A look at the day ahead in U.S. and global markets from Mike Dolan
Wall Street’s kicks off the final quarter of a stellar 2024 from yet another record close notched on Monday – with odd quarter-end effects competing with measured Federal Reserve guidance as labor market updates hit the radar.
Fed chair Jerome Powell cooled speculation of a second 50 basis point cut at the central bank’s next meeting, indicating the central bank was in no rush and suggesting that two more quarter-point rate cuts by year’s end was a base case.
“This is not a committee that feels like it is in a hurry to cut rates quickly,” Powell told an event in Nashville, adding the economy was in “solid shape.”
The comments reined in rate futures prices to show just 70bps of Fed cuts by the end of the year, down from more than 75bps earlier. Two-year Treasury yields briefly popped above 3.7% – although they retreated again early on Tuesday.
But quarter-end effects were making markets a bit scattergun and difficult to read all around the world – not least Monday’s wild pre-holiday surge in Shanghai and outsize Tokyo swoon. Chinese markets are now closed for the rest of the week and the Nikkei’s drop was partly recouped on Tuesday with a 2% rebound.
The S&P500, too, was in the red on Monday until the final half hour of trading – but then jumped to close almost 0.5% higher at a new closing record.
Mild disappointment at Powell’s comments was relatively fleeting, largely because he spoke before seeing the long list of U.S. labor market indicators due out this week, starting with the August JOLTS job openings report later on Tuesday and ISM manufacturing report.
Also clouding the economic data picture ahead is a major labor strike by U.S. East and Gulf Coast port workers that starts on Tuesday, and also the devastation from Hurricane Helene in the U.S. southeast. A ports strike could cost the U.S. economy roughly $5 billion a day, JP Morgan analysts estimate, as shipments of food, retail goods and other products are disrupted from busy terminals including New York, Baltimore and Houston.
The fourth quarter also brings November’s election firmly into the market’s orbit and Tuesday sees Democrat Tim Walz and Republican JD (NASDAQ:) Vance face off on TV – the only scheduled U.S. vice presidential debate.
With China’s bouncing markets closed after the government’s stimulus blitz last week, attention overseas switched to Europe and rising speculation the European Central Bank will cut its policy rates for a third time this month as euro zone headline inflation plunged below the ECB’s 2% in September.
Weighed down by plunging energy prices, a China-related factory slump and growing concerns about the region’s ailing auto sector, euro zone inflation fell to 1.8% last month – with French, German and Spanish inflation even lower and annual Italian consumer inflation as low as 0.8%.
Euro zone struggles and mounting ECB rate cut speculation have been enough to drag euro/dollar back from recent highs and below $1.11 for the first time in almost two weeks.
With rebounding on Tuesday, dollar/yen also firmed back up a touch.
Bank of Japan policymakers discussed the need to go slow in raising interest rates as jittery markets clouded the outlook, a summary of their September meeting showed, reducing the chance of a near-term rate hike.
With Japan’s new PM-designate Shigeru Ishiba calling a snap election for this month, markets are parsing his take on the BOJ’s future course and his appointment as finance miister of Katsunobu Kato – a proponent of former premier Shinzo Abe’s “Abenomics” stimulus policies.
Ahead of Tuesday’s open, U.S. stock futures were steady to higher and the volatility gauge relatively subdued below 17.
U.S. stock gains have broadened of late, with the equal-weighted S&P500 index also at a record high on Monday.
As Nuveen analysts point out, both growth and defensive sectors are performing equally well now and year-to-date returns on both U.S. utilities and the information technology sectors are approaching 30%.
Key developments that should provide more direction to U.S. markets later on Tuesday:
* US September manufacturing surveys from ISM and S&P Global, August JOLTS job openings data, August construction spending, Dallas Fed September service sector survey
* Atlanta Federal Reserve President Raphael Bostic, Fed Board Governor Lisa Cook, Richmond Fed chief Thomas Barkin and Boston Fed boss Susan Collins speaks all speak; New Swiss National Bank chairman Martin Schlegel makes first speech as SNB chief; European Central Bank Board member Isabel Schnabel speaks; Bank of England Chief Economist Huw Pill speaks
* US corporate earnings: Nike (NYSE:), McCormick (NYSE:), Resources Connection (NASDAQ:), Lamb Weston, Paychex (NASDAQ:), Palatin Technologies (NYSE:), Cal-Maine Foods (NASDAQ:), United Natural Foods (NYSE:). Acuity Brands (NYSE:),
* US Treasury sells 12-month bills
(By Mike Dolan; Editing by Kevin Liffey; mike.dolan@thomsonreuters.com)
