By Jamie McGeever
ORLANDO, Florida, Oct 20 (Reuters) – US stocks rose on Tuesday, shrugging off global weakness earlier in the day as oil prices pulled back sharply from six-month highs, a reversal that also pushed longer-dated Treasury yields lower. Shares in SpaceX spiked 3% in post-market trading after the release of third-quarter results.
In my column today, I suggest emerging markets may be more resilient to rising US interest rates and market volatility than they have been for years. They’re not immune, of course, but higher yields, manageable debt, and stronger policy credibility will help them weather any incoming storms.
Today’s Key Reads
• France to deploy troops, admits to failures over weekend unrest
• Europe’s earnings boom widens beyond energy and AI
• Markets’ squeal is music to Fed ears — but still too faint: Mike Dolan
• South Korean firm’s debut plunge adds to investor concerns about AI spending
• China leaves loan rates steady for 17th consecutive month
• Today’s Key Market Moves STOCKS: Asia in the red: South Korea -3.5%, Japan -1.5%. Europe slips, France lags. Americas in the green: Brazil +1.5%, Dow +1%, S&P 500 +0.3%, Nasdaq flat, small-cap Russell 2000 index +1.7%, biggest rise since August 4.SECTORS/SHARES: Nine sectors on the S&P 500 rise, two fall. Healthcare +2.3%, comms services -0.9%. Biggest gainers on S&P 500 Equifax, Hasbro +11%; biggest decliner General Motors -7%. Netflix -6% after the bell.FX: Dollar down broadly. Biggest G10 climbers are sterling to five-week high, Canadian dollar to one-month high. Colombian peso biggest decliner.BONDS: Japanese yields slide, French yields dip but spread over bunds has widest close since 2011. French CDS highest since 2013. US yields -5 bps at long end, +2 bps at short end.COMMODITIES/METALS: Oil hits six-month high, then closes lower: Brent -0.7%, WTI -1.8%.
Today’s Talking Points:
Crude to go?
Markets and economies around the world are taking the global energy shock in their stride, but if that’s because they’re expecting prices to fall any time soon, they may have to readjust. Oil prices closed lower on Tuesday, but not before Brent and WTI crude futures clocked fresh six-month peaks — Brent nudged $112/barrel and WTI rose above $110.
It seems a lifetime ago, but when the US and Iran signed the MOU in June, an end to the war, opening of the Strait of Hormuz, and replenishing of global energy supplies seemed imminent. WTI’s year-on-year price change even briefly turned negative. But now, WTI is nearly 80% more expensive than it was a year ago and inflationary pressures, although supply-driven, are increasingly difficult for policymakers to look through. Will today’s reported Iran-Pakistan talks open the door to a US-Iran detente?
Get off of my (neo)cloud
To America’s CoreWeave, Nebius, and Iren, you can now add South Korea’s Elice. These are some of the “neocloud” firms at the heart of the AI buildout that are making headlines. Unfortunately, often for the wrong reasons. The shares and, where applicable, the bonds of these companies are getting crushed on fears that their huge borrowing and spending commitments won’t pay off.
Elice shares debuted in Seoul on Tuesday and plunged 32%, the worst debut ever in South Korea for a company that raised more than $100 million in an IPO. Iren shares have lost almost 50% in the past month, CoreWeave and Nebius have both fallen 35% in two weeks. Testing times, but UBS analysts are more sanguine. “A financially stressed neocloud could still own economically valuable assets… That is why we need to look beyond any individual neocloud and examine the broader demand picture.” Which, they say, remains robust.
20-year itch
If yields are high enough, investors will want a piece of them. Japan’s 20-year government bond yield nudged 4% earlier this month, the highest in more than 30 years for that maturity, and Tuesday’s 20-year JGB auction was flooded with record demand — the bid-to-cover ratio was 5.84, the highest since 20-year JGBs were first sold in 1987.
On Wednesday, the US Treasury sells $13 billion of 20-year bonds. Demand won’t be anywhere near as strong, with the BTC ratio at auctions over the past year ranging between 2.36 and 2.86, according to Wrightson ICAP. It could even be one of the last 20-year auctions, as speculation mounts that Treasury could scrap them as part of its push to shorten the maturity profile of the debt.
What could move markets tomorrow?
• Japan trade (September)
• Indonesia interest rate decision
• UK CPI, PPI inflation (September)
• US Treasury sells $13 billion of 20-year bonds at auction
• US earnings including Meta, Tesla, IBM
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(Reporting by Jamie McGeever; Editing by Nia Williams)
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