A sign is seen outside the 11 Wall St. entrance of the New York Stock Exchange (NYSE) in New York, the United States, March 1, 2021. REUTERS/Brendan McDermid Acquires License Rights
A look ahead for the day ahead in the US and global markets by Mike Dolan
Global markets have remained remarkably buoyant, although the chances of another US rate hike have come into sharp focus as China’s stock markets continued Monday’s rally and US employment concerns are now the focus.
For the first time since the regional banking crisis in March, US futures now see a more than 50% chance of the Federal Reserve raising interest rates again to 5.5-5.75% – still the median of the Fed’s forecasts. politicians from their June meeting. Early Tuesday, futures were pricing in a nearly two-thirds chance for that additional quarter-point move in November.
After almost two months of stability on the assumption that peak interest rates would remain where they are now, the odds of further tightening have risen again over the past ten days and appear to be increasing after Fed Chair Jerome Powell’s relatively hawkish speech to consolidate Friday in Jackson Hole.
And yet, perhaps given the easing of uncertainty, the still-resilient economy and better-rated bond markets, global markets appear to be basking in the worsening odds.
Wall Street’s S&P500 (.SPX) on Monday posted only its second straight rise so far this month, while MSCI’s multi-country index (.MIWD00000PUS) is on track for its sixth rise in seven trading days.
More impressively in these circumstances, unsettled bond markets calmed and bond yields continued to fall last week from their highest levels in over a decade. Two-year government bond yields slipped back below 5%, with 10-year government bond yields at 4.17%, the lowest in nearly two weeks, and equity risk indicators such as the implied volatility VIX (.VIX) also hit two-week lows.
The dollar (.DXY) was firm but remained close to last week’s three-month high.
With the Atlanta Fed’s real-time estimate for quarterly real GDP growth up to 5.9% — about 9% nominally — the Fed will likely need a significant softening of incoming economic data to prevent renewed movement.
Labor markets are largely to blame this week, with the national wages report due on Friday but July job vacancies data due later on Tuesday – along with August consumer confidence numbers and June home price data.
Friday’s August payroll report is expected to show a fall in monthly new hires to about 150,000 but an unchanged unemployment rate of just 3.5%.
Abroad, China’s struggling stock markets managed to gain a second day – helped by a raft of support measures and hopes of some easing in the economic and financial standoff between Washington and Beijing during a three-day China visit by US Commerce Secretary Gina Raimondo.
China’s CSI300 (.CSI300) shed most of its early 5% gain into Monday’s close of business, but was still up 1% on Tuesday after measures to cut stamp duty on share purchases and limit the listing of new shares over the weekend were taken. The technology and healthcare sectors in particular were again net buyers from abroad on Tuesday.
The financial weakness of Country Garden Holdings (2007.HK) will be the focus when China’s largest private real estate developer reports its first-half results on Wednesday.
Asian bourses are broader and European indices were higher, while Wall Street futures were flat ahead of the open.
Tropical Storm Idalia approached Florida’s Gulf Coast on Tuesday after passing Cuba and headed for the U.S. landfall as a strong Category 3 storm, prompting authorities to order evacuations of vulnerable coastal areas.
Events to watch out for on Tuesday:
* US consumer confidence in August, JOLTS jobs data in July, house prices in June, Dallas Fed service sector survey in August
* Michael Barr, Vice Chairman of the Federal Reserve Board for Oversight, speaks
* US Treasury to auction 7-year bonds
* US Corporate Earnings: Best Buy, HP, JM Smucker, Catalent, Pinduoduo
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By Mike Dolan, edited by Susan Fenton [email protected]. Twitter: @reutersMikeD
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