A look at the day ahead in U.S. and global markets from Mike Dolan
Even as public borrowing estimates were shaved on Monday, U.S. Treasury yields continue to probe three-month highs as markets lean toward a win for Donald Trump in next week’s election and a possible clean sweep in Congress for his Republican party.
In an event-packed fortnight that sees the first of this week’s five U.S. megacap earnings later on Tuesday alongside critical job openings data, Wall Street stock indexes remain buoyant near record highs.
But it’s Treasuries that are bearing the brunt of election anxiety, with many prediction models now suggesting a better than even chance that Trump will win the White House and Republicans take both House and Senate majorities on Nov. 5.
The Treasury said on Monday it plans to borrow $546 billion in the fourth quarter, $19 billion lower than the July estimate, but bond markets remain agitated by Trump’s extensive tax cut pledges with the government’s budget deficit already running at a whopping 6.4% of national output.
After edgy auctions of two- and five-year notes on Monday, benchmark 10-year Treasury yields have topped 4.3% for first time since July and Treasury volatility gauges have hit their highest in over a year.
While the move comes as Federal Reserve easing expectations for the coming year have been scaled back to as little as 130 basis points, election bets elsewhere also appeared to price a growing chance of a Trump return to the White House.
Opinion polls show the race is too close to call, but shares in Trump Media & Technology have more than trebled in the past month and Bitcoin hit its highest in almost five months on Tuesday too.
With swingeing trade tariffs another marquee policy promise from Trump, China’s yuan hit its weakest in more than two months. Mainland Chinese shares closed lower again.
Investor attention is on a Chinese leadership meeting on Nov. 4-8. Reuters sources said China is considering approving the issuance of over 10 trillion yuan ($1.4 trillion) in extra debt in the next few years to bolster the economy, but it could be higher in the event of Trump Presidency.
Despite another set of jarring house price data in Hong Kong that underscored the country’s ongoing property bust, the Hang Seng closed higher as HSBC beat third quarter profit expectations and its shares gained almost 3% to six-year highs – helped by a fresh $3 billion stock buyback.
In Japan, the political stalemate after weekend elections there saw the yen languishing near three-month lows through 153 per dollar amid doubts about whether a new coalition would support further monetary tightening by the Bank of Japan.
Yuichiro Tamaki, head of the opposition Democratic Party for the People and possible ‘kingmaker’ in a new government, said the BOJ should avoid overhauling its ultra-loose monetary policy for now and focus on whether real wages turn positive.
The dollar was steady more broadly, with the euro marginally firmer ahead of key euro zone GDP and inflation numbers later in the week.
European shares were higher, with Britain’s FTSE100 outperforming slightly on HSBC’s results and ahead of the pivotal UK budget statement on Wednesday. The pound too held the line.
Back on Wall Street, Alphabet’s earnings after the bell on Tuesday are the first of five ‘Magnificent Seven’ stocks reporting this week and will set the tone for digital and tech giants that dominate the S&P500. Its stock was a tad higher in Frankfurt on Tuesday.
U.S. stock futures were a touch higher ahead of today’s open. The VIX stock volatility index hovered just below 20.
Boeing’s shares dipped 2.8% on Monday after the planemaker launched a stock offering that could raise up to $22 billion in a bid to shore up its finances amid an ongoing worker strike.
Other stocks of note reporting today are Advanced Micro Devices, First Solar, Pfizer and MacDonalds.
Crude oil prices nursed Monday’s heavy losses on easing Middle East tensions and skulked below $68 per barrel.
Key developments that should provide more direction to U.S. markets later on Tuesday:
* US September job openings, international trade balance, retail/wholesale inventories, August house prices, Dallas Federal Reserve’s October service sector survey; Brazil Sept current account
* US corporate earnings: Alphabet, Advanced Micro Devices, McDonald’s, Pfizer, PayPal, Corning, First Solar, Visa, MSCI, Sysco, DR Horton, Edison, Chubb, Caesars Entertainment, EQT, Stanley Black & Decker, Ecolab, American Tower, Masco, Incyte, FirstEnergy, Zebra Technologies, Royal Caribbean Cruises, IDEX, FMC, Mondelez, Stryker, DaVita, Essex Property etc
* Bank of Canada Governor Tiff Macklem speaks
* US Treasury sells $44 billion of 7-year notes and also sells 2-year floating rate notes; sells $48 billion of 12-month bills
(Editing by Christina Fincher; mike.dolan@thomsonreuters.com)
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