Early Morning Call: equity markets remain hesitant as recession fears linger

Equity market overview

APAC equity markets ended up mostly in the red following a similar session in the US. Only Hong Kong’s Hang Seng traded higher as the city is considering easing Covid rules.

In Europe indices are set open marginally higher.

Japan's economy shrank less than initially estimated in the third quarter (Q3). The world's third largest economy contracted by 0.2% in the second quarter compared to Q3, after a previous estimate of -0.3%. Year-on-year (YoY), GDP shrank by 0.8% compared with economists' median forecast of a 1.1% decline and an early estimate of a 1.2% contraction.

In Australia, trade surplus declined to A$12.2 billion in October from the previous month and broadly in line with market forecast. Exports and imports both fell by 1% from a month earlier.

Central Banks

The Bank of Canada raised its overnight interest rate by 50 basis points (bp) to 4.25%, its highest level in almost 15 years. The central bank has raised rates at a record pace of 400 basis points in nine months. But it also changed its forward guidance and is not saying it will have to rise further.

Instead, the bank said that "Looking ahead, Governing Council will be considering whether the policy interest rate needs to rise further to bring supply and demand back into balance and return inflation to target."

Meanwhile a Reuters poll published this morning revealed that 52 of the 54 economists asked think that the Bank of England (BoE) will hike by 50 basis points, taking borrowing costs to 3.5%.

In the US at 1.30pm we await initial jobless claims. The market expects 230,000 new claimants last week.

Earnings

Frasers Group has kept its financial guidance for its full 2022-23 year. It still expects full-year (FY) adjusted profit before tax of £450-500 million. The owner of Sports Direct posted a 38.8% rise in first-half profit, defying a downturn across the wider retail sector.

We saw another upbeat statement came from DS Smith. After posting a 28% increase in revenue and a pretax profit of £315 million in the first half, the group said this morning it expects its FY performance to be ahead of previous expectations.

Just after results, JPMorgan announced it was raising its target price on the stock to 411p from 350p. According to Bloomberg, bankers are considering providing Elon Musk with new margin loans backed by Tesla stock to replace some of the high-interest debt on his Twitter deal.

The discussions have so far centred around replacing the $3 billion of unsecured debt on which Twitter pays an interest rate of 11.75%. Musk's Twitter deal was closed with a $33.5bn equity commitment: $7.1bn from investors, and $13bn in loans from banks.

Tesla shares meanwhile fell further yesterday as investors expressed doubts over model Y production in China. Earlier this week, Reuters revealed that production would drop by 20% in December, a comment that the carmaker has denied. The steep drop in Tesla shares means that Musk briefly lost his title as the world's richest person yesterday, according to Forbes.

Bernard Arnault, the chief executive of luxury brand Louis Vuitton's parent company and his family briefly took the title of the world's richest but were back at No. 2 with a personal wealth of $185.3 billion. Musk has a net worth of $185.7 billion.

Chevron announced yesterday it has increased its 2023 capital spending budget by a double-digit percentage from this year to $17 billion. This is due to inflation that has driven up energy production costs, and investments into low-carbon fuel projects.

Commodities

Oil prices this morning are falling further. The EIA said yesterday that crude inventories fell by 5.2 million barrels last week.

Gasoline stocks rose by 5.3 million barrels, while distillate stockpiles rose by 6.2 million barrels.