Remarkable US Markets Surf Crosscurrents
US Stocks Remain On Board Amidst Crosscurrents
U.S. stocks have navigated through various crosscurrents over the past week, including surging Treasury yields and Middle East tensions. Despite these challenges, the stock market continues to show resilience, buoyed by the “remarkable” strength of the U.S. economy, according to the IMF. As the third-quarter earnings season approaches, Wall Street indices reached their highest levels in almost three weeks on Monday, recovering from early losses. Stock futures are also pointing higher today.
Market Jolt from Middle East Shock Fades
The initial market jolt caused by the weekend attacks on Israel seems to have quickly dissipated. Although oil prices experienced a modest increase, they remained far below recent highs. On Tuesday, oil prices hovered just above $86 per barrel, still down almost 10% from late September and 5% year-on-year.
Optimism Surrounds Federal Reserve’s Policy Rate Trajectory
As cash Treasury markets reopened after the Columbus Day holiday, they were greeted with renewed optimism about the Federal Reserve’s policy rate trajectory. Lorie Logan, the typically hawkish Dallas Fed boss, suggested that the recent tightening in bond markets may have reduced the need for another policy rate hike. Fed futures reflect this sentiment, with only about a one-in-four chance of further rate increases. Fed Vice Chair Philip Jefferson echoed this sentiment, emphasizing the need to consider tightening financial conditions through higher bond yields when assessing future policy.
Ten-Year Treasury Yields Decline
Ten-year U.S. Treasury yields are expected to start the trading day at around 4.65%, nearly a quarter of a percentage point lower than the peak reached after the blowout September jobs report. The International Monetary Fund highlighted the exceptional strength of the U.S. economy in its latest World Economic Outlook, released at the annual meetings of the IMF and World Bank in Marrakesh. While the IMF lowered its growth forecast for China and the euro area, it maintained its overall global forecast due to the “remarkable strength” of the U.S. economy. The Fund also upgraded its U.S. growth forecasts for 2023 and 2024.
China Struggles Continue
China’s ongoing struggles were evident as its main benchmark stock indices fell once again. Country Garden, an embattled developer, saw its shares drop over 10% after expressing concerns about meeting offshore payment obligations. Reports suggest that China’s fiscal policy response will be limited, with Beijing considering increasing its budget deficit and issuing additional sovereign debt for infrastructure spending. This news lifted European infrastructure stocks and caused the euro to strengthen. U.S.-listed shares of Chinese firms, including Alibaba Group Holding, JD.com, and Baidu, also rose ahead of the U.S. market open.
Other Market Developments
- PepsiCo edged higher ahead of its third-quarter results.
- Unity’s CEO John Riccitiello announced his retirement, causing a 6.4% jump in the video-game software maker’s stock.
Key Developments Affecting U.S. Markets
- The U.S. NFIB September small business survey and August wholesale sales and inventories will provide insight into economic trends.
- The annual meetings of the World Bank and IMF in Marrakesh will shape global economic discussions.
- Notable speakers including Federal Reserve Board Governor Christopher Waller, Minneapolis Fed President Neel Kashkari, San Francisco Fed Chief Mary Daly, and Atlanta Fed Chief Raphael Bostic will provide their perspectives on the economy.
- U.S. Treasury auctions will take place for 3-year notes and 3- and 6-month bills.
- PepsiCo’s third-quarter earnings will be released.
