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Marketmind: Wall St re-finds mojo - but hurdles ahead

[January 09, 2024] A look at the day ahead in U.S. and global markets from Mike Dolan

Wall St stocks shook off their new year torpor with the best day in almost two months on Monday - as tech fizzed again and disinflation signals mounted even as Boeing's woes acted as a drag on the blue chip Dow Jones index.

But sustaining the buzz looks tricky as investors face several big hurdles over the remainder of this week alone. And despite the valiant 1.4% rally on Monday, the S&P500 remains marginally negative for the first five trading days of the year - frequently a pointer to its full-year fortunes.

Still acting as a drag, last month's rate cut euphoria seems absent from the bond market - with 10-year Treasury yields stuck above 4% and even the more dovish Federal Reserve officials pushing back against bets of rate cuts as soon as March. Futures markets are now not fully priced for a first quarter-point cut until May.

What's more, some $110 billion of Treasury coupon sales kick off later on Tuesday with a $52 billion 3-year note auction - and 10- and 30-year paper comes up for grabs later in the week.

Even though Congress appears to be making some progress on averting a government shutdown later this month, a recurring election year theme is likely to be how markets absorb new debt sales - with total Federal debt topping $34 trillion for the first time last week.

U.S. Treasury Secretary Janet Yellen said on Monday she believes a top-line federal spending deal reached by congressional leaders over the weekend is consistent with last June's debt ceiling agreement but could not say whether a government shutdown could be avoided as current funding lapses.

Better news for the Treasury market comes from Fed indications it will look at mapping out when it should slow the pace of its balance sheet rundown, or so-called quantitative tightening policy of shedding bonds from its accounts.

And the disinflation picture continues to be encouraging both in the United States and abroad.

U.S. households' inflation expectations over the short run fell to the lowest level in nearly three years last month, the New York Fed's survey showed on Monday.

The big data point of the week is Thursday's release of U.S. consumer price updates - with annual core inflation expected to fall below 4% for the first time since May 2021.

Core inflation in Japan's capital slowed for the second straight month in December, meantime, taking pressure off the Bank of Japan to rush into exiting ultra-loose monetary policy.

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

And there were few signs of renewed price pressures in Europe either. German industrial production unexpectedly fell in November compared to the previous month - marking a sixth straight month of declines.

Oil's retreat this week on Saudi crude price cuts help that disinflation picture - although prices stabilised on Tuesday amid supply concerns and tense geopolitics.

Aside from the Middle East conflict, this weekend's Taiwan elections is another major concern amid China's political and military stance around the island.

Taiwan's government issued an island-wide alert on Tuesday, saying a Chinese satellite had flown over its southern airspace - in what Taiwan's foreign minister described as part of a pattern of harassment days before a pivotal presidential vote.

Despite Monday's rally on Wall St, China stocks continued to struggle today - eking out just a 0.2% gain despite a strong 1% surge in Japan's Nikkei

European stocks and Wall St futures were back in the red.

The dollar was a touch higher in line with Treasury yields.

In stock sectors, tech led the charge on Monday. Shares of Nvidia surged to a record high close after the world's most valuable chipmaker unveiled new desktop graphics processors taking advantage of artificial intelligence.

The fourth-quarter earnings season looms, meantime. Shares in JPMorgan Chase, Wells Fargo, Bank of America and Citigroup slipped ahead of updates on Friday.

Key diary items that may provide direction to U.S. markets later on Tuesday:

* U.S. Dec NFIB small business survey, Nov international trade

* Federal Reserve Vice Chair for Supervision Michael Barr speaks; Bank of France chief François Villeroy de Galhau speaks

* U.S. Treasury auctions $52 billion of 3-year notes

* US Secretary of State Antony Blinken in Israel to meet Israeli government leaders as part of Middle East tour

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

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