Futures Flat As Oil Surges

US equity futures are flat and European stocks headed for a record high as third-quarter earnings continued to flow in.  As of 8:20am, S&P and Nasdaq futures are little changed. Pre-market, Mag 7 are mostly flat except for a -3% selloff in TSLA given the underwhelming earnings release last night which saw profits tumble despite record revenues (pulled forward due to expiration of tax credits) on sharply higher costs. Quantum-computing stocks rallied on a WSJ report the US Is mulling buying stakes (Rigetti Computing (RGTI US) +9.1%, IonQ (IONQ US) +8.7%). Overnight, the most important headline was US’s sanction on the two largest oil company in Russia which sent WTI crude surging 5.5% higher this morning. As a result, bond yields are 1-5bp higher led by 30y, and the 10Y trading just below 4.00%. The USD is higher. Commodities are mostly higher led by oil and precious metals (silver +1.1%). US-China trade talk is set for Friday in Malaysia. Today’s economic calendar calendar includes September existing home sales (10am) and October Kansas City Fed manufacturing activity (11am); weekly jobless claims data have been suspended by the shutdown.

In premarket trading, Mag 7 stocks are mixed: Tesla (TSLA) falls 3.5% after profit plunged despite a record quarter of vehicle sales (Alphabet +0.4%, Amazon +0.3%, Microsoft +0.2%, Apple -0.06%, Nvidia -0.2%, Meta -0.1%)

• Quantum-Computing Stocks Rally on Report US Is Mulling Stakes (Rigetti Computing (RGTI US) +9.1%
  IonQ (IONQ US) +8.7%, D-Wave Quantum (QBTS US) +12.5%)
• Dow Inc. (DOW) rises 6% after the chemicals company reported third-quarter operating Ebitda that beat the average analyst estimate.
• Honeywell (HON) gains 4% after the industrial company reported third-quarter adjusted earnings per share that surpassed analysts’ expectations. 
• International Business Machines Corp. (IBM) is down 7% after it reported disappointing revenue in two key software categories, including its closely watched Red Hat unit.
• Las Vegas Sands (LVS) rises 5% after the casino operator reported adjusted earnings per share for the third quarter that beat the average analyst estimate.
• LendingClub (LC) soars 11% after the online lender provided a guidance range for new 4Q originations with a midpoint above estimates. JPMorgan upgraded the stock to overweight.
• Moderna (MRNA) is down 4% after the company said its vaccine to prevent cytomegalovirus, a common cause of birth defects, failed to meet its goal in a late-stage trial.
• Molina Healthcare (MOH) is down 18% after the health insurer cut its adjusted profit guidance for the full year, citing higher medical cost trends in all its businesses.
• T-Mobile US Inc. (TMUS) falls 1% after posting third quarter results.
• Tractor Supply (TSCO) falls 3% after the retailer narrowed its full-year guidance range for net sales, with the midpoint toward the lower end of the previous range.
• Ribbon Communications (RBBN) falls 14% after the developer of software for large phone companies posted third quarter profit that disappointed. Guidance for fourth quarter revenue also missed expectations.
• Ventyx Biosciences (VTYX) surges 105% after the drug developer said mid-stage clinical trial results showed significant reductions in cardiovascular risk factors in patients with obesity.

In corporate news, the Wall Street bonus pool is expected to break records this year as big banks reap profits from soaring stocks and a return to more dealmaking after a long drought. Musk, meanwhile, spent the end of Tesla’s earnings call pleading with investors to ratify his upcoming $1 trillion pay package. Polymarket is said to be holding early conversations with investors and looking to raise money at a valuation between $12 billion and $15 billion.

Oil prices jumped after the Trump administration sanctioned Russian state-owned group Lukoil and Rosneft, ramping up the pressure on Russian President Vladimir Putin to negotiate an end to the war in Ukraine. Brent has jumped by 5% to start testing $66/barrel. The oil price spike may accelerate a shift in equities to value from growth sectors.

While valuations on the S&P 500 appear stretched, drawdowns in recent weeks have been brief as investors look for better entry points. The “artificial intelligence ecosystem” and banks have shown strong earnings, according to Arun Sai, a senior multi-asset strategist at Pictet Asset Management. “We’re seeing froth skimmed off the top, which so far I think is a healthy correction,” Sai said. “You still don’t have evidence to suggest there is anything fundamentally wrong with the US economy or with markets” given strong earnings and the lack of US government data, he said.

While the market remains very steady at the index level, big rotations are going on below the surface, with momentum trades like AI losing steam, as earnings misses pile up in the tech sector and geopolitical tensions simmer. Oil jumped after the US announced sanctions on Russia’s biggest producers. Tesla shares are lower premarket after quarterly profit plunged, while Elon Musk’s vision of an AI-focused future failed to convince. IBM also disappointed, adding to a slate of poor tech earnings this week including SAP, Netflix and Texas Instruments. Intel is due to report after the close.

The meme stock mania of the past few days may also be passing, with Beyond Meat and Krispy Kreme both lower in premarket trading. A four-day surge that sent Beyond Meat shares up more than 1,300% pushed short sellers’ paper losses to more than $120 million from last week’s record low close, according to data from S3 Partners. Some shorts have been scrambling to exit, while others have doubled down on bets against the plant-based protein producer.

Trade tensions are also never far away. China said Vice Premier He Lifeng plans to meet with US officials in Kuala Lumpur from Oct. 24 to 27 for the next round of talks. The Trump administration is weighing export restrictions against China that would bar the purchase of a wide swath of critical software, a White House official said Wednesday.

“Because of the trade tensions, there was a narrative of caution going into third-quarter season and that has now abated, given the stronger numbers,” said Nina Stanojevic, an investment specialist at St James Place. “People were looking to this earnings season to see if there was any flow-through from the trade tariffs but it seems that the market has taken it in its stride so far.”

The markets are jittery about the US-China tensions, and “though it could probably be just another TACO situation, and even though everyone knows that’s how it goes, there are still people who have to react until things settle down,” said Ryuta Otsuka, a strategist at Toyo Securities.

Looking at Q3 reporting season, earnings so far have been broadly positive, helping to support equities as a mix of macro fears injected a note of nervousness into global markets. The Trump administration said it’s considering curbs on software exports to China, risking another escalation of the trade dispute. Traders are also pinning their hopes on another Federal Reserve interest-rate cut later this month, even as they await delayed September inflation data due to be released on Friday.

European equities rose on Thursday, with energy shares leading gains as oil rallied after the US imposed sanctions on Russian producers. Travel and technology shares are the biggest laggards. Stoxx 600 rises 0.2% to 573.25 with 277 members down, 313 up, and 10 little changed. Here are the biggest movers: 

• Energy is the best-performing sector in Europe on Thursday as oil rallies after the US announced sanctions on Russia’s biggest producers, with President Donald Trump ramping up pressure to negotiate an end to the war in Ukraine
• LSE Group shares rise as much as 9%, after the data company and stock exchange operator reported third-quarter results that analysts described as strong and raised its guidance for 2025 adjusted Ebitda margin to the top end of the prior range
• Nokia shares surge as much 13%, the most since April 2021, as analysts cheer a strong report from the Finnish digital infrastructure firm in which net sales beat expectations; Jefferies sees strong momentum building in the quarter
• DSV gains as much as 7.6%, the most since April, after the Danish logistics group’s third-quarter report showed positive impacts from cost control as well as an earlier-than-expected boost from the recent Schenker acquisition, according to analysts
• Kering shares rise as much as 10%, hitting the highest level since April 2024, after the luxury-goods maker reported better-than-expected third-quarter revenue
• Dassault Systemes shares drop as much as 17%, the most since 2002, after the software firm lowered its revenue forecast for the year. The shares are trading at the lowest since April 2020
• RELX falls as much as 2.7% after the UK information and analytics firm reported results in line with analysts’ estimates. Underlying trends indicate the company is on track to meet FY expectations
• Evolution shares drop as much as 13% to the lowest intraday level in almost five years. The Swedish gambling operator’s revenue and earnings missed estimates in the third quarter, with Asia a particular source of weakness
• Carrefour shares drop as much as 5.9%, the most since June, after the grocer reported 3Q LFL sales excluding fuel and calendar effects that missed analyst estimates
• Roche shares drop as much as 3.4%, the most since May 12, after the Swiss drugmaker reported weaker-than-expected sales for the third quarter. Vontobel called the upgraded earnings guidance for the full year an “unconventional move”

Asian stocks declined, in risk-off trading after news that the White House is considering curbs against China that would bar the purchase of a wide swath of critical software. The MSCI Asia Pacific Index dropped as much as 0.7% before paring losses. TSMC and SoftBank were among the biggest drags, tracking a continued selloff in global AI shares, while tech stocks also slid in Hong Kong. Japan and South Korea led losses among regional benchmarks. The US is considering curbs similar to those implemented against Russia if China doesn’t back down from its threat to restrict rare-earth exports, Reuters reported earlier. While it’s not clear how serious the effort is, it caused fresh anxiety for traders ahead of trade talks planned for next week between Donald Trump and Xi Jinping. China announced in the afternoon that Vice Premier He Lifeng plans to meet with US officials in Kuala Lumpur from Oct. 24 to 27 for the next round of trade talks. Chinese equities staged a rebound later in the day, with the onshore benchmark CSI 300 Index ending the day 0.3% higher, while the Hang Seng China Enterprises Index rose 0.8%. A pivotal political gathering on the nation’s development plan for the next five years was also in focus, with authorities expected to deliver fresh policy measures to support growth. Elsewhere, Indonesia’s stock benchmark climbed more than 1%, leading gainers around the region. Here are the most notable Asian movers

• Japanese shipbuilders including Namura Shipbuilding and Sumitomo Heavy Industries surged after the Nikkei reported that an industry group will soon announce a ¥350 billion capital investment plan. Meanwhile, Tesla supplier stocks including Renesas Electronics and TDK fell after the EV maker reported worse-than-expected profit.
• Sands China shares gain as much as 4.6% in Hong Kong after the casino operator’s parent reported an adjusted EBITDA for its Macau operation in the third quarter that beat estimates.
• Pop Mart International Group Ltd. shares plunged on Thursday, reflecting renewed concerns about the toy maker’s long-term sales outlook despite a strong third-quarter performance.
• LS Electric shares surge as much as 13% to a record high as NH Investment & Securities and other brokerages raise their price targets for the South Korean energy equipment maker following a 19% on-year jump in quarterly sales.
• Giant Biogene shares rise as much as 14% in Hong Kong, the most since March 2023, after the co.’s controlling shareholder increased stake in the firm.

Chinese officials conclude their Fourth Plenum gathering in Beijing, with a readout expected later in the day. Treasury Secretary Scott Bessent is expected to huddle with his Chinese counterparts over the weekend ahead of the Trump-Xi talks.

In FX, an earlier gain in the dollar eases, with the Bloomberg Dollar Spot Index little changed and Japanese yen underperforming. The US currency was supported by its 0.5% gain versus the yen to 152.66; the Japanese currency was pressured by expectations of fiscal expansion under the country’s new prime minister and fading prospects for interest rate hikes

In rates, Treasuries hold losses accumulated during London morning as oil prices surged after the US announced sanctions on Russia’s biggest producers, with yields higher by 2bp-5bp and curve steeper. Treasuries lead losses for most bond markets globally. The US 10-year yield is near 3.99% after touching 3.936% Wednesday, with 2s10s and 5s30s curves wider by about 1.5bp near 52bp and 99bp respectively. The US session includes 5-year TIPS auction, following strong demand for Wednesday’s 20-year bond sale. Yields are higher across Europe.

In commodities, WTI crude futures remain more than 5% higher on the day after climbing as much as 5.8% after the Trump administration sanctioned Russian state-owned group Lukoil and Rosneft, ramping up the pressure on Russian President Vladimir Putin to negotiate an end to the war in Ukraine. Brent has jumped by 5% to start testing $66/barrel. Gold turned positive after two days of steep declines as the Trump administration’s latest trade threats introduced fresh tension into US-China relations. 

Today’s economic calendar calendar includes September existing home sales (10am) and October Kansas City Fed manufacturing activity (11am); weekly jobless claims data have been suspended by the shutdown

Market Snapshot

• S&P 500 mini little changed
• Nasdaq 100 mini little changed
• Russell 2000 mini +0.3%
• Stoxx Europe 600 +0.2%
• DAX -0.4%
• CAC 40 +0.3%
• 10-year Treasury yield +4 basis points at 3.99%
• VIX +0.3 points at 18.91
• Bloomberg Dollar Index little changed at 1213.5
• euro little changed at $1.16
• WTI crude +5.2% at $61.52/barrel

Top Overnight News

• Republican Senators are said to consider a bill to keep SNAP program benefits flowing during the government shutdown, according to POLITICO.
• Bessent said they might see CPI coming down next month and the month after, while he thinks housing prices are a lagging indicator, and they are going to see substantial tax refunds for Americans.
• President Trump has announced substantial new sanctions on Russia’s two biggest oil companies as frustration in Washington grows over the war in Ukraine. The new sanctions target Lukoil and Rosneft as well as nearly three dozen of their subsidiaries. WSJ
• U.S. President Donald Trump said on Wednesday he expected to reach agreements with Chinese President Xi Jinping when they meet in South Korea next week that could range from resumed soybean purchases by Beijing to limits on nuclear weapons. Trump also plans to discuss China’s purchases of Russian oil an dhow to stop Russia’s war in Ukraine. RTRS
• A Treasury analysis has found the Trump administrations economic policies have put the US on track to narrow its yawning deficit using a mix of spending cuts and tariff revenue to improve the fiscal outlook. FT
• China said Vice Premier He Lifeng plans to meet with US officials (Bessent, Greer) in Kuala Lumpur from Oct. 24 to 27 for the next round of trade talks, aimed at defusing a standoff between the world’s two largest economies. BBG
• Trump’s administration is in talks to take equity stakes in quantum computing firms: WSJ.
• President Trump said interest rates are down, while he criticized the Fed chair, and noted that he will be doing something very quickly to get beef prices down. 
• The new junior party in Japan’s ruling coalition is likely to give Prime Minister Sanae Takaichi the green light she needs for a big spending package, but will stop short of supporting a revival of Abenomics-style fiscal and monetary policies. RTRS
•  
• BOJ watchers pushed back their forecast for the next interest-rate hike after Sanae Takaichi took over as PM. Only 10% of economists now predict a rate hike on Oct. 30, down from 36% in the previous survey. BBG
• Indian refiners are poised to sharply curtail imports of Russian oil to comply with new U.S. sanctions on two top Russian producers, industry sources said on Thursday, potentially removing a major hurdle to a trade deal with the United States. The change comes as India faces punishing 50% tariffs on its exports to the US and tries to negotiate a trade deal. RTRS
• Canada aims to double its non-US exports by 2035, PM Mark Carney said in a rare prime-time televised speech. He also plans to introduce an immigration strategy to lure talent that might’ve otherwise gone to the US. BBG
• Retail traders are cementing themselves as a force in markets. One proxy for their involvement is stock trades at off-exchange venues, which are poised to make up 50% of total volume this year for the first time. BBG
• Investors are more bullish than before according to the latest Barron’s money manager survey – 47% anticipate higher stock prices over the next 12 months vs. just 28% in the spring (although 57% believe stocks are overvalued). Barron’s

Trade/Tariffs

• US President Trump’s administration is considering a plan to restrict globally produced exports to China made with or containing US software, while the new export controls under consideration by the US could curb exports on a wide range of goods to China, and the plan would retaliate against China’s rare earth export restrictions if adopted, according to Reuters sources. However, the sources said that the measure, details of which are being reported for the first time, may not move forward, and administration officials could announce the measure to put pressure on China but stop short of implementing it, while narrower policy proposals are also being discussed.
• US President Trump said a long meeting is scheduled with Chinese President Xi in South Korea, and he thinks something will work out, while he thinks he will make a deal with Chinese President Xi and could make a deal on soybeans. Trump added that they could even make a deal on nuclear and thinks he will talk to Xi about Russian oil, as well as ending the war in Ukraine. Trump also commented that tariffs are vital and that they might go to the Supreme Court for the tariffs case.
• US Treasury Secretary Bessent said he was leaving on Wednesday for Malaysia to meet with Chinese officials and is hoping they can iron things out, while he will have two days of fulsome talks with Chinese officials in Malaysia. Bessent said it would be a shame to waste the first meeting of Trump and China’s Xi during Trump’s second term, as well as noted that he is contemplating the US and allies’ next move if China talks fail.
• US Treasury Secretary Bessent said any export controls regarding China will be in coordination with G7 allies.
• Taiwan US envoy said they are close to reaching a trade agreement with the US.
• China Commerce Ministry says Vice Premier Lifeng will hold talks with the USA regarding trade in Malaysia within 24-27 October.

A more detailed look at global markets courtesy of Newsquawk

APAC stocks were mostly subdued following the negative handover from Wall St, where sentiment was weighed on by US-China frictions. ASX 200 traded rangebound as participants digested quarterly updates, and with gains in energy and utilities offsetting the weakness in tech and mining. Nikkei 225 underperformed after gapping lower at the open to beneath the 49,000 level despite a weaker currency. Hang Seng and Shanghai Comp were negative with the mainland pressured amid US-China tensions after reports that the Trump admin considers restricting globally-produced exports to China made with or containing US software.

Top Asian News

• BoK kept the base rate unchanged at 2.50%, as expected, with the decision not unanimous as board member Shin Sung-Hwan dissented and said a rate cut is needed to support growth. BoK said it will maintain the rate cut stance to mitigate downside risk to economic growth, and will adjust the timing and pace of any further base rate cuts, while it will closely monitor changes in domestic and external policy conditions, as well as examine the impact on inflation and financial stability. BoK Governor Rhee revealed that four board members said the door for rate cuts should be open for the near future, while two board members said current rates should be maintained. Rhee also said that a rate cut at the meeting could have accelerated the upswing in property prices and that it was too early to tell if the rate-cut stance could continue through next year. Furthermore, he said there is greater focus on financial stability among board members, and noted that the chip cycle and US-China trade talks should be watched as the board prepares for the November forecast revision.
• Japan’s RENGO says it will be seeking wage hikes of 5% or more in 2026 shunto negotiations
• China publishes fourth plenum communique, via Xinhua; approves draft of next five-year plan as plenum ends, aims to boost trade innovation, further open markets and extend bilateral investment opportunities. Plans measures to stabilise the job market. Will strengthen public opinion guidance to effectively prevent ideological risks. To enhance social security controls to legally combat crime. Promotes long-term prosperity and stability in Hong Kong and Macau. Will persevere in advancing comprehensive and strict governance over the Communist party. Aiming for a ‘big increase’ in the level of tech self-reliance. To comprehensively enhance independent innovation capabilities.

European bourses (STOXX 600 +0.2%) are mostly firmer but with some slight underperformance in the DAX 40, which is being pressured by post-earning losses in SAP (-2.4%). European sectors are mixed. Energy takes the top spot, joined closely by Consumer Products; the latter boosted by upside in Kering (+9%) after the Co. reported strong Q3 metrics. To the downside, Evolution (7%) weighs on the Travel & Leisure sector.

Top European News

• SNB Minutes (Sep): discussed diverging interest rate developments in the US and EZ with experts. Board concluded that the current implementation of monetary policy was appropriate under various scenarios.
• German Council of Tax Experts expect EUR 33.6bln more in total tax revenue in 2025-2029 vs May; German Finance Minister says more positive economic outlook is reflected in rising tax rev.; Gov. is bearing most of growth booster expenses

FX

• USD is slightly firmer/flat and trades within a very narrow 98.92-99.10 range; lack of data releases and Fed speak (due to blackout) has led to quiet trade for the Dollar. However, this should all pick-up on Friday, with the BLS set to release US CPI, despite the government shutdown. There have been some important trade-related newsflow recently; Reuters reported that the Trump administration is mulling a plan to restrict globally produced exports to China made with or containing US software. Though the piece suggested that the US may not go forward with the plan, and may only be used to apply pressure on China amid trade negotiations. On that, Treasury Secretary Bessent is set to meet with China’s VP in Malaysia over the weekend; Bessent said he hopes “to iron things out”.
• EUR is flat/incrementally lower vs USD. EUR/USD is currently trading in a 1.1591-1.1614 range, which is towards the mid-point of Wednesday’s bounds. Overnight, ECB’s Kazaks said “it may well be the case that the next rate move could as easily be a hike as a cut” – comments which are in contrast to Villeroy (cut more likely than hike) and Kocher (sees equal chance).
• JPY is right at the foot of the G10 pile, alongside haven peer CHF; nothing really driving the “risk-on” sentiment seen in the FX-space today, but perhaps some focus on US Treasury Secretary Bessent’s meeting with China VP this weekend – it is worth caveating that other trade-related reporting has been broadly negative (discussed above). Newsflow out of Japan has been very light, with USD/JPY largely moving at the whim of the Dollar; currently trades at the upper end of a 151.82-152.66 range, a peak which marks a WTD best. Further upside could see a breach back above 153.00 and then to the 10th October high at 152.27.
• GBP is flat, taking a breather following the prior day’s subdued trade in the aftermath of a softer-than-expected inflation report. Newsflow since has been incredibly light, and this has been reflected in Cable, which currently trades in a narrow 1.3329-1.3362 range; at the mid-point of Wednesday’s confines.
• Antipodeans are at the top of the G10 pile, but little fresh behind the strength; though upside which seemingly coincided with an early-morning uptick in copper prices.
• PBoC set USD/CNY mid-point at 7.0918 vs exp. 7.1205 (Prev. 7.0954)

Fixed Income

• USTs were softer by a tick or two in APAC trade and have continued to dip into and throughout the European morning. Pressure a function of the pockets of improvement in the risk tone as the US-China situation isn’t perhaps as bad as first thought, a point added to by the fact the US’ Bessent and China’s He are still set to meet in Malaysia from tomorrow.
• Thus far, down to a 113-16+ trough with downside of nine ticks at most and approaching the 113-10 WTD base. Ahead, Fed’s Barr and Bowman are scheduled, but the blackout means this will be a non-event. Data-wise, the shutdown continues to limit, but any comments from the KC survey on inflation are of note ahead of Friday’s CPI.
• EGBs followed suit to the above. Bunds below the 130.00 mark, matching the 129.24 low from Tuesday, but yet to test 129.76 from Monday. EGBs hit by the better tone around trade as outlined above. Further pressure for fixed income also stemming from the continued advances in energy prices, biasing yields higher.
• Gilts, unsurprisingly, saw a softer start after closing with gains of nearly 60 ticks on Wednesday. Gilts opened lower by a handful of ticks and despite a brief move into the green have since conformed to the bearish bias and trade lower by 15 ticks, an amount comparable to Bunds.
• UK sells GBP 4.75bln 4.125% 2035 Gilt: b/c 2.83, average yield 4.00%, tail 0.7bps

Commodities

• Crude benchmarks are strong today as the US placed new sanctions on Russian oil companies. After an initial c. USD 1.30/bbl move late on Wednesday, WTI and Brent trended higher during APAC trade from USD 59.72/bbl and USD 63.86/bbl respectively to peak at USD 60.90/bbl and USD 65.04/bbl. Currently, benchmarks are continuing to trade higher to new session highs at USD 61.79/bbl and USD 65.96/bbl respectively. To recap, late in Wednesday’s session, the US placed sanctions on Russian oil companies Rosneft and Lukoil because of “Russia’s lack of serious commitment to a peace process”.
• Spot XAU is a little firmer and is currently oscillating in a tight USD 4066-4137/oz band as the metal consolidates following Tuesday’s selloff from record highs.
• Base metals traded rangebound during the APAC session but broke out of recent ranges following Antofagasta copper production and confirmation of a China-US meeting in Malaysia. 3M LME Copper oscillated in a tight c. USD 50/t range during APAC trade before trending higher and is currently making fresh session highs at USD 10.82k/t.
• Reliance, India will be halting Russian oil imports as part of the term-deal with Rosneft due to the latest US sanctions, via Reuters citing sources
• Russian oil supply to India is set to fall to near zero, according to sources cited by Bloomberg.
• Indian state refiners reviewing bills of lading for Russian oil cargoes arriving post-November 21st to ensure no supply comes directly from US-sanctioned Rosneft and Lukoil, according to a source cited by Reuters

Geopolitics: Middle East

• US Secretary of State Rubio said the Israeli Knesset’s moves on West Bank annexation threaten the Gaza peace deal.

Geopolitics: Ukraine

• US President Trump said it didn’t feel right to have a meeting with Russian President Putin, so he cancelled it and felt it was time for Russian sanctions but hopes sanctions won’t be on for long. Trump also stated that whenever he speaks with Russian President Putin, they are good conversations, but they don’t go anywhere, while he added that sanctions will hopefully make Russian President Putin reasonable.
• US Secretary of State Rubio said they would still like to meet with the Russians and are always going to be interested in engaging with Russia if there’s an opportunity to achieve peace.
• US Treasury Secretary Bessent said a substantial pick up in Russia sanctions was expected to be announced on Wednesday or Thursday. Bessent separately commented that Russian President Putin has not come to the table in an honest manner and President Trump is disappointed with where we are in talks to end the war, while he said the incoming Russia sanctions will be among the largest and the US is urging European and G7 allies, plus Canada and Australia, to join the sanctions push.
• US Treasury Department announced it is imposing sanctions on Russia related to oil and is targeting Russia’s Rosneft and Lukoil in the latest batch of sanctions, while it added that OFAC is designating a number of Russia-based Rosneft and Lukoil subsidiaries. Furthermore, it stated that all entities owned 50% or more, directly or indirectly, by Rosneft and Lukoil are blocked, even if not designated by OFAC and it called on Russia to immediately agree to a ceasefire.
• Ukraine President Zelensky says a ceasefire is a possibility. More pressure on Russia is needed. Will not agree to territorial concessions.
• Russia’s Deputy Security Council Chair Medvedev states that the US is a Russian opponent and that US President Trump is on a warpath, his actions are like an act of war.

Geopolitics: Other

• North Korea said its missile test on Wednesday was successful and was for self-defence, while it added that the missiles tested were hypersonic projectiles, according to KCNA.

US Event Calendar

• 8:30 am: Oct 18 Initial Jobless Claims, est. 225k
• 8:30 am: Oct 11 Continuing Claims, est. 1932k
• 10:00 am: Sep Existing Home Sales, est. 4.06m, prior 4m
• 10:00 am: Sep Existing Home Sales MoM, est. 1.5%, prior -0.2%

DB’s Jim Reid concludes the overnight wrap

Markets struggled for momentum yesterday, with the S&P 500 (-0.53%) falling back after 3 consecutive gains. The main drivers were fears around the US-China trade situation, weaker earnings announcements, as well as growing concerns about a protracted US government shutdown. So that meant sentiment took a hit, with investors becoming a bit less confident in the near-term outlook. Indeed, there was little respite in any direction, as gold fell another -0.65% after Wednesday’s -5.30% slump. However, one asset that did jump were oil prices, with Brent Crude back above $64/bbl this morning after the US announced new sanctions against Russian oil.

Those trade concerns were one of the biggest market catalysts yesterday, and Reuters reported that the Trump administration were considering a plan to restrict exports to China on items that contain US software or were produced using US software. The article said the plan wasn’t the only option on the table, but was designed to retaliate against China’s restrictions on rare earth exports.  That left a sense of both sides engaging in hard bargaining ahead of the possible Trump-Xi meeting and trade-sensitive indices took a particular hit yesterday, including the Philadelphia Semiconductor index (-2.36%). That said, we did see hear some constructive-sounding comments later on, with Trump suggesting that he and China’s Xi would “make a deal on, I think, everything”.

The tech mood didn’t improve much after the close, as Tesla was the first of the Mag-7 to report earnings this season. While its revenue beat expectations, they posted a larger-than-expected decline in profits with earnings per share down 31% year-over-year ($0.50 vs $0.54 estimate) weighed down by a surge in operating expenses. So that left Tesla’s shares down -3.95% in after-hours trading, following on a -0.82% decline in yesterday’s regular session. However, it hasn’t caused too big a hit to overall sentiment, with futures on the S&P 500 (+0.11%) and the NASDAQ 100 (+0.17%) both pointing higher this morning.

Before the Tesla results, the S&P 500 (-0.53%) had already lost ground yesterday. While chip stocks led the underperformance, the Mag-7 saw a similar -0.53% decline. The more cyclical industrials (-1.31%) and consumer discretionary (-1.00%) sectors struggled in particular, while the small cap Russell 2000 (-1.45%) saw one of the biggest losses. Meanwhile, Netflix (-10.07%) was the second worst performer in the S&P 500 after their earnings were beneath analysts’ estimates the previous evening. And it was a tough day in Europe too, as the STOXX 600 (-0.18%) also lost ground, with the DAX (-0.74%) and the CAC 40 (-0.63%) posting even bigger declines.

Matters haven’t been helped by the ongoing US government shutdown, which is now on day 23. So, it’s now the second-longest shutdown, only ranking behind the most recent 35-day shutdown in 2018-19, and there’s still no sign of a compromise between Republicans and Democrats that would bring it to an end. Indeed, the Polymarket probabilities currently suggest there’s a 75% chance that this will be the longest shutdown in history, so it could be some time before the regular flow of US economic data resumes. That backdrop was supportive for Treasuries however, as the risk-off move and a strong 20yr auction supported demand. So the 10yr yield (-1.3bps) fell to a fresh one-year low of 3.95%, and the 30yr yield (-1.2bps) was down to its lowest since the Liberation Day turmoil in April, at 4.53%.

Overnight, the biggest market move has come from oil prices, after the US Treasury announced sanctions against Russia’s two largest oil companies, citing “Russia’s lack of serious commitment to a peace process to end the war in Ukraine”. These are the first material US sanctions against Russia introduced since Trump re-entered the White House in January and mark a sharp shift in tone compared to a week ago, when the two sides had talked about a possible meeting in Budapest between Trump and Putin. And with increased risks of oil supply disruption, Brent crude is +3.10% higher overnight at $64.53/bbl, extending a +2.07% gain yesterday, which if sustained would be its biggest 2-day jump since July.

Despite the risk-off move globally yesterday, here in the UK there was a decent market rally after the latest CPI print showed a clear downside surprise. So headline CPI remained at +3.8% (vs. +4.0% expected), and core CPI unexpectedly fell to +3.5% (vs. +3.7% expected). That meant investors dialled up their expectations for another BoE rate cut this year, with the probability of a cut by the December meeting up from 42% to 72% by the close yesterday. In turn, that led to a huge rally for gilts, with the 2yr gilt yield (-8.8bps) down to its lowest since August 2024, whilst the 10yr gilt yield also fell -6.0bps. So that’s also positive from a fiscal standpoint ahead of the government’s budget next month, and UK equities saw a decent rally too. That meant the FTSE 100 was up +0.93%, whilst the more domestically-focused FTSE 250 (+1.47%) posted its strongest gain in over 6 months to close at its highest level since February 2022.
Elsewhere in Europe, bond yields picked up after their recent declines, with yields on 10yr bunds (+1.1bps), OATs (+1.2bps) and BTPs (+0.5bps) all moving higher. In part, that was driven by a pickup for inflation expectations, which came as oil prices moved higher even before the new US sanctions story broke.

Overnight in Asia, the more negative theme has continued this morning, with the major equity indices falling back as they react to the prospect of a further escalation in the US-China trade war. That’s been led by Japan’s Nikkei (-1.43%), but there’ve also been losses in China for the CSI 300 (-0.58%) and the Shanghai Comp (-0.66%). Meanwhile in South Korea, the KOSPI (-0.88%) has also fallen, which comes as the Bank of Korea left its policy rate unchanged at 2.5%, in line with expectations. And in the FX space, the Japanese yen has weakened against the US dollar for a 5th consecutive session and is now trading at 152.45 per dollar.

To the day ahead now, and data releases include US existing home sales for September, the Kansas City Fed’s manufacturing index for October, and the Euro Area’s preliminary consumer confidence measure for October. Otherwise from central banks, we’ll hear from the BoE’s Dhingra.