Morgan Stanley raises the stakes in the crude oil forecast game

Welcome to Charts and Caffeine - Livewire's pre-market open news and analysis wrap. We'll get you across the overnight session and share our best insights to get you better set for the investing day ahead.

MARKETS WRAP

• S&P 500 - 3,640 (-2.80%)
• NASDAQ 100 - 11,039 (-3.88%)
• CBOE VIX - 31.36
• USD INDEX - 112.75
• US 10YR - 3.888% (bond markets will be closed tonight for the Columbus Day holiday)
  
• FTSE 100 - 6,991 (-0.09%)
• STOXX 600 - 391.68 (-1.18%)
• UK 10YR - 4.3025%
• GOLD - US$1695/oz
• WTI CRUDE - US$93.20/bbl
• DALIAN IRON ORE - US$95.62/T

THE CALENDAR

The US jobs report for September came in bang in line with expectations - with the world's largest economy creating 263,000 jobs last month. The unemployment rate also dipped to a new 50+ year low of 3.5%. Average hourly earnings came in a little weaker than expected but still remained well above 5% year-on-year. All this suggests the US Federal Reserve will keep on hiking, and keep doing it in outsized proportions.

It may be a quiet week in Australia but it's anything but quiet overseas. UK GDP is out on Wednesday before two huge inflation reads in the US. While PPI is likely to have stabilised on the headline figure month-to-month, CPI may very well be a different story. Remember, inflation is still above 8% in America and core inflation is becoming very sticky. Retail sales round out the week stateside, and that divergence is becoming interesting in and of itself.

While I'm on the subject, if you'd like a potential preview of US CPI, try this chart from the Cleveland branch of the Federal Reserve. It's been a reliable indicator of where inflation may print in the past. And, as of writing, this month's figures are way out of line with the consensus analyst forecast.

THE CHART

For our chart today, I thought I'd do something a little different. Livewire's team of editors is working on our first super-collection centered around the crazy year for markets. As the team's resident man on macro, fixed income is my jam and that's what I'll be covering in the upcoming markets series. 

But if you think the bond market's boring, then take a look at this. Since 2018, the daily moves have been generally muted - under five basis points a day in most cases on average.

Now, look at the blue bars. The blue bars are last month's moves - way outside of the average and far larger than the magnitude of moves generally witnessed in recent years. These moves have big implications for valuations across all assets, and it's worth paying attention to when correlations break down or moves start to attract red flags.

a stock (and sector) TO WATCH

That's right! Two for the price of one! Aren't I such a nice guy? First, let's deal with the sector to watch - energy stocks. Specifically, the impact of OPEC+'s latest production cuts on crude oil forecasts. Surprise surprise, they're going up but Morgan Stanley now has the top call in the market with a US$100/bbl price target for Brent Crude by the first quarter of next year.

In describing their change, strategists led by Martjin Rats argued the quota reduction is already at odds with low reserve levels around the world - making the global energy problem just that little bit worse.

This quota reduction is somewhat at odds with global crude oil inventories that are already low, and mostly still trending lower. OPEC+ also mentioned a need to put a floor under prices in order to support investment levels, which it continues to argue are woefully too low.

I leave that to you, energy investors.

For our stock to watch, let's turn to the brokers' re-rates of Magellan Financial Group (ASX: MFG). Following its latest FUM update, two more brokers have cut price targets on the beleaguered fund manager. 

Credit Suisse remains concerned about how long it will take for the excess cash to be translated into value. Price target cut, neutral rating retained.

UBS has a far less sanguine view - arguing there is very little opportunity within the company's control. The broker expects a strategic update could offer the sharpening of investment processes and risk management. Price target cut, sell rating retained.

THE tweet

TODAY'S TOP READ

The top questions on fund managers' minds - as described by a former fundie (Livewire - Chris Conway): As mentioned earlier, we're starting our super-collection on the extraordinary year for markets. Livewire's managing editor (and former fund manager) Chris Conway is kicking us off with some of the top questions professional investors are asking in these crazy times. 

Hans Lee wrote today's report.

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