A look at the day ahead in the US and global markets by Mike Dolan
A relatively quiet start to the week for global markets has Wall Street pondering the sustainability of recent record highs as corporate profits roll in, the S&P500 index approaches 6,000 and the election approaches.
The unusual sight of a risk-off rally in US stock markets and high-yield corporate bonds alongside new records for the traditional safe haven of gold could speak to the hedged outlook, with geopolitical and electoral risks coloring the booming domestic economy.
And because neither candidate for the White House is proposing an austerity plan, concerns about rising budget deficits during a period of such strong growth are also raising investor concerns.
The U.S. budget deficit grew 8% to $1.833 trillion for fiscal 2024, the highest level outside the COVID era, as interest on federal debt surpassed $1 trillion for the first time, the Treasury Department said Friday. The deficit amounted to 6.4% of gross domestic product, compared to 6.2% a year earlier.
A budget think tank, the Committee for a Responsible Federal Budget, recently estimated that Republican Donald Trump’s plans would create $7.5 trillion in new debt, more than double the $3.5 trillion in Democrat Kamala’s proposals. Harris was provided.
However, changing odds on the math after the congressional elections could have a lot to do with how these budget plans play out.
At 4.12%, the 10-year U.S. Treasury yield hovered near a two-and-a-half-month high on Monday, despite another quarter-point Federal Reserve rate cut that is still almost fully priced for next month.
With the Atlanta Fed’s real-rime ‘GDPNow’ model showing growth of more than 3.4% and the US economic surprise index at its most positive in six months, earnings season is once again impressive at the start of the third quarter : 83% of 71 S&P500 companies report exceeding expectations. .
Although the combined annual earnings growth estimate for the 500 has fallen from 5% to 4% in the preseason, according to LSEG data, revenue growth remains at expectations and a return to solid double-digit earnings increases are still expected for years to come. quarter and into next year.
A heavy diary of updates this week includes the industrial, defense, energy and financial sectors, but Tesla’s quarterly earnings call is likely to make plenty of headlines by mid-week.
Abroad attention was again focused on China on Monday, as the latest official interest rate cuts there were largely expected and received with a shrug of the shoulders by the markets. The prime rate for one-year loans was cut by 25 basis points from 3.35% to 3.10%, while the five-year LPR was cut by the same margin to 3.6% from 3.85% previously.
Even though China’s GDP and industrial figures released on Friday were marginally above forecasts, the historic slowdown continues and the real estate crisis continues. Chinese house prices fell at the fastest pace since May 2015.
Mainland Chinese shares posted a small gain on Monday, but Hong Kong’s Hang Seng lost more than 1%. The offshore yuan was slightly easier after the interest rate cuts.
More generally, the dollar index was slightly firmer again, but remained below the highest level of the past ten weeks after the latest interest rate cut by the European Central Bank.
The prospect of further ECB cuts remains high as headline inflation remains below target. German producer prices fell more than expected in September, down 1.4% year-on-year, mainly due to lower energy prices.
Despite trying to hold on to $70 a barrel on Monday, U.S. crude oil prices remain remarkably low and continue to post annual losses of 22%.
European shares were marginally weaker on Monday, with investors awaiting a key earnings update from German software giant SAP, which comprises 15% of the country’s DAX index.
The rest of the week, finance officials head to Washington for the annual meeting of the International Monetary Fund and the World Bank Group, and the Fund’s latest World Economic Outlook will be released soon.
Flash business surveys from around the world for October will also be closely watched.
Key developments that should give more direction to US markets later on Monday:
* US Corporate Earnings: Nucor, WR Berkley, Alexandria Real Estate Equities
* Leading indicator for September in the US
* San Francisco Federal Reserve President Mary Daly, Dallas Fed President Lorie Logan, Kansas City Fed Chief Jeffrey Schmid and Minneapolis Fed Chief Neel Kashkari all speak
* The annual meetings of the IMF and the World Bank start in Washington, with European Central Bank President Christine Lagarde taking the floor
* The US Treasury Department sells 3- and 6-month notes
(By Mike Dolan, editing by Ed Osmond; mike.dolan@thomsonreuters.com)
