A look at the day ahead in the US and global markets by Mike Dolan
Further signs of a cooling US economy greet the second half of 2024, with politics dominating headlines on both sides of the Atlantic and Federal Reserve boss Jerome Powell set to speak later on Tuesday.
Financial markets are grappling with a heady mix of critical elections and signs of slowing growth in the United States – with France in the midst of a two-legged parliamentary election, Britain going to the polls on Thursday and betting that the US election will be a will accelerate. the TV debate of the week.
While another boost to U.S. tech stocks cleared the barriers on Wall Street on Monday, bond market rumblings and a steepening long-term yield curve may indicate more about political concerns.
The Institute for Supply Management’s June survey found that U.S. manufacturing missed forecasts and shrank for the third month in a row, with a measure of the prices paid by factories for inputs falling to the lowest level in six months due to weak demand for goods.
The US economic surprise index is now recording its most negative reading in almost two years, while the Atlanta Fed’s ‘GDPNow’ tracker has faded to just 1.7% – the lowest level of the year so far.
While that should fuel hopes for Fed easing this year, there are still some doubts about whether the central bank will make its first rate cut before the November election. Futures offer less than a 70% chance of a first cut in September.
Powell could provide additional impetus during his speech at the European Central Bank’s annual forum in Sintra, Portugal later on Tuesday.
But in a key week for labor market updates, despite the Independence Day holiday on Thursday, May data on U.S. job openings could be just as important later in the session.
Bond markets also have other ideas, with President Joe Biden’s poor performance in last week’s presidential TV debate with Republican challenger Donald Trump and Monday’s U.S. Supreme Court ruling on Trump’s partial immunity from prosecution raising the odds. narrowing a Trump victory in November.
In the political betting markets, Trump is now a clear favorite to return to the White House, along with his promises of more tax cuts and draconian tariff increases.
The fiscal implications of all this are starting to unnerve long-term Treasury yields, with 10-year Treasury yields hitting a one-month high on Monday and the spread of the 2-year to 10-year inverted yield curve narrowing to its lowest level since early May.
At the very least, the 2- to 30-year yield curve has inverted in almost five months.
These budget concerns and the associated steepening of the curve were also clearly visible in Europe, where the outcome of the French elections was still uncertain ahead of Sunday’s second round.
Although French far-right parties, which also promise tax cuts, appear to be shying away from an overall majority in the assembly – and because tactical voting among other parties is expected to hamper their chances – nerves about the outcome remain.
French shares previously gave back about half of Monday’s gains and the French-German 10-year interest rate premium rose to 75 basis points from 72 basis points early Monday.
Eurozone inflation eased last month, but a crucial component of the services sector remained stubbornly high, likely fueling concerns among some ECB policymakers that domestic price pressures could remain at elevated levels.
The euro fell from a two-week high to around 1.0710 on Tuesday.
Elsewhere, the dollar was generally firmer, hitting another 38-year high against the Japanese yen at 161.74, with no signs of a repeat of Japan’s April intervention to support the ailing yen.
Stock markets around the world traded lower, including in China, after a mixed bag of business surveys this week.
bucked the trend thanks to the weak yen, gaining more than 1% and reaching the 40,000 level for the first time in three months on Tuesday.
Stock futures on Wall St fell 0.4% before the bell, and US Treasuries fell ahead of Tuesday’s open.
Key developments that should give more direction to US markets later on Tuesday:
* US May JOLTS vacancies
* Federal Reserve Chairman Jerome Powell (1330GMT), European Central Bank President Christine Lagarde and ECB board members Luis de Guindos and Isabel Schnabel all speak at the ECB’s annual forum in Sintra, Portugal
