Wayne Cole looks ahead to European and global markets.
A cautious start to the week in Asia as markets continue to see a vicious sell-off in bonds as they try to determine when or if Israel will launch a ground invasion of Gaza.
Israeli forces continued bombing Gaza on Sunday and clashed with Iran-backed Hezbollah on the border with Lebanon.
The leaders of the United States, Canada, France, Germany, Italy and the United Kingdom on Sunday emphasized their support for Israel and its right to defend itself, while also calling for compliance with international humanitarian law and the protection of civilians.
Still, it was enough progress for some aid trucks to arrive and prompt oil prices to fall.
However, it failed to make an impact on the bond market, as the yield on the US 10-year Treasury rose nearly 30 basis points in the last week alone, creeping back up to 4.967%.
As investors seek higher real yields and term premiums, the market is pricing in a new normal for interest rates above the 2.5% chosen by the Federal Reserve, with the market failing to garner any bids as a safe-haven asset in particular. Speculation is mounting.
The size of U.S. borrowing is also a concern, given that the U.S. government reported last week that its fiscal year 2023 budget deficit was $1.695 trillion, a 23% increase from a year earlier, particularly the pre-pandemic shortfall. Probability is high.
Japanese yields also rose after the Nikkei newspaper reported that the Bank of Japan was discussing further adjustments to its yield curve control policy, which could be announced at its October 31 policy meeting.
As global borrowing costs rise, markets have largely priced in the risk that the Fed will raise rates next week, with the probability of full tightening remaining close to 70%.
Markets similarly see little risk that the European Central Bank will raise interest rates at its board meeting this week, hinting at the possibility of a rate cut from April next year.
Rising bond yields are also testing stock valuations and are expected to hurt companies that missed market profit expectations this week.
This week, mega-cap darlings Microsoft (MSFT.O), Alphabet (GOOGL.O), Amazon (AMZN.O), and Meta (META.O) all weighed heavily on Intel (INTC.O) and IBM (IBM). We will present a report with N). , General Motors (GM.N), General Electric (GE.N), and many others.
Key trends that may impact the market on Monday:
– No plans for large data
Editing: Jacqueline Wong
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