Marketmind: US growth topping China as megacaps report

[October 18, 2023]  A look at the day ahead in U.S. and global markets from Mike Dolan

The two biggest economies in the world are both beating forecasts but U.S. economic growth looks to have leapfrogged China's expansion, in a somewhat alarming development for Federal Reserve watchers and bond markets.

With the horrors of the war in Gaza and Israel leaving the world on edge, U.S. President Joe Biden's visit to the region on Wednesday remains a focal point for what happens next there.

Energy prices are climbing again in trepidation, but global markets have turned to a deluge of economic and corporate updates for guidance even as the worrying conflict unfolds.

Another a series of consensus-busting U.S. retail and industrial data for September have seen Wall St scramble to upgrade U.S. growth forecasts yet again as the Atlanta Fed's real-time GDP growth estimate now clocks a whopping 5.4% for the third quarter.

U.S. housing starts are next on the slate on Wednesday as U.S. megacaps Tesla and Netflix weigh in with third quarter earnings and the country's big banks continue to register impressive beats.

Even as default fears mount for its ailing property firms and annual GDP growth slowed into the second half, the latest data on Wednesday showed China's economy also beat expectations in Q3 as consumption and industrial activity surprised.

But China's year-on-year growth is flattered by comparison with COVID-related lockdowns in 2022 and its comparable annualized quarterly expansion of about 5.2% is now less than the Atlanta Fed estimate for the United States.

The combination of high-pressure growth and U.S. crude oil prices back up to their highest in two weeks has re-ignited inflation concerns.

U.S. Fed futures have returned to pricing more than a 50% chance the central bank will lift interest rates again by January, leaving markets watching a diary full of senior Fed officials for guidance on Wednesday - culminating in a keynote speech from Fed boss Jerome Powell tomorrow.

And with a 20-year Treasury bond auction also due later in the day, bond markets are back running scared. Two-year Treasury yields hit their highest since 2006 on Tuesday at 5.24% and held most of those gains overnight - while 20-year yields are hovering around 5.2% as well.

Adding to the inflation anxiety worldwide, Britain reported that its headline inflation failed to fall as expected last month and at 6.7% remains far above the Bank of England's 2% target - sending UK government bond yields surging again too.

A street sign for Wall Street hangs in front of the New York Stock Exchange May 8, 2013. REUTERS/Lucas Jackson/File Photo

Against all that, Wall St stocks remained remarkably resilient as they parse the torrent of incoming earnings - ending only marginally in the red on Tuesday and with futures down a fraction ahead of the bell today.

Stocks in Asia and Europe mostly held the line too, with China's bourses underperforming against a backdrop of property worries and new U.S. restrictions on investment in its chip sector.

The dollar held steady on Wednesday for the most part.

In domestic politics, attention turned to Congress and the absence of a House speaker ahead of another possible shutdown of U.S. government operations next month.

Right-wing Republican Jim Jordan on Tuesday sought more time to build support for his bid for the speaker's role after coming up short in a first vote, raising questions about his prospects for winning the job.

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

* U.S. corporate earnings: Tesla, Procter & Gamble, Netflix, Abbott Laboratories, Morgan Stanley, Northern Trust, Nasdaq, Travelers, M&T, Citizens Financial, US Bancorp, Zions Bancorp, Discover Financial, Lam Research, Alcoa, POPG, Steel Dynamics, Crown Castle, Equifax, Kinder Morgan, Elevance

* U.S. President Joe Biden visits Israel

* U.S. Sept housing starts and permits, Federal Reserve releases Beige Book of economic conditions, Aug TIC Treasury flows data * Federal Reserve board governors Christopher Waller, Lisa Cook and Michelle Bowman all speak, New York Fed President John Williams and Philadelphia Fed chief Patrick Harker also speak

* U.S. Treasury auctions 20-year bonds

(By Mike Dolan; Editing by Toby Chopra [e-mail]. Twitter: @reutersMikeD)

[© 2023 Thomson Reuters. All rights reserved.]
This material may not be published, broadcast, rewritten or redistributed.  Thompson Reuters is solely responsible for this content.