Bond sale, Nike earnings, Porsche IPO

By Geoffrey Smith — The global bond sell-off resumed and the dollar rose again after a strong rally in hedging risk assets on Wednesday. Stocks should open under pressure, accordingly. Nike and Micron are expected to report earnings after the close, while Porsche rises to its debut after pegging its IPO at the top of its range. In the UK, the pound, bonds and stocks fell again as Prime Minister Liz Truss doubled down on her tax cut policy, while in Germany inflation continued to climb as the start of the winter brought more alarming economic news. Here’s what you need to know in financial markets on Thursday, September 29.

1. Bond market liquidation resumes; GDP revision, unemployment claims due

Selling in global bond markets resumed and a fresh wave of safe-haven demand lifted the dollar after the significance of Wednesday’s emergency intervention by the Bank of England in the UK slowly took hold into account.

Yields on the benchmark 10-year U.S. Treasury jumped another 13 basis points to 3.84%, giving up much of Wednesday’s short-hedging rally. The 2-year bond yield rose 12 basis points to 4.22%. The dollar index meanwhile rose 0.6% to 113.62, still comfortably below the highs reached earlier in the week.

The US market is set to absorb the final second quarter US GDP data at 08:30 ET (12:30 GMT) along with the more timely weekly jobless claims, where no major changes from last week are expected. Federal Reserve speakers include James Bullard of St. Louis and Loretta Mester of Cleveland.

Outside of the US, further significant central bank rate hikes are expected in Mexico and Nigeria, while the Czech Republic and Kenya are likely to hold off.

2. UK assets slide again as Truss doubles

British assets began to fall again when Prime Minister Liz Truss doubled down on her policy of unfunded tax cuts in a series of flimsy radio interviews.

His comments came a day after the Bank of England pledged to buy £65bn of UK government bonds in a bid to secure market liquidity, after gilt yields rose sharply in the over the past week has triggered massive selling by pension funds to meet margin calls on interest rate derivatives. They were accompanied by sniping from Mark Carney, the former BoE governor, who accused the government of undermining the Bank and the Office for Budget Responsibility with its plans.

The BoE’s bond purchases solve a short-term problem of market instability, but contrast starkly with the rest of its monetary policy. In addition to raising interest rates, it intended to start selling its own portfolio of government bonds back into the market from October. By reversing its course, it makes its task of reducing inflation even more difficult.

3. Stocks should open lower; Nike and Micron in sight on profits

U.S. stock markets are expected to open lower later, giving back some of the gains they made on Wednesday.

As of 6:20 a.m. ET, Dow Jones futures were down 230 points, or 0.7%, while S&P 500 futures were down 1.0% and futures on the Nasdaq 100 were down 1.3%. The three major currency indexes were all up around 2% on Wednesday amid a strong rally in short coverage.

Actions likely to be targeted later include Tyson Foods (NYSE: TSN) following the announcement of a major management shakeup. CarMax (NYSE: KMX) reports pre-open earnings, while Nike (NYSE: NKE) and Micron (NASDAQ: MU) share the stage after the close.

4. German inflation continues to climb as first cold snap triggers gas alert

Europe’s economic woes have gone from bad to worse. Four German research institutes have cut their growth forecast for this year to 1.4%, from 2.7% six months ago, and now expect Europe’s largest economy to contract by 0.4 % next year, instead of more than 3% growth.

Things could be even worse: in a risk scenario of cold winters and gas shortages, the institutes expect German GDP to contract by 7.9% in 2023 and 4.2% in 2024 It’s no wonder the country’s grid regulator, the Bundesnetzagentur, called on households to cut consumption by 20%, after Germans hit the thermostat in response to the first spell of colder weather this week. last.

Inflation in Germany continues unabated: figures from its largest states beat expectations and paved the way for an overall figure of over 10% in September.

5. Porsche IPO offers reprieve from the gloom

German sports car maker Porsche (F:P911_p) rose about 5% on initial trading in Frankfurt after pricing its IPO at the high end of the marketing range, making it the biggest capital increase in Europe – and one of the largest in the world – so far this year.

The deal will raise 19.5 billion euros ($19 billion) for the electrification campaign of its parent group Volkswagen (ETR:VOWG_p), which will continue to hold a majority stake. It values ​​the group as a whole at 78 billion euros, more than double its closest rival Ferrari (NYSE: RACE).

It also creates an intriguing arbitrage opportunity with Volkswagen as a whole, whose market value is only a little higher at 81.5 billion euros. This implies that the market places virtually no value on all of VW’s other car manufacturing activities.

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