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Marketmind: Some payback, but bonds hug gains on oil

[November 07, 2023] A look at the day ahead in U.S. and global markets from Mike Dolan

World markets are trying to calibrate last week's steep rally in stocks and bonds - tempering some of the overcaffeinated rate cut hopes that emerged but sustaining the bulk of the gains and lapping up a fresh oil price slide.

With Federal Reserve officials unlikely to commit either way yet, as they devour more data on the unfolding fourth quarter, investors now look to three days of Treasury debt sales to gauge whether October's bond rout was an anomaly rather a new trend.

The Treasury sells $112 billion of new notes and bonds this week, starting with $48 billion of 3-year notes later on Tuesday - before new benchmark 10-year and 30-year tenors hit the Street on Wednesday and Thursday.

Aided by a renewed slide in oil prices, where U.S. crude fell below $80 per barrel for the first time since August after disappointing Chinese export readings, 10-year Treasury yields are on the back foot again on Tuesday and hovered around 4.60% ahead of the open.

Both 10- and 30-year yields are still more than 40bps below last month's peaks.

The oil price slide was helped by signs from Israel that it's open to pauses in the Gaza fighting.

But the wider picture of U.S. economic health continued to throw up some mixed signals.

The Fed's quarterly loan officer survey late Monday showed banks tightened lending standards for businesses and households over the third quarter - but the pace of change appeared to ease even as demand for loans fell broadly.

No game changer then.

And that's seen Fed rate futures give back a little of last week's repricing - with a first quarter point policy rate cut still nailed on by June but a second no longer fully priced until September.

The typically hawkish Minneapolis Fed boss Neel Kashkari insisted it was still too early to take another rate hike off the table. "I'm a little nervous about declaring victory too soon," he said late on Monday.

Attention now turns to U.S. international trade - although the U.S. data on Tuesday still just reports the tail end of the third quarter.

China's poor October export numbers paint a worrying picture of global demand at large - but the wider report was more mixed and imports surprised on the upside last month.

What's more, the International Monetary Fund upgraded its forecasts for China's economic growth this year and next - at least partly based on assumptions of government policy supports.

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A trader works on the floor of the New York Stock Exchange shortly before the closing bell as the market takes a significant dip in New York, U.S., February 25, 2020. REUTERS/Lucas Jackson/File Photo

Elsewhere, the Reserve Bank of Australia raised its policy interest rate again, as expected, by another quarter point to a 12-year high of 4.35%. But the Aussie dollar skidded lower as the RBA appeared to signal it's now on pause along with other major central banks.

Overall, the global stocks picture reflected some of the cooling of last week's rally and some of the China export numbers. Asia bourses were lower, with Japan and Hong Kong losing more than 1% and South Korea's Kospi recoiling 2% after Monday's surge. European stocks were down more modestly.

Even though the S&P500 eked out another gain on Monday, futures were slightly in the red ahead of today's open.

UBS stock jumped more than 3% after the Swiss banking giant signalled its core wealth business is stabilising after it reported a $785 million loss in the third quarter due to expenses tied to its takeover of Credit Suisse.

And WeWork, the SoftBank-backed startup whose meteoric rise and fall influenced the office sector globally, sought U.S. bankruptcy protection on Monday after its bets on companies using more of its office-sharing space soured.

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

* U.S. Sept international trade balance, Sept consumer credit; Canada Sept trade balance

* Federal Reserve Bank of New York issues Q3 Household Debt and Credit Report

* Federal Reserve Board Governor Christopher Waller, Fed Vice Chair for Supervision Michael Barr, New York Fed President John Williams, Dallas Fed chief Lorie Logan, Kansas City Fed President Jeffrey Schmid all speak

* U.S. corporate earnings: DR Horton, eBay, Gilead Sciences, Mosaic, Emerson Electric, Occidental Petroleum, Devon Energy, Zimmer Biomat, Axon, STERIS, DaVita, Wair Products & Chemicals, Viatris, Extra Space, Jack Henry, Akamai, Gen Digital, Evergy, Expeditors, Fidelity National Information

* U.S. Treasury auctions $48 billion of 3-year notes

(By Mike Dolan, editing by Christina Fincher, mike.dolan@thomsonreuters.com. Twitter: @reutersMikeD)

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