Marketmind: Rates buzz sustained before Fed loan data
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[November 06, 2023] A
look at the day ahead in U.S. and global markets from Mike Dolan
After its best week of 2023 on optimism about peaking interest rates,
Wall Street's S&P500 looks set to record its longest winning streak
since June as a key Federal Reserve loan report may well sustain the
rates buzz.
A below-forecast national payroll gain last month, a tick higher in the
unemployment rate and moderating wage growth all catapulted stocks and
bonds higher on Friday after a week brimming with hope the rate hiking
campaign of the major central banks is over at last and a relatively
soft landing beckons.
The Fed's latest quarterly senior loan officer survey is due for release
later on Monday and should reinforce the point that rate rises to date
are taking effect on shrinking credit growth.
For Fed futures markets, the game is up. No further rate rises are now
priced into the market and more than 90 basis points of cuts are now
seen by the end of the year.
Ten-year U.S. Treasury yields have fallen about 50bps from October's
peaks and the drop last week was the biggest recoil since March.
Although they nudged back up about 3bps on Monday, they retained the
vast bulk of last week's move with 3, 10 and 30-year bond auctions due
on Tuesday, Wednesday and Thursday.
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Ebbing oil prices over the past week underscored the renewed bid in
rates and bond markets, with the year-on-year decline in U.S. crude
prices now tracking almost 12% - its biggest annual fall since August
and encouraging for inflation watchers.
Weekend developments on the Gaza conflict did little to change that
picture, though confirmation of Saudi and Russian supply cuts stopped
the spot price decline.
If the Fed - which had been indicating that tightening financial
conditions were doing some of its work for it - wants to protest the
sudden loosening of the bond and equity markets, then chair Jerome
Powell is due to speak again on Wednesday.
But that easing of market conditions may well be warranted if signs of
slowing activity in the real economy mount from here.
For now, S&P500 futures are pointing to further slight gains on Monday -
which if realized on the cash market later would make for the sixth
straight gain and the longest daily run since June.
The VIX volatility gauge, which on Friday fell below 15 for the first
since September, tried to get a toehold back above that level today.
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A street sign for Wall Street is seen in the financial district in
New York, U.S., November 8, 2021. REUTERS/Brendan McDermid/File
Photo
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Undermined by the retreat in Treasury yields, the dollar slipped
back to the lowest since Sept 20.
The backdrop of an easier dollar and Treasury yields provides
significant relief for emerging markets, with MSCI's emerging market
stock index hitting its highest since Sept 20 too.
Ahead of a full slate of Chinese economic updates later in the week,
the offshore yuan also hit its highest in more than six weeks.
However, China recorded its first-ever quarterly deficit in foreign
direct investment, according to balance of payments data out on
Monday, underscoring Beijing's challenge in wooing overseas firms
amid "de-risking" moves by Western governments.
U.S. Treasury Secretary Janet Yellen will meet with Chinese Vice
Premier He Lifeng in San Francisco this week to try to deepen a
fledgling economic dialogue between the world's two largest
economies ahead of a summit of Pacific Rim leaders.
But it was South Korean shares that outperformed all Asia markets.
Seoul's Kospi index surged 5.6% after a weekend decision by
regulators to re-impose a ban on short-selling shares at least until
June - ostensibly to promote a "level playing field" for retail and
institutional investors.
In Europe, stock indexes gave back a little of last week's rally -
but Ryanair soared 6% after Europe's largest airline by passenger
numbers forecast a record annual profit and promised a regular
dividend payout.
Key developments that should provide more direction to U.S. markets
later on Monday:
* Federal Reserve's Senior Loan Officer Opinion Survey on bank
lending (SLOOS), U.S. Oct employment trends
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* U.S. corporate earnings: TripAdvisor, Goodyear Tire & Rubber,
Vimeo, Aspen, Telesat, Realty Income, Conterra Energy, Constellation
Energy, Diamondback Energy, Celanese, Vertex Pharmaceuticals, NXP
Semiconductors, International Flavors & Fragrances, etc
* Federal Reserve Board Governor Lisa Cook speaks; Bank of England
Chief Economist Huw Pill speaks
* U.S. Treasury auctions 3-, 6-month bills
(Editing by Bernadette Baummike.dolan@thomsonreuters.com. Twitter:
@reutersMikeD)
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