Bank of England may delay rate cut. Inflation in Tokyo continues to decline

At the end of Thursday, the Dow Jones Index (US30) was down 0.33%, the S&P 500 Index (US500) added 0.21%, and the NASDAQ Technology Index (US100) closed positive 0.83% yesterday. Stocks mostly rose on Thursday amid positive earnings results and lower T-note bond yields.

Better-than-expected US economic news on Thursday boosted the outlook for a soft landing and provided support for equities. Weekly jobless claims unexpectedly fell, indicating the strength of the labor market, October’s S&P manufacturing PMI rose more than expected, and September new home sales hit a 16-month high.

Tesla’s (TSLA) stock price rose more than 21% and led the S&P 500 and Nasdaq 100 higher after the company reported third-quarter adjusted earnings per share of 72 cents, topping the consensus forecast of 60 cents, and raised its full-year capital expenditures forecast to more than $11.0 billion from a previous forecast of $10.0 billion. T-Mobile US (TMUS) closed higher by more than 5% after reporting third-quarter earnings per share of $2.61, better than the consensus forecast of $2.43, and full-year guidance of 5.6-5.8 million net postpaid customers, above the consensus forecast of 5.56 million.

So far, more than 100 companies in the S&P 500 have released earnings data, with 76% announcing earnings that beat forecasts. According to Bloomberg Intelligence, S&P 500 companies, on average, are expected to report a 4.3% rise in quarterly earnings in Q3 from a year earlier, below the consensus for 7.9% growth.

Equity markets in Europe were mostly up on Thursday. Germany’s DAX (DE40) rose by 0.34%, France’s CAC 40 (FR40) closed higher by 0.08%, Spain’s IBEX 35 (ES35) fell by 0.21%, and the UK’s FTSE 100 (UK100) closed yesterday up 0.13%. 

UK Finance Minister Rachel Reeves may allow more borrowing in the upcoming budget, which could delay the Bank of England’s (BoE) rate cut. Reeves plans to change fiscal rules to focus on public sector net financial liabilities (PSNFL), which could free up tens of billions for capital spending. According to the Institute for Fiscal Studies, this would have raised £53 billion of additional borrowing in March last year. However, the Treasury has said it does not intend to use these facilities immediately. Bank of England Governor Andrew Bailey expressed concern about persistent inflation, noting that while inflation is lower than expected, structural changes in the economy and high service inflation remain challenges. Market expectations for a November Bank of England rate cut have fallen to 86% from 100%.

WTI crude oil prices fell to $70 per barrel on Thursday, extending their decline after falling 1.4% in the previous session due to oversupply concerns. The latest EIA report showed a significant increase in crude oil inventories by 5.5 million barrels, well above expectations, while gasoline inventories also rose by 900,000 barrels rather than declining. In addition, crude oil consumption in China, the world’s largest importer, has weakened despite government stimulus measures. Concerns that the global oil market could run a surplus in the coming quarters are putting additional pressure on prices.

Natural gas prices (XNG/USD) rose on Thursday despite a bearish weekly EIA report showing an 80 Bcf increase in natural gas inventories last week. This is well above the consensus of 68 Bcf and above the 5-year seasonal average weekly increase of 76 Bcf.

Asian markets were mostly lower on Thursday. Japan’s Nikkei 225 (JP225) rose 0.10%, China’s FTSE China A50 (CHA50) fell 0.97%, Hong Kong’s Hang Seng (HK50) fell 1.30% and Australia’s ASX 200 (AU200) was negative 0.12% for the day. 

The benchmark Consumer Price Index for the Tokyo area in October 2024 came in at 1.8% (forecast 1.7%) year-on-year, slowing for the second consecutive month. Last month, the index stood at 2%. Tokyo’s inflation reading is widely regarded as a leading indicator of nationwide price trends, and national CPI data will be released in about three weeks. Weakening Japanese inflation and political uncertainty cloud the prospects for further interest rate hikes by the Bank of Japan (BoJ).