A look at the day ahead in U.S. and global markets from Mike Dolan
With tariff tensions easing a touch for now and price pressures coming off the boil, U.S. Treasury yields have plunged this week – defusing a tense January for bond markets and helping stocks find a foothold in the thick of a noisy earnings season.
Although they backed up a touch early Thursday, 10-year Treasury yields have sliced below 4.5% – dropping more than 10 basis points at one point on Wednesday to their lowest of the year as January ISM service sector readings showed a surprise drop in the prices paid by businesses.
Along with the prior day’s news on some cooling of the labor market and this week’s delays in U.S. tariff hikes on Mexico and Canada, the drop in yields came largely independently of futures thinking on Federal Reserve interest rates.
With Fed officials still minded to keep easing slowly and gradually as they assess President Donald Trump’s economic policies, two cuts this year remain the best bet. Noted Fed board dove Chris Waller is due to speak later today.
But the drop in long yields was encouraged by a mix of this week’s quarterly Treasury refunding details, a geopolitical safety bid at the margin and comments from new Treasury Secretary Scott Bessent on the administration’s stance on lower borrowing rates.
Despite some fears of a future “terming out” of the Treasury’s heavy debt-raising schedule to longer-term tenors, the refunding announcement on Wednesday showed no increase in size of note and bond auctions through the April quarter. And, crucially, there was no guidance on when they would increase. That was a relief.
Bessent then said that, while Trump wants lower interest rates, he would not ask the Fed to cut them – putting the emphasis instead on getting 10-year yields down.
If the economy is de-regulated with more private sector investment, “interest rates will take care of themselves and the dollar will take care of itself”, he told Fox Business Network.
Falling crude oil prices this week have also calmed the horses.
As debt yields clawed back a few basis points on Thursday, the dollar also firmed up against most currencies – even though dollar/yen briefly touched its lowest in almost a month as Bank of Japan rate rise speculation has turned up a notch on this week’s wage rise data there.
But Japan aside, central bank easing elsewhere is set to continue apace.
GILT TRIP
After rate cuts last week from the European Central Bank and Bank of Canada, the Bank of England is widely expected to cut its key policy rates on Thursday by a quarter point – with at least two more pencilled in by markets for the rest of the year.
Sterling was steady ahead of the expected cut – even with some speculation at least one member of the BoE council may call for a bigger cut.
And with the better mood in sovereign bond markets in general, recently restive British government bonds continued rallying hard. The 30-year “gilt” yield is testing 5% for the first time in six weeks – almost 50bp below January’s multi-decade peaks.
European stocks more broadly hit another record high – clocking 7% gains for the year so far and more than twice the gains in the S&P500.
In China, where U.S. tariff rises and retaliatory measures from Beijing appear to be going ahead without signs yet of a compromise between the two, the offshore yuan weakened slightly but stocks advanced smartly.
Mainland Chinese and Hong Kong indexes gained more than 1%, driven by the tech sector as investors continued to bet on domestic artificial intelligence firms following Chinese AI start-up DeepSeek’s recent breakthrough.
Back on Wall Street, the S&P500 gained on Wednesday despite heavy earnings-day losses for megacap Alphabet, and futures were higher again ahead of today’s bell.
With Amazon due to report after the close on Thursday, other earnings continue to be a mixed bag.
Shares in Disney lost early gains made after a strong profit beat, as investors fretted about subscriber numbers in its streaming business. Uber dropped 8%, meantime, after the ride-hailing firm forecast bookings below estimates.
With Friday’s January payrolls data top of this week’s economic diary, Thursday brings details of weekly jobless claims, January layoffs and fourth quarter productivity and labor cost numbers.
Key developments that should provide more direction to U.S. markets later on Thursday:
* Bank of England policy decision, monetary policy report and press conference
* US January layoffs from Challenger, weekly jobless claims, Q4 productivity and unit labor costs, New York Fed’s Jan global supply chain pressure index
* Federal Reserve Board Governor Christopher Waller, Fed Vice Chair Philip Jefferson and Dallas Fed President Lorie Logan all speak
* US corporate earnings: Amazon, Eli Lilly, Bristol-Myers Squibb, ConocoPhillips, Snap-On, Expedia, VeriSign, Principal Financial, Honeywell, Kellanova, Ralph Lauren, Mohawk, Borgwarner, Philip Morris, Hilton, Hershey, Microchip Technology, Mettler Toledo, Intercontinental Exchange, Equifax, Camden Property, Regency Centers, Zimmer Biomat, Yum! etc
* Japan Prime Minister Shigeru Ishiba visits United States, meets US President Donald Trump
(By Mike Dolan, editing by Alex Richardson; mike.dolan@thomsonreuters.com)
