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A look at the day ahead in U.S. and global markets

By Mike Dolan, Editor-At-Large, Financial Industry and Financial Markets

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Wall Street stocks’ longest winning streak in two years – clocking seven straight daily gains – has been underscored by a slump in crude oil prices to their lowest in over three months – reining in inflation expectations and worrisome bond yields.

Partly due to global demand worries, partly on record U.S. production and partly on ebbing supply concerns surrounding the Gaza conflict, U.S. crude prices have now plunged more than 15% in less than three weeks. And that’s hit home by dragging U.S. pump prices down to levels not seen since March.

Federal Reserve Board Chairman Jerome Powell answers a question during a press conference following a closed two-day meeting of the Federal Open Market Committee on interest rate policy at the Federal Reserve in Washington, U.S., November 1, 2023. REUTERS/Kevin Lamarque

Along with the cooling labor market and Tuesday’s data on rising credit card delinquencies, softer energy prices have pulled two-year U.S. inflation expectations in the bond market to just 2.2% – their lowest in almost a month.

Decent demand at Tuesday’s 3-year Treasury auction also helped calm recently restive bonds as $40 billion of 10-year notes go under the hammer later today.

The overall picture should prove a relief to Federal Reserve Chair Jerome Powell, who’s due to speak on Wednesday alongside another long list of senior Fed colleagues – with European Central Bank boss Christine Lagarde and Bank of England chief Andrew Bailey also scheduled to speak in a packed diary.

Despite the signs of a U.S. economic slowdown in the fourth quarter – where the Atlanta Fed’s real-time model is showing a sharp slowdown to 1.45% annualised growth from 4.9% in Q3 – Powell’s colleagues speaking on Tuesday gave a mixed review of what they felt still needed to be done on policy.

The usually hawkish Fed board governor Michelle Bowman stuck to her line that one more Fed hike was likely to be needed, while the more dovish Chicago Fed president Austan Goolsbee indicated recent bond market tightening should hold the Fed back.

Striking a balance between the two, Fed board governor Christopher Waller signalled the situation was still being closely monitored – between what was a ‘blowout’ third quarter for the U.S. economy and the bond market ‘earthquake’ that followed.