Mike Dolan provides an update on the US and global markets for the day ahead.
Wall Street’s S&P500 enters the final quarter of a bumper 2024 with a new closing record hit on Monday – with odd quarter-end effects competing with the Federal Reserve’s measured guidance, as updates from the labor market come into play.
Fed Chairman Jerome Powell cooled speculation about a second 50 basis point cut at the central bank’s next meeting, indicating the central bank was in no rush and suggesting two more rate cuts by a quarter of a point by the end of the year was a base case scenario.
“This is not a committee that feels like it’s in a hurry to cut rates quickly,” Mr. Powell said at an event in Nashville, adding that the economy was in “good health.”
Those comments drove down prices on interest rate futures, which now forecast just 70 basis points of Fed rate cuts by the end of the year, down from more than 75 basis points of basis previously. Yields on two-year Treasury notes briefly rose above 3.7%, although they fell again early Tuesday.
But the effects of the end of the quarter made markets a bit scattered and difficult to read around the world – notably Shanghai’s wild rise before Monday’s holiday and Tokyo’s dizzying fall. Chinese markets are now closed for the rest of the week and the Nikkei’s fall was partially offset by a 2% rebound on Tuesday.
The S&P500, too, was in the red on Monday until the last half hour of trading – but then surged to close up almost 0.5% and a new closing record.
The slight disappointment with Powell’s comments was relatively fleeting, largely because he spoke before seeing the long list of U.S. labor market indicators expected this week, starting with the JOLTS report on August job openings later Tuesday and the ISM manufacturing report.
The strike by workers at ports on the East Coast and the Gulf of Mexico, which begins Tuesday, as well as the damage caused by Hurricane Helene in the southeastern United States, also darkens the picture of upcoming economic data. JP Morgan analysts estimate that a port strike could cost the U.S. economy about $5 billion a day as shipments of food, retail and other products are disrupted at busy terminals, notably in New York, Baltimore and Houston.
The fourth quarter is also an opportunity to place the November elections in the market’s orbit. On Tuesday, Democrat Tim Walz and Republican JD Vance will face off on television in the only scheduled debate over the US vice presidency.
With Chinese markets closed after the government’s stimulus campaign last week, attention has turned to Europe and growing speculation that the European Central Bank will cut key rates for the third time this month – here, while overall inflation in the euro zone plunged below the 2% set by the ECB in September.
Driven by falling energy prices, factory collapses in China and growing concerns about the region’s struggling auto sector, euro zone inflation fell to 1.8%. last month, with French, German and Spanish inflation even lower and Italian annual consumer inflation reaching just 0.8%.
Eurozone woes and growing speculation about ECB rate cuts were enough to push the euro/dollar back from recent highs and below $1.11 for the first time since almost two weeks.
With the rebound of the Nikkei in Japan on Tuesday, the dollar/yen also strengthened a little.
Bank of Japan policymakers discussed the need to slow interest rate hikes as market jitters cloud the outlook, according to a summary of their September meeting, reducing the chances of a rise in interest rates. short-term rates.
With Japan’s new Prime Minister Shigeru Ishiba calling a snap election for this month, markets are analyzing his views on the future direction of the BOJ and his appointment as finance minister of policy supporter Katsunobu Kato of former Prime Minister Shinzo Abe’s relaunch, “Abenomics”.
Before markets opened Tuesday, U.S. stock futures were flat to up, and the VIX volatility index relatively subdued, below 17.
Gains for U.S. stocks have multiplied of late, with the equal-weighted S&P500 index also hitting a record high on Monday.
As Nuveen analysts point out, growth sectors and defensive sectors perform equally well and year-to-date returns for the US utilities and information technology sectors are around 30%.
The main developments expected to steer US markets later on Tuesday:
* ISM and S&P Global US manufacturing surveys in September, JOLTS job openings data in August, construction spending in August, Dallas Fed survey of the services sector in September.
* Atlanta Federal Reserve President Raphael Bostic, Fed Governor Lisa Cook, Richmond Fed Chief Thomas Barkin and Boston Fed Boss Susan Collins all speak ; the new president of the Swiss National Bank, Martin Schlegel, gives his first speech as head of the SNB; Isabel Schnabel, member of the board of directors of the European Central Bank, speaks; Bank of England chief economist Huw Pill speaks.
* Results from American companies: Nike, McCormick, Resources Connection, Lamb Weston, Paychex, Palatin Technologies, Cal-Maine Foods, United Natural Foods. Acuity Brands,
* The US Treasury sells 12-month bills
