Morning Wrap: ASX 200 to fall, S&P 500 lower + Bill Ackman covers his bet against Treasury bonds

US stocks erased earlier declines after Bill Ackman said he covered his Treasury short, the S&P 500 finished below the key 200-day moving average, private equity firms are struggling to cash out investments and Chevron plans to buy Hess Corp for US$53bn in second oil mega-merger in weeks.

Let's dive in.

S&P 500 SESSION CHART

S&P 500 lower and finished near worst levels (Source: TradingView)

MARKETS

• S&P 500 lower, finished around the midpoint (session high of 0.78% and low of -0.80%) and closed below its key 200-day moving average

• US 10-year yield briefly crossed 5.0% for the first time since 2007

• US 10-year yield experienced a 17 bp intraday swing to close at 4.85%

• Market struggled for direction after Bill Ackman’s Treasury short covering, the re-pricing of a higher-for-longer Fed, continued Middle East tensions and underwhelming earnings season

• Bill Ackman says he covered short bet on US Treasuries (Bloomberg)

• VIX gauge flags imminent market turbulence (Bloomberg)

• Private equity firms face toughest year for cashing out investments (FT)

• Investors demand highest premium in years for holding risky European debt (FT)

• Investors flock to fixed income ETFs despite bond market turmoil (FT)

STOCKS

• Chinese retailers slash prices on iPhone 15 (Reuters)

• Chevron to buy Hess Corp for US$53bn in all-stock deal (Bloomberg)

• Roche buys Roivant's bowel disease drug for US$7.1bn (Bloomberg)

• Nvidia and AMD plan to make chips for PCs with Arm technology (Reuters)

• Apple commits US$1bn annually to AI development to catch up to peers (CNBC)

• Okta shares down almost 20% in last two sessions after hacks accessed its support system and viewed client files (CNBC)

CENTRAL BANKS

• BOJ debate further YCC tweaks as JGB 10-year yield approaches 1% cap ( Bloomberg)

GEOPOLITICS

• Israeli fighting with Gaza and Lebanon intensifies (Bloomberg)

• US tells Israel to delay invasion for hostage talks (Bloomberg)

• Turkey supports Sweden NATO membership, after prior reluctance (Bloomberg)

ECONOMY

• Q3 growth data to show US growth, Europe stagnation and China struggles (Bloomberg)

• South Korea exports up in first 20 days of October on robust car shipments and petroleum products but chip exports slide again (Yonhap)

Ackman's Short Covering

Back in September, Pershing Square Capital's Bill Ackman started shorting 30-year Treasury bonds under the rational that long-dated yields had not yet calibrated to a new normal of inflation staying above 3.0%. He also viewed it as a good standalone bet. It's paid off very well.

At around 1:00 am AEDT, Ackman tweeted "we covered our bond short." This sent the US 10-year yield sharply lower from around 5.0% to 4.85% within a couple of hours. Here's why Ackman is taking some pressure of Treasuries:

• "There is too much risk in the world to remain short bonds at current long-term rates."

• The economy is slowing faster than what recent data is suggesting

US 10-year yield intraday chart (Source: TradingView)

The bond market was saved not by Yellen, not the Fed but by Bill Ackman.

Sectors to Watch

Yields might've pulled back sharply overnight but markets continued to struggle. The S&P 500 undercut the 200-day moving average and as the saying goes "nothing good happens under below the 200-day."

Graphite: Graphite stocks have surged since China announced curbs on natural and synthetic graphite exports last Friday. Syrah Resources (ASX: SYR) opened 17.0% higher on Monday and closed 41.5% higher. It's worth noting that short covering might've played a role in its explosive intraday rally (it was the third most shorted stock with 10.9% short interest). It will be interesting to see how Syrah trades on Tuesday after a 65% gain in the past two days.

Oil: Oil prices fell around 2% overnight amid signs that Israel is rethinking the scope of a potential invasion of Gaza. Energy was also the worst performing sector on the S&P 500, down 1.6%.

Tech: The Nasdaq was also choppy but managed to close in positive territory. Can the pullback in yields support long duration and growth-y pockets of the market? Local names like Megaport, Audinate and Dicker Data have held up relatively well (and completely unphased by the market's recent selloff).

Megaport daily chart (Source: TradingView)

ASX corporate actions occurring today:

• Trading ex-div: None

• Dividends paid: None

• Listing: None

Economic calendar (AEDT):

• 9:00 am: Australia Manufacturing and Services PMI

• 5:00 pm: Germany Consumer Confidence

• 6:30 pm: Germany Manufacturing PMI

• 12:45 am: US Manufacturing and Services PMI