A Look at the Day Ahead in U.S. and Global Markets

By Mike Dolan

Tesla's (NASDAQ: TSLA) 20%+ stock surge boosts investor optimism ahead of next week's earnings from other large U.S. companies. Global markets are focusing on Japan's weekend elections and the UK's upcoming budget.

As the week comes to a close, market attention is shifting toward significant upcoming events including the U.S. election in 11 days. The previous anxiety in the Treasury market seems to have calmed, but the White House race remains uncertain.

Recent economic data on business activity, jobless claims, and housing did not disrupt the calm in the bond market, especially as business price pressures eased and oil prices declined.

Ten-year yields stayed around 4.2%, with the Federal Reserve’s expected rate trough now seen at 3.5%, close to Fed policymakers' highest 'neutral' long-term policy rate estimates. The dollar index also remained stable alongside Treasuries.

The key actions were in earnings, with Tesla’s shares experiencing their largest single-day gain in over a decade, following CEO Elon Musk’s positive sales forecast. This performance brings Tesla back in the positive for the year and sets the stage for updates from other large megacap companies next week, starting with Alphabet (NASDAQ: GOOGL) on Tuesday, followed by Microsoft (NASDAQ: MSFT), Meta (NASDAQ: META) on Wednesday, and Amazon (NASDAQ: AMZN), Apple (NASDAQ: AAPL) on Thursday.

Overall, the S&P 500 rebounded from three days of losses, closing slightly higher on Thursday, with futures indicating positive movement ahead of Friday's open.

Japan’s yen dipped to around 152 per dollar, as markets await Sunday’s election results and a Bank of Japan policy decision on Wednesday. Tokyo’s inflation figures this month showed a decrease against warnings of excessive currency fluctuations.

Some investors worry that Japan may end up with a minority coalition government after the weekend's elections, complicating the BOJ's plans to normalize its historically low interest rates. Recent polls indicate that the ruling coalition could potentially lose its parliamentary majority, risking the position of new premier Shigeru Ishiba and pushing the Liberal Democratic Party to seek a new coalition.

On the other hand, the UK's focus is heightened due to reports of significant increases in borrowing for public investments, which unsettled UK government bonds. Finance Minister Rachel Reeves is set to announce a new measure for public debt that could enable an additional £50 billion ($65 billion) in borrowing for investments, representing about 1.5% of the UK’s annual economic output.

Contrary to the easing of U.S. yields, the British bond market reacted negatively with 10-year gilt yields reaching a four-month high, and the five-year yield premium over Germany hitting its highest for the year. Despite this, the pound has remained stable to firm, not signaling a broader issue in investor confidence.

Most European and Asian stock markets rose on Friday, although Japan's Nikkei fell behind. Positive German business confidence readings from Ifo alleviated some concerns for Europe’s largest economy, despite ongoing worries about trade tensions affecting Germany's large automotive sector. Mercedes-Benz (OTC: MBGAF) saw a 3.7% decline following third-quarter earnings that fell short of expectations, while Valeo (EPA: VLOF) dropped 7.5% after cutting its sales projections for the second time this year.

Key developments that may influence U.S. markets later on Friday include:

• U.S. September durable goods orders and the University of Michigan’s October consumer survey; Canada’s September house prices, August retail sales, and government budget balance.
• U.S. corporate earnings: Aon (NYSE: AON), Colgate-Palmolive (NYSE: CL), Centene (NYSE: CNC), HCA Healthcare (NYSE: HCA).
• International Monetary Fund and World Bank Annual Meetings in Washington, featuring speakers such as German Finance Minister Christian Lindner, Bundesbank President Joachim Nagel, and Bank of Canada Governor Tiff Macklem.
• Speech from Boston Federal Reserve Bank President Susan Collins.