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Marketmind: Markets fly on Fed and funding, Apple awaits

[November 02, 2023] A look at the day ahead in U.S. and global markets from Mike Dolan

World markets lapped up a combination of steady U.S. interest rates, rejigged Treasury borrowing and lower oil prices - with an eye on Thursday's earnings update from America's most valuable company Apple.

The Federal Reserve left rates on hold again as expected - with an equivocal stance on further tightening as financial conditions generally remain tight. The Treasury, meantime, followed up on Monday's forecast of a lower borrowing tally for the final quarter with plans to ease back somewhat on share of long-term debt it's selling.

Along with signs of fresh weakness in U.S. manufacturing last month and further retreat in crude oil prices to their lowest since August, 10-year Treasury yields dialed back yet again as low as 4.70% on Thursday - the lowest in more than two weeks and now 32 basis points below recent highs.

With Apple up on the earnings slate after the bell later, S&P500 futures are rising further ahead of the open - setting Wall Street on course for a fourth straight day of gains for the first time in almost a month.

More than half way through the earnings calendar, third quarter annual profit estimates for the S&P500 are tracking a gain 5% - more than twice pre-season forecasts - and 80% of firms have beaten forecasts and tallying with the 4.9% economic growth reading for the same three-month period.

That then makes October economic soundings all the more important for both investors and the Fed to assess.

Emerging softness in the ISM's October manufacturing survey may be a marker in that regard - although the employment picture will dominate the view of consumption going forward.

And there was a mixed picture on the extent of loosening in the labor market on Wednesday. Job openings fell by less than expected in September, but ADP's private sector payroll tally for last month came in below forecasts again.

With weekly jobless data watched like a hawk again later, Friday's national employment report now hoves into view.

Fed futures now show less than a 30% chance of another Fed hike in the cycle, with a first cut coming by June and some 70bps of easing pencilled in by the end of next year.

For now at least, S&P500 futures are up another 0.5% after the index clocked another gain of 1% on Wednesday. The ViX volatility gauge fell to as low as 16.4 today.

With mainland Chinese shares the notable outlier yet again, other global bourses climbed rose n Wall Street's slipstream.

Japan's Nikkei added another 1% even as the yen regained some more lost ground after the early-week swoon on only a modest rowback from the Bank of Japan on its yield capping policy.

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Traders work on the floor at the New York Stock Exchange (NYSE) in New York City, U.S., October 27, 2023. REUTERS/Brendan McDermid

BOJ Governor Kazuo Ueda will continue to dismantle the central bank's ultra-easy monetary policy settings only gradually and look to exit the decade-long accommodative regime sometime next year, Reuters reported on Thursday, based on interviews with six sources familiar with the BOJ's thinking.

The Bank of England is the next major central bank decision due later on Thursday. Like the Fed, it is expected to hold rates unchanged with a likely 6-3 vote on its policymaking council for steady rates. Most market players now think BoE rates have peaked for this cycle.

In China, financial regulators are investigating a month-end liquidity crunch that saw short-term money rates surge to as much as 50% earlier this week, asking institutions to explain why they borrowed at extremely high rates, three sources said.

In other U.S. corporate news, automaker Tesla delivered 72,115 China-made electric vehicles last month, down 2.6% from a month earlier, the China Passenger Car Association (CPCA) said.

Key developments that should provide more direction to U.S. markets later on Thursday:

* Bank of England policy decision and monetary policy report

* U.S. weekly jobless, Sept durable goods orders, Q3 unit labor costs

* St Louis Interim Federal Reserve President Kathleen O'Neill speaks; European Central Bank chief economist Philip Lane, and ECB board members Isabel Schnabel and Edouard Fernandez-Bollo all speak

* U.S. corporate earnings: Apple, Expedia, Booking, Starbucks, Cigna, Molson Coors, S&PGlobal, Eli Lilly, ConocoPhillips, Pioneer Natural Resources, Duke Energy, Alliant Energy, Moderna, Monster Beverage, EOG, SBA, ICE, Stryker, Motorola Solutions, Live Nation, Consolidated Edison, Federal Realty, Paramount Global, Rockwell, Microchip, Fortinet, Skyworks, Regency, Insulet, Ventas, AES, NRG, Borgwarner, PPL, Howmet, Huntington Ingersolls, Ball, Cencora, Cummins, Fox, Baxter, Teleflex etc

* U.S. Treasury auctions 4-week bills

(By Mike Dolan, editing by Alexander Smith; mike.dolan@thomsonreuters.com. Twitter: @reutersMikeD)

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