Marketmind: Refunding relief stokes bond-led bounce
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[October 31, 2023] A
look at the day ahead in U.S. and global markets from Mike Dolan
A more modest yearend schedule of Treasury debt sales than many feared
helped bonds rally overnight while the Bank of Japan closed out a scary
October for world markets on Tuesday with another modest tightening
tweak.
A hectic Halloween of policy meetings, big macro reports and another
slew of company earnings is seeing most world markets shave off the
sharpest edges of a rough month, just as the Federal Reserve kicks off
its latest two-day gathering.
But relief in Treasuries, the villain of the piece for several weeks, is
probably the most significant marker for the remainder of the year.
On Monday, the U.S. Treasury said it expects to borrow $776 billion in
the fourth quarter of the year, less than $852 billion it has previously
indicated and below Wall St forecasts.
Officials said the reduced tally was down to an increased revenue
estimate and that was mainly because tax payments from California and
other states that had been previously deferred due to natural disasters
were now flowing to Treasury coffers.
Given that the announcement in July of third-quarter borrowing of more
than trillion dollars was largely responsible for the bond market
selloff since, the more benign forecast for the final three months
dragged 10-year benchmark yields back further from bruising 16-year
peaks above 5%.
With hopes the resurfaced risk premium for holding long-term debt may
ease as a result, 10-year yields were as low as 4.82% on Tuesday - some
20 basis points off recent highs.
Even though the Bank of Japan further loosened its grip on long-term
interest rates on Tuesday by re-defining 1.0% as a loose "upper bound"
rather than a rigid cap, markets took some solace it wasn't more
draconian. Even though 10-year Japanese government yields jumped as much
as 7bps to 0.96%, the yen weakened again sharply past 150 per dollar and
the Nikkei 225 index of leading stocks rose.
And there were further soothing noises for world bonds, even if not for
global growth, from surprisingly weak Chinese business surveys for
October. Chinese stocks underperformed and closed lower yet again.
Adding to the mix on Monday was a retreat in crude oil prices to their
lowest since the October 7 attacks on Israel, as Israel's land invasion
into Gaza advanced slowly and pressure to up stuttering humanitarian aid
to the besieged citizens there increased.
Crude prices steadied around $83 per barrel on Tuesday, with market
speculation about a rise in U.S. shale oil output circulating following
recent major acquisitions by Big Oil firms.
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Traders work on the floor at the New York Stock Exchange (NYSE) in
New York City, U.S., October 23, 2023. REUTERS/Brendan McDermid/File
Photo
In Europe, falling energy stocks bucked a more positive wider market
due to a 4.2% fall in BP after third-quarter earnings missed
analysts' forecasts.
Overall, the picture pointed to another positive day for Wall Street
stocks, with futures marginally positive ahead of the open as the
Fed meeting gets underway. The S&P500 rebounded after an awful month
on Monday to clock its best day's gain since August - but it remains
on course to record its third straight month of losses since 2020.
The U.S. central bank is expected to leave policy rates unchanged
again on Wednesday as it assess the final-quarter trajectory of
inflation and the economy after a bumper Q3.
With the October jobs report due Friday, the latest consumer
confidence reading for this month tops the economic diary on Tuesday
in the meantime. The likes of pharma giant Pfizer and construction
bellwether Caterpillar are on a heavy earnings slate.
In other positive news, General Motors and the United Auto Workers
struck a tentative deal late on Monday, ending the union's
unprecedented six-week campaign of coordinated strikes that won
record pay increases for workers at the Detroit Three automakers.
Key developments that should provide more direction to U.S. markets
later on Tuesday:
* U.S. Oct consumer confidence, Oct Chicago business survey, Oct
Dallas Fed service sector survey, Q3 employment costs, Aug house
prices
* Federal Reserve starts 2-day policy meeting
* U.S. corporate earnings: Pfizer, Caterpillar, AMD, Amcor, Amgen,
Marathon, MSCI, Caesars, Global Payments, Sysco, Eaton, Franklin
Resources, Allegion, Assurant, AMETEK, Equity Residential, GE
Healthcare, First Solar, Incyte, Paycom, Match, Bio-Techne, WEC
Energy, Hubbell, Echolab, Zebra, ONEOK, Xylem
* U.S. Treasury auctions 12-month bills
(By Mike Dolan, editing by Christina Fincher, mike.dolan@thomsonreuters.com.
Twitter: @reutersMikeD)
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