Holding stock records, with a golden hedge
A look at the day ahead in U.S. and global markets from Mike Dolan
A relatively quiet start to the week for world markets leaves Wall Street pondering the sustainability of the recent record highs as corporate earnings updates pour in, the S&P500 index .SPX nears 6,000 and the election looms.
The peculiar sight of a risk-loving rally in U.S. equity markets and corporate high yield debt alongside new records for the traditional safe haven of gold XAU= may speak something of the hedged outlook, with geopolitical and electoral risks coloring the booming domestic economy.
And with neither candidate for the White House proposing any fiscal retrenchment ahead, trepidation about rising budget deficits during a period of such brisk growth is also adding investor anxiety.
The U.S. budget deficit grew 8% to $1.833 trillion for fiscal 2024, the highest outside of the COVID era, as interest on the federal debt exceeded $1 trillion for the first time, the Treasury said on Friday. The shortfall amounted to 6.4% of gross domestic product, up from 6.2% a year earlier.
A fiscal think-tank, the Committee for a Responsible Federal Budget, recently estimated that Republican Donald Trump's plans would pile up $7.5 trillion in new debt, more than twice the $3.5 trillion envisaged in Democrat Kamala Harris's proposals.
Shifting odds on post-election Congressional math, however, may have much to do with how any of those fiscal plans pan out.
At 4.12%, U.S. 10-year Treasury yields US10YT=RR hovered close to 2-1/2 month highs on Monday even with another quarter-point Federal Reserve interest rate cut still near fully priced for next month.
With the Atlanta Fed's real-rime "GDPNow" model indicating growth in excess of 3.4% and U.S. economic surprise index at its most positive in six months, the early Q3 earnings season is impressing again with 83% of the 71 S&P500 firms reported beating forecasts.
While the blended annual profit growth estimate for the 500 has dipped to 4% from the 5% expected pre-season, according to LSEG data, revenue growth is holding to expectations and a return to brisk double-digit earnings expansions is still forecast for next quarter and right through next year.
A heavy diary of updates this week spans industrial, defence, energy and financial sectors but Tesla's quarterly TSLA.O likely grabs many headlines mid-week.
Overseas, attention was back on China on Monday as the latest official lending rate cuts there were mostly expected and met with a shrug by markets. The one-year loan prime rate CNYLPR1Y=CFXS was lowered by 25 basis points to 3.10% from 3.35%, while the five-year LPR CNYLPR5Y=CFXS was cut by the same margin to 3.6% from 3.85% previously.
Even though Chinese GDP and industrial data released on Friday were marginally ahead of forecasts, the historic slowdown remains in train and the property bust continues. China's new home prices fell at the fastest pace since May, 2015.
China's mainland shares .CSI300 eked out a small gain on Monday, but Hong Kong's Hang Seng .HSI lost more than 1%. The offshore yuan CNH= was slightly easier after the rate cuts.
More broadly, the dollar index .DXY was a touch firmer again though shy of last week's 10-week high set following the European Central Bank's latest rate cut.
The prospect of further ECB cuts remains high as headline inflation undershoots its target. German producer prices fell more than expected in September, declining 1.4% year on year, due mainly to lower energy prices.
Although they tried to retain a toehold on $70 per barrel on Monday, U.S. crude prices CLc1 remain remarkably subdued and continue to clock annual losses of 22%.
European stocks .STOXXE were marginally weaker on Monday, with investors awaiting a key earnings update from German software behemoth SAP SAPG.DE, which comprises 15% of the country's benchmark DAX index .GDAXI.
Over the rest of the week, finance officials head to Washington for the annual meeting of the International Monetary Fund and World Bank Group and the Fund's latest World Economic Outlook is due for release.
Flash business surveys from around the world for October will also be closely watched.
Key developments that should provide more direction to U.S. markets later on Monday:
* US corporate earnings: Nucor, WR Berkley, Alexandria Real Estate Equities
* US September leading indicator
* San Francisco Federal Reserve President Mary Daly, Dallas Fed President Lorie Logan, Kansas City Fed chief Jeffrey Schmid and Minneapolis Fed boss Neel Kashkari all speak
* IMF-World Bank Annual Meetings get underway in Washington, with European Central Bank President Christine Lagarde speaking
* US Treasury sells 3-, 6-month bills
Stocks and Gold Rising in Tandem https://tmsnrt.rs/4eQQnho
U.S. federal deficit grew in 2024 https://reut.rs/3BKdQ56
U.S. bond yields shoot higher compared to Germany's https://reut.rs/3NqI8MO
China’s benchmark interest rates fall https://reut.rs/3zTVlLe
Tesla set for first drop in annual deliveries https://reut.rs/3Yfv2ah
By Mike Dolan, editing by Ed Osmond
mike.dolan@thomsonreuters.com
Related Assets
Latest News
Disclaimer: The XM Group entities provide execution-only service and access to our Online Trading Facility, permitting a person to view and/or use the content available on or via the website, is not intended to change or expand on this, nor does it change or expand on this. Such access and use are always subject to: (i) Terms and Conditions; (ii) Risk Warnings; and (iii) Full Disclaimer. Such content is therefore provided as no more than general information. Particularly, please be aware that the contents of our Online Trading Facility are neither a solicitation, nor an offer to enter any transactions on the financial markets. Trading on any financial market involves a significant level of risk to your capital.
All material published on our Online Trading Facility is intended for educational/informational purposes only, and does not contain – nor should it be considered as containing – financial, investment tax or trading advice and recommendations; or a record of our trading prices; or an offer of, or solicitation for, a transaction in any financial instruments; or unsolicited financial promotions to you.
Any third-party content, as well as content prepared by XM, such as: opinions, news, research, analyses, prices and other information or links to third-party sites contained on this website are provided on an “as-is” basis, as general market commentary, and do not constitute investment advice. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, it would be considered as marketing communication under the relevant laws and regulations. Please ensure that you have read and understood our Notification on Non-Independent Investment. Research and Risk Warning concerning the foregoing information, which can be accessed here.
