Morning Show: Oil-fueled rally turns into Powell

Morning Show: Oil-fueled rally turns into Powell

A look at the day ahead in the US and global markets from Mike Dolan

The longest winning streak for Wall Street (.SPX) stocks in two years – posting seven straight daily gains – was underscored by crude oil prices falling to their lowest levels in more than three months – putting a damper on inflation expectations and worrying bond yields.

Partly due to concerns about global demand, partly due to record US production, and partly because supply concerns surrounding the Gaza conflict have eased, US crude oil prices have now fallen more than 15% in less than three weeks. This was achieved by pulling US pump prices to levels not seen since March.

Combined with a slowing labor market and data released Tuesday on rising credit card defaults, falling energy prices pushed two-year U.S. inflation expectations in the bond market down to just 2.2%, the lowest level in about a month.

Good demand at Tuesday’s 3-year Treasury auction also helped calm recently troubled bonds, as $40 billion worth of 10-year bonds will go under the hammer later today.

The overall picture should be comforting for Federal Reserve Chairman Jerome Powell, who is scheduled to speak on Wednesday alongside a long list of other senior Fed colleagues — with European Central Bank President Christine Lagarde and Bank of England President Andrew Bailey also scheduled to speak in attendance. crowded. note.

Despite signs of a US economic slowdown in the fourth quarter — with the Atlanta Fed’s real-time model showing a sharp slowdown to 1.45% annualized growth from 4.9% in the third quarter — Powell’s colleagues who spoke on Tuesday gave a mixed review of what they felt was no… Still needs to be done on policy.

Fed Governor Michelle Bowman, usually a hawk, stuck to her line that another Fed hike would likely be needed, while Austan Goolsbee, the more pessimistic Chicago Fed President, indicated that tightening The latter for the bond market would hinder the Fed.

In order to balance the two, Fed Governor Christopher Waller noted that the situation remains closely monitored – between what was a third-quarter “explosion” for the US economy and the bond market “earthquake” that followed.

Overall, US 10-year bond yields remained lower at 4.57% first thing and before Wednesday’s auction.

Although Asian and European stocks fell slightly, Wall Street stock futures were unchanged before the bell. Volatility gauge ViX (.VIX) was also flat after hitting its lowest closing level on Tuesday since mid-September.

The dollar (.DXY) was firmer, extending gains against the pound in particular, as UK government bond yields fell on a combination of bets on a Bank of England cut in mid-2024 and the lack of new tax cuts in the UK government’s budget plans.

Japanese government bond yields also fell to their lowest levels in two weeks, even as Tokyo announced it was preparing to issue 9 trillion yen ($60 billion) in bonds in its second supplementary budget to finance a planned 13.2 trillion yen economic package aimed at economic growth. Reducing the cost of living.

China’s stock indices (.CSI300) ended lower again, even as property shares rose on the back of a Reuters report that the government has asked Ping An Insurance to acquire a controlling stake in troubled developer Country Garden (2007.HK). Ping An stock fell 5%.

Elsewhere, US markets were eyeing key gains for Democrats and abortion rights advocates in a string of election victories on Tuesday, including the conservative states of Ohio and Kentucky.

The results were seen as an early sign that reproductive rights remain a strong issue for Democrats ahead of the 2024 presidential race and offset polls earlier in the week that showed former President Donald Trump the favorite in some key states to return to the White House next year. .

Key developments that should provide further guidance to US markets later on Wednesday:

* Fed Chairman Jerome Powell, Fed Vice Chairman Philip Jefferson, Fed Deputy Chairman for Supervision Michael Barr, Fed Governor Lisa Cook, and New York Fed President John Williams speak; European Central Bank President Christine Lagarde and Bundesbank President Joachim Nagel speak. Bank of England Governor Andrew Bailey speaks

* Eurozone finance ministers meet in Brussels

* US inventories and wholesale sales for September

* Earnings of US companies: Walt Disney, Warner Bros. Discovery, MGM Resorts, Biogen, Ralph Lauren, Atmos Energy, Corteva, Ameren, Fleetcore, Calanova and others.

* The US Treasury sells $40 billion in 10-year bonds

A line graph with data from the Federal Reserve Bank of New York shows delinquencies on credit card and auto loans of more than 30 days.
Reuters graphics

Written by Mike Dolan. Edited by Toby Chopra. mike.dolan@thomsonreuters.com. Twitter: @Reuters Mike D

Our Standards: The Thomson Reuters Trust Principles.

The opinions expressed are those of the author. They do not reflect the views of Reuters News, which is committed, under the Trust Principles, to integrity, independence and freedom from bias.

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