Marketmind: Fed, financing and jobs greet November
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[November 01, 2023] A
look at the day ahead in U.S. and global markets from Mike Dolan
Investors wishing to put a dark October behind them first need to
negotiate Wednesday's Fed policy decision, Treasury's debt sale plans
and the beginnings of a slew of labor market updates.
As world markets kick off a new month in better spirits that they were
for most of the last one, overseas drama centred on Japan's yen - which
plummeted close to last year's three-decade low of 151.94 on Tuesday
after the Bank of Japan made only a minor tweak to its yield control
policy.
Masato Kanda, Japan's top currency diplomat, protested the move on
Wednesday, saying authorities were on "standby" to respond to the
currency's "one-sided, sharp" slide - ramping up the rhetoric around
yen-buying intervention. But that lifted the currency only slightly and
it hovers about 151.27 first thing.
The problem is the BOJ may have loosened its 10-year bond buying target
rate of 1% - but it's still committed to capping yields around there and
did so yet again on Wednesday in another emergency operation that
dragged yields back to 0.95%.
The weak yen and yield cap cheered Japan's Nikkei stock index, which
surged more than 2% earlier - helped by news of a more than doubling of
Toyota's profits that lifted the auto giant's shares almost 5%.
Does the yen drama matter for U.S. markets? At the margin at least, the
concern is that protracted yen intervention and dollar sales by Japan
may also cut its demand for U.S. Treasuries at a sensitive time - while
higher yields there drag Japanese bond investors back home.
Despite the U.S. Treasury forecasting a lower fourth-quarter borrowing
need than previously flagged, the tension in the bond market remains
ahead of its detailed future refinancing plans due later on Wednesday.
Key will be the amount of this year's whopping $1.6 trillion of bill
sales it will have to roll into longer-term debt securities through
2024.
With the Federal Reserve widely expected to hold policy rates steady
again on Wednesday, the Treasury plans may end up getting more bond
market attention. Ten-year yields nudged back higher to 4.89% overnight
ahead of the two events.
Fed officials will cast a wary eye over data released on Tuesday showing
employment cost inflation picking up during the last quarter alongside
accelerating house price rises in September.
But U.S. consumer confidence has softened, oil prices are falling again
and the overseas demand picture is weakening.
Despite all the handwringing about the impact on energy prices from the
Middle East conflict, U.S. crude prices fell to their lowest since
August on Tuesday - to just above $80 per barrel and clocking
year-on-year declines of some 7% that are the deepest since August too.
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An eagle tops the U.S. Federal Reserve building's facade in
Washington, July 31, 2013. REUTERS/Jonathan Ernst/File Photo
With euro zone GDP numbers showing a contraction of the bloc's
economy in the third quarter - in stark contrast to the boom in the
United States - China's economy again showed signs of faltering on
Wednesday.
Chinese factory activity unexpectedly contracted in October, a
private survey showed on Wednesday, adding to a downbeat official
manufacturing purchasing managers' index on Tuesday.
The property bust smoulders, meantime. China Evergrande proposed a
new debt restructuring plan for offshore bondholders, offering to
swap debts into 30% equity stakes in each of the developer's two
Hong Kong-listed subsidiaries.
The gloom was only partly offset by hopes for an easing of political
tensions as the White House confirmed President Joe Biden and his
Chinese counterpart, Xi Jinping, now aim for a "constructive
conversation" on the sidelines of the Asia Pacific Economic
Cooperation forum in San Francisco this month.
Beyond Tokyo, stocks elsewhere were more mixed and Wall Street
futures pulled back slightly after the S&P500 recorded its first
consecutive daily gains in three weeks. The new month saw a big
retreat in the Vix volatility gauge to below 18.
Another heavy day of U.S. corporate earnings is topped by big
insurers and the likes of PayPal and Kraft Heinz.
On Tuesday, shares in heavy-machinery maker Caterpillar sank almost
7% as signs of slowing demand overshadowed a quarterly earnings
beat. But Pinterest shares surged almost 20% after the image-sharing
platform beat estimates.
Key developments that should provide more direction to U.S. markets
later on Wednesday:
* Federal Reserve policy decision and press conference
* U.S. Treasury quarterly refunding details
* U.S. Oct ADP private sector payrolls, Sept JOLTS job openings
data, ISM and S&P Global Oct manufacturing surveys
* U.S. corporate earnings: PayPal, Edison, AIG, Prudential
Financial, MetLife, Qualcomm, Mckesson, Airbnb, Estee Lauder, Kraft
Heinz, Marathon, Allstate, Congnizant Technology, Ingersoll Rand,
Boston Properties, American Water Works, ETSY, ANSYS, Albermarle,
Garmin, CVS, IDEXX, Yum! Brands, Humana, etc
(By Mike Dolan, editing by Nick Macfie mike.dolan@thomsonreuters.com.
Twitter: @reutersMikeD)
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