Morning Bid: Bonds and gold begin countdown to US Election Day
2024.10.22 02:22
A look at the day ahead in European and global markets from Tom Westbrook
Markets are facing a bumpy ride in the final stretch to the U.S. elections, with bonds turning volatile and gold signalling at least some investors hunkering down.
While gold hits record highs, a confluence of strong U.S. economic data, the so-called “Trump trade” and a renewed focus on the fiscal outlook has pushed 10-year yields to three-month highs.
Notwithstanding a broad selloff in gilts and European sovereigns on Monday, U.S. yields are moving faster than global peers and driving markets as strong U.S. labour indicators have traders losing confidence in Federal Reserve rate cuts.
Since data earlier this month showed a surprising surge in U.S. hiring, gilts and bunds have outperformed along the curve with far less selling than Treasuries.
The 10-year spread between Treasuries and bunds is now the widest since July and the UST-gilts spread turned positive last week. The volatility is already showing signs of cooling primary debt markets, which have slowed down considerably in places such as Australia.
Goldman Sachs thinks a strong U.S. economy and a dovish central bank in Europe will open spreads wider, with a target of 205 basis points for the gap between bunds and Treasuries and said the election – along with fundamentals – is in focus.
A light calendar of economic releases – save for a U.S. jobs report on Nov. 1 – leaves investors starting to hunker down ahead of the Nov. 5 polling day. Republican candidate Donald Trump is seen as negative for bonds since his tax, tariff and immigration policies are likely to be inflationary – though Democrat Kamala Harris is also likely to spend heavily.
Corporate earnings, especially where companies can describe economic conditions, can also capture attention.
Recruiter Randstad and aerospace and defence firm Saab report in Europe on Tuesday. Texas Instruments (NASDAQ:), 3M, General Motors (NYSE:), Freeport-McMoRan (NYSE:), Lockheed Martin (NYSE:), General Electric (NYSE:) and Verizon (NYSE:) are among the U.S. companies reporting.
Trade was fairly subdued in Asia, with most markets lower.
U.S. Secretary of State Antony Blinken arrives in Israel on Tuesday, the first stop of a wider Middle East tour aimed at reviving Gaza ceasefire talks. However, oil prices rose sharply on Monday as expectations evaporated that the death of Hamas leader Yahya Sinwar, may prove a breakthrough for peace.
Key developments that could influence markets on Tuesday:
– IMF annual meetings
– Earnings: Randstad, Saab, Texas Instruments, General Motors, General Electric, Freeport McMoRan, Lockheed Martin, Verizon, Philip Morris (NYSE:), Kimberly-Clark (NYSE:)
