A look at the day ahead in U.S. and global markets from Mike Dolan
A monster Halloween week of critical market events kicked off with a sharp slide in both crude oil prices and Japan’s yen as tensions eased somewhat in the Middle East while Japan’s election injected a rare bout of political uncertainty there.
The yen took a hit first thing on Monday, slicing through 153 per dollar to its weakest since July, as investors figured the loss of a parliamentary majority for Japan’s ruling coalition in weekend elections would hamper moves to lift interest rates further.
A period of wrangling to secure a coalition is likely after Japan’s Liberal Democratic Party and its junior partner Komeito won 215 lower house seats to fall short of the 233 majority.
With the Bank of Japan meeting on Wednesday, the political consensus behind further tightening – as well as the country’s fiscal and foreign policy settings – will remain in limbo for several weeks. LDP Prime Minister Shigeru Ishiba on Monday vowed to stay on, saying trying economic and geopolitical times call for continuity.
The weakening yen, however, lifted Japan’s Nikkei stock index almost 2% and nudged the dollar up more broadly – with the dollar index on course to end its best month in more than two years.
In another relief for inflation worriers, crude oil prices also fell sharply on Monday, dropping more than 4% after Israel’s retaliatory strike on Iran over the weekend bypassed Tehran’s oil and nuclear facilities and did not disrupt energy supplies – cooling tensions in the Middle East.
Many of the comments from both sides following the strike appeared to step back somewhat from further escalation with new moves for a truce in Gaza back on the table.
U.S. crude prices skidded below $68 per barrel for the first time in almost a month – and continued to track year-on-year losses of almost 20%.
Still, with some $139 billion of two and five-year Treasury coupons up for auction later on Monday and next week’s U.S. election looming, Treasury yields climbed first thing to their highest in almost three months.
After a flat Friday and with Monday’s economic diary thin, U.S. stock futures were higher ahead of the bell – but traders were bracing for a week packed with market-moving events.
Five of the so-called Magnificent seven of U.S. megacap stocks report earnings during the week – starting with Alphabet’s quarterlies on Tuesday, Microsoft and Meta on Wednesday and Amazon and Apple on Thursday.
Tesla’s 22% surge on its earnings last week has whetted appetites for what may be coming down the pike.
Alongside the BOJ decision, the health of the U.S. labor market once again comes into view – with a stream of updates on employment culminating in the release of the national payrolls report on Friday.
Thursday also brings the release of the Federal Reserve’s favored PCE inflation gauge for September – which is expected to see the annual “core” PCE rate tick down a tenth to 2.6%.
It is a big week for Britain too, with the ruling Labour Party’s first annual budget to be announced on Wednesday.
Sterlng was steady ahead of the long-awaited event, but 10-year UK government bond yields briefly touched their highest in almost four months amid expectations of hefty borrowing increases.
Stocks in Europe and Asia were higher generally on Monday.
Mainland China and Hong Kong stocks ended marginally up as investors grew cautious ahead of key events next week, including a legislative meeting in Beijing and the U.S. presidential election.
Key developments that should provide more direction to U.S. markets later on Monday:
* Dallas Federal Reserve October manufacturing survey
* US corporate earnings: Ford, ON Semiconductor, Regency Centers, Waste Management, SBA Communications, F5, Welltower, Cadence Design, Brown & Brown, Centerpoint Energy etc
* European Central Bank Vice President Luis de Guindos speaks in Madrid, Bank of Canada Governor Tiff Macklem speaks in Toronto
* US Treasury sells $69 billion of 2-year notes and $70 billion of 5-year notes; also sells $153 billion of 3- and 6-month bills
(By Mike Dolan, mike.dolan@thomsonreuters.com, editing by Ed Osmond)
