October 30, 2023
Rates and housing
The 10-year Treasury yield reached 5%, its highest level in 16 years, putting pressure on government borrowing costs, mortgage affordability, and equity valuations. The U.S. deficit was reported at $1.7 trillion, or 6.3% of GDP, while Europe was expected to reduce combined deficits to 3.4% of GDP.
Canada's S&P/TSX Composite ended the week at 18,737.39, down 378 points, or 1.98%, as energy, utilities, and technology weakened. In housing, the average monthly cost of a new mortgage payment rose to 52% above average apartment rent. A 30-year mortgage on a $430,000 home with 10% down carried a payment about 60% higher than three years earlier. About 80% of outstanding U.S. mortgages still had rates below 5%, limiting resale supply.
Growth and supply chains
Third-quarter U.S. GDP grew 4.9%, above the prior quarter's 2.1% and the 4.3% estimate. Consumer spending accelerated to 4% from 0.8%, and real wages rose 1.7% after inflation. The strength supported corporate revenue, but it also made higher-for-longer rate expectations harder to dismiss.
Apple's China exposure remained in focus after Foxconn came under scrutiny from Chinese authorities while founder Terry Gou pursued Taiwan's presidency. Foxconn is a major Apple supplier and accounted for 3.5% of China's exports in 2022, making the issue relevant for both Apple production risk and China's own export base.
Deals and corporate resets
Chevron agreed to buy Hess in a $53 billion all-stock transaction. The deal adds Hess's stake in Guyana's Stabroek block and follows Exxon's roughly $60 billion purchase of Pioneer Natural Resources. Chevron expects the acquisition to lift daily oil and gas output to about 3.7 million barrels, increase shale production by 40%, and generate about $1 billion of cost synergies within a year.
General Motors abandoned its target of producing 400,000 electric vehicles by mid-2024. The decision came even as GM reported a profitable third quarter, while the UAW strike was costing about $200 million per week. Ford had already pushed back its EV target, and Tesla had cut prices on the Model Y and Model 3. The recap is straightforward. Higher rates, weaker EV demand, and price pressure forced automakers to reassess production timing and capital spending.