A trader works on the floor of the New York Stock Exchange just before the closing bell as the market records a significant decline in New York, USA, February 25, 2020. REUTERS/Lucas Jackson/File Photo Acquire License Rights
A look at the day ahead in the U.S. and global markets from Mike Dolan
A crash in oil prices and other signs of a slowing economy have sent Treasury yields falling to their lowest level in two months, supporting Wall Street stock indexes despite sharp declines in individual stocks at Walmart, Cisco and Alibaba were recorded.
Two-year U.S. Treasury yields slipped below 4.80% on Friday for the first time since Sept. 1, and 10-year Treasury yields also fell below 4.40%, hitting September lows.
Although they recovered somewhat on Friday, U.S. crude oil prices have slumped this week, hitting a four-month low on Thursday due to a mix of rising U.S. inventories and global demand levels that JP Morgan estimates are half current forecasts for November far. The price of crude oil has now lost almost 25% in just six weeks – helped by the US gradually lifting oil sanctions against Venezuela.
But demand also weakened significantly in the USA. Signs of easing in the U.S. labor market included a surprise rise in jobless claims last week, while other reports suggested sentiment among homebuilders fell sharply this month and there was an outsized decline in manufacturing in October.
It wasn’t all bad news on Thursday – the Philadelphia Federal Reserve rated business optimism in the Mid-Atlantic region better than many had predicted.
The real reason for relief, however, is that the bigger picture is sparking new optimism about disinflation – and how it will deter the Fed from raising interest rates again and sending them up by as much as 100 basis points next year, at least according to futures markets loosen up.
According to the Labor Department, import prices fell a whopping 0.8% in October, the most in seven months, amid a broad decline in the cost of goods, exacerbating annual deflation in import prices to as much as 2.0%.
Although shares of Walmart (WMT.N) fell nearly 8% on Thursday as they highlighted more cautious consumers ahead of the holiday season – even as the stock posted a profit beat and raised targets – the Fed’s overall forecast was expected to be favourable.
The giant retailer said shoppers were becoming “choosier and more discreet” and were looking for big discounts, which the company plans to offer, particularly on groceries.
The net result in equity markets was that the S&P500 (.SPX) posted another small rise on Thursday and stock futures – helped by recent weakness in borrowing rates – were back up before the bell today. The VIX (.VIX) was lower again.
Even as the dollar (.DXY) suffers from the collapse in U.S. Treasury yields, the decline in Treasury yields was reflected globally in Europe and even Japan.
Similar to elsewhere, UK retail sales fell unexpectedly in October as overwhelmed consumers stayed at home.
Italian government bond yields and spreads also fell as investors awaited a credit rating review of Italy’s bonds later in the day – although analysts see little risk of Moody’s downgrading the country’s debt to junk status. Italy’s FTSE MIB index (.FTMIB) rose 0.7%.
As is so often the case these days, Chinese stocks underperformed.
Hong Kong shares of Alibaba (9988.HK) fell 10% on Friday after the company scrapped plans to spin off its cloud business, citing uncertainties caused by U.S. restrictions on exports of semiconductors used in the economy The field of artificial intelligence was brought to China.
The decline, possibly the biggest one-day drop in more than a year, shaved about $20 billion from the Chinese tech giant’s market value. The company’s U.S.-listed securities closed down 9% on Thursday.
The coming day is relatively quiet in the calendar.
While the Fed’s rhetoric hasn’t changed much so far despite the recent data deluge, markets will be keeping an eye on another slate of key central bank speakers later in the day.
October’s housing starts numbers are the main data highlight, while many will also be keeping an eye on an update to the Atlanta Fed’s real-time GDP estimate after such an intense week of new data.
Key developments that should give US markets more direction later on Friday:
* Home construction/permits begin in October in the US
* Boston Federal Reserve President Susan Collins, San Francisco Fed President Mary Daly, Chicago Fed Chief Austan Goolsbee and Fed Vice Chairman for Supervision Michael Barr all speak. Bank of England Deputy Governor Dave Ramsden speaks
* The United States hosts the meeting of APEC leaders in San Francisco
Unemployment claims and planned layoffs
Reuters graphics
NAHB
Reuters graphics
By Mike Dolan, editing by Nick Macfie [email protected]. Twitter: @reutersMikeD
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 to integrity, independence and bias in accordance with the Trust Principles.
Comments are closed.