the US dollar on Monday.
On Wall Street, futures contracts tied to the S&P 500 show a 2.5-point drop from the opening bell, while futures contracts tied to the Dow Jones Industrial Average are priced at a 53-point gain. Futures linked to the tech-heavy Nasdaq point to a 54.75-point move lower.
2. — Credit Suisse stock plummets on fears of another “Lehman moment.”
Credit Suisse shares fell nearly 10% in the morning session in Europe after the Financial Times reported that the Swiss bank’s executives are in talks with its main investors to reassure them amid rising concerns about the Swiss lender’s financial health — raising concerns about another “Lehman moment.”
The Financial Times reported on Sunday that the bank’s teams have been actively working with its top clients and counterparties over the weekend to reassure them that the bank is solvent, adding that they are receiving “messages of support” from top investors had.
Spreads on the bank’s credit default swaps (CDS), which offer investors protection against financial risks such as defaults, widened sharply on Friday. They followed reports that the Swiss lender wanted to raise capital, citing a memo from its CEO, Ulrich Koerner.
Investors, already nervous about rising borrowing costs, tightening liquidity conditions and rising market volatility, fear a large institution could face financial troubles similar to Lehman Brothers’ in 2008.
However, analysts at Citigroup noted in a research note that they “… struggle to see anything systemic” related to a “big European bank.” The analysts did not name Credit Suisse by name.
3. – Tesla falls after record third-quarter deliveries miss forecasts
Tesla (TSLA) Shares fell 5% in premarket trading on Monday after the electric-car maker reported record vehicle deliveries in its most recent quarter that still fell short of analysts’ forecasts, leaving the company needing another boost in production to meet its annual growth targets.
Deliveries rose about 42% from the third quarter of last year, when Tesla delivered 241,000 vehicles, according to the company. Analysts polled by FactSet forecast that Tesla will deliver around 371,000 vehicles in the third quarter.
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Tesla has a long-term goal of increasing production by an average of 50% annually, and said in July it was still achievable despite production disruptions. To reach that level, Tesla would need to deliver about a record-breaking 495,000 vehicles in the fourth quarter; Analysts currently expect the company to deliver 457,000 vehicles in the last three months of this year.
Tesla also said in its report that the company produced 19,935 of its higher-priced Model S and X and 345,988 of its more popular Model 3 and Y in the third quarter. In the same quarter last year, Tesla reported deliveries of 254,695 vehicles and that it had produced 237,823 cars, including just 8,941 Model S and Model X vehicles.
Tesla shares fell 4.81% to $252.50 in premarket trading.
4. – Oil rallies as OPEC+ set to cut production
Oil prices rose on Monday on reports that OPEC+ is poised to make the most drastic cut in production since the pandemic to shore up falling oil prices.
Brent crude, the global oil benchmark, rose 4.3% to $88.82 a barrel.
The Organization of Petroleum Exporting Countries and Moscow-led allies, collectively known as OPEC+, are considering a cut of more than 1 million barrels a day, delegates from the group said on Sunday.
Concerns about a slowing global economy have dragged oil prices down as quickly as possible since the start of the Covid-19 outbreak in early 2020, prompting OPEC+ to explore ways to support oil prices.
Any move by OPEC+ to raise oil prices could put further pressure on Western consumers already suffering from soaring energy costs, while helping Russia – one of the world’s largest energy producers – fill its coffers as it wages war against Ukraine.
Oil prices had soared past $100 a barrel and stayed there for months, but Brent crude, the global oil benchmark, is now down 23% this quarter, falling to $87.96 a barrel and last week fastest decline since 2020.
5th – Investors await Key Jobs Report for clues on Fed’s next moves
Investors will be watching Friday’s US jobs report to gauge how much of an impact the Fed’s rate hikes are having on the economy, particularly corporate hiring plans.
Economists expect the US economy added 250,000 jobs last month, with the unemployment rate holding steady at 3.7% and wage growth remaining high.
Another strong jobs report could reinforce the case for even more hawkish stance from the Fed, as potentially troubled markets are already hit hard by concerns about how much interest rates may have to rise as the central bank battles the worst inflation in 40 years.
On the other hand, signs of a slowdown in the labor market could fuel fears that aggressive Fed tightening could plunge the economy into recession.
Employment growth remained robust in August and the unemployment rate rose to 3.7% in August from a half-century low of 3.5% in the previous month.
Meanwhile, several Fed officials are also set to speak during the week as markets try to gauge their appetite for another 75 basis point rate hike at the bank’s November meeting.