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

ASX 200 futures are trading 15 points lower, down -0.22% as of 8:20 am AEST.

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