After its best week of 2023 on optimism about peaking interest rates, Wall Street’s benchmark S&P 500 looks set to record its longest winning streak since June as a key Federal Reserve loan report may well sustain the rates buzz.
A below-forecast national payroll gain last month, a tick higher in the unemployment rate and moderating wage growth all catapulted stocks and bonds higher on Friday after a week brimming with hope the rate-hiking campaign of the major central banks is over at last and a relatively soft landing beckons.
A street sign for Wall Street hangs in front of the New York Stock Exchange May 8, 2013. REUTERS/Lucas Jackson/File Photo
The Fed’s latest quarterly senior loan officer survey is due for release later on Monday and should reinforce the point that rate rises to date are taking effect on shrinking credit growth.
For Fed futures markets, the game is up. No further rate rises are now priced into the market and more than 90 basis points of cuts are now seen by the end of the year.
Ten-year U.S. Treasury yields have fallen about 50bps from October’s peaks and the drop last week was the biggest recoil since March. Although they nudged back up about 3bps on Monday, they retained the vast bulk of last week’s move with 3, 10 and 30-year bond auctions due on Tuesday, Wednesday and Thursday.
Ebbing oil prices over the past week underscored the renewed bid in rates and bond markets, with the year-on-year decline in U.S. crude prices now tracking almost 12% – its biggest annual fall since August and encouraging for inflation watchers.
Weekend developments on the Gaza conflict did little to change that picture, though confirmation of Saudi and Russian supply cuts stopped the spot price decline.
If the Fed – which had been indicating that tightening financial conditions were doing some of its work for it – wants to protest the sudden loosening of the bond and equity markets, then chair Jerome Powell is due to speak again on Wednesday.
But that easing of market conditions may well be warranted if signs of slowing activity in the real economy mount from here.
UK market anxiety over fiscal policy also continued, with sterling falling and UK government bond yields climbing after ratings agency Fitch lowered the outlook for its credit rating for British government debt to “negative” from “stable” on Wednesday, days after a similar move from rival Standard & Poor’s.
In the corporate world, Elon Musk and Twitter may reach an agreement to end their litigation in coming days, clearing the way for the world’s richest person to close his $44 billion deal for the social media firm, a source familiar with the matter told Reuters.
And beleaguered bank Credit Suisse is looking to sell its famed Savoy Hotel, located on Paradeplatz in the centre of Zurich’s financial district. The Swiss bank has had to raise capital, halt share buybacks, cut its dividend and revamp management after losing more than $5 billion from the collapse of Archegos in March 2021, when it also had to suspend client funds linked to failed financier Greensill.
The Swiss National Bank said on Wednesday it was monitoring the situation.
Key developments that should provide more direction to U.S. markets later on Monday:
Federal Reserve’s Senior Loan Officer Opinion Survey on bank lending (SLOOS), U.S. Oct employment trends
Federal Reserve Board Governor Lisa Cook speaks; Bank of England Chief Economist Huw Pill speaks
U.S. Treasury auctions 3-, 6-month bills
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