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

From Mike Dolan

Even as public borrowing estimates were reduced on Monday, U.S. Treasury yields continue to reach three-month highs. Markets are favoring a Donald Trump victory in next week's election, along with a potential Republican clean sweep in Congress.

In an event-packed fortnight, five U.S. megacap earnings reports will start on Tuesday, coinciding with critical job openings data. Wall Street stock indexes remain buoyant, hovering near record highs.

Treasuries are currently experiencing heightened election anxiety, with many prediction models now indicating a better than even chance of Trump winning the White House and Republicans securing House and Senate majorities on November 5.

The Treasury announced plans to borrow $546 billion in Q4, which is $19 billion lower than the July estimate. However, bond markets are unsettled by extensive tax cut pledges from Trump, as the government's budget deficit currently stands at a staggering 6.4% of national output.

Following nervous auctions for two- and five-year notes earlier, benchmark 10-year Treasury yields climbed above 4.3% for the first time since July, while Treasury volatility gauges surged to their highest level in over a year.

This increase comes as expectations for Federal Reserve easing next year have been significantly scaled back, with some estimating as little as 130 basis points. At the same time, election bets appear to be accounting for a growing likelihood of Trump's return.

Opinion polls show a close race, but shares in Trump Media & Technology have surged over threefold in the past month, while Bitcoin reached its highest value in nearly five months on Tuesday.

Trump's proposed aggressive trade tariffs have weakened China's yuan to its lowest in over two months, with mainland Chinese shares closing lower again. Investor focus is now on a Chinese leadership meeting from November 4-8. Sources indicate that China may consider approving the issuance of over 10 trillion yuan ($1.4 trillion) in additional debt to boost the economy, especially if Trump is elected.

Despite troubling house price data highlighting Hong Kong's ongoing property issues, the Hang Seng index closed higher, boosted by HSBC's stronger-than-expected third-quarter profits and a fresh $3 billion stock buyback. HSBC shares gained almost 3% to reach six-year highs.

In Japan, the political stalemate following recent elections has left the yen languishing near three-month lows at 153 per dollar, with uncertainty surrounding whether a new coalition will support any further monetary tightening by the Bank of Japan.

Yuichiro Tamaki, head of the opposition Democratic Party for the People and a potential 'kingmaker', argued that the Bank of Japan should maintain its ultra-loose monetary policy for now while monitoring real wages.

The dollar remained stable, with a slightly firmer euro ahead of key Eurozone GDP and inflation data later this week. European shares were higher, with Britain's FTSE100 slightly outperforming, bolstered by HSBC's results and ahead of a crucial UK budget statement set for Wednesday. The British pound remained steady.

On Wall Street, Alphabet (NASDAQ: GOOGL) is set to report earnings after the bell on Tuesday, marking the first of five 'Magnificent Seven' stocks revealing their results this week, potentially establishing the trend for digital and tech giants dominating the S&P 500. Alphabet’s stock showed mild increases in Frankfurt on Tuesday.

U.S. stock futures were modestly higher ahead of the day’s open, while the VIX index of stock volatility hovered just below 20. Boeing (NYSE: BA) shares fell by 2.8% on Monday following the announcement of a stock offering that could raise up to $22 billion during an ongoing worker strike.

Other notable stocks reporting today include Advanced Micro Devices (NASDAQ: AMD), First Solar (NASDAQ: FSLR), Pfizer (NYSE: PFE), and McDonald's.

Crude oil prices struggled to recover from Monday's heavy losses amidst easing tensions in the Middle East, trading below $68 per barrel.

Key Developments for U.S. Markets on Tuesday:

• Economic Indicators: U.S. September job openings, international trade balance, retail/wholesale inventories, August house prices, Dallas Federal Reserve's October service sector survey, and Brazil's September current account.
• Corporate Earnings Reports: Alphabet, AMD, McDonald's, Pfizer, PayPal (NASDAQ: PYPL), Corning (NYSE: GLW), First Solar, Visa (NYSE: V), MSCI, Sysco (NYSE: SYY), DR Horton (NYSE: DHI), Edison, Chubb (NYSE: CB), Caesars Entertainment (NASDAQ: CZR), EQT, Stanley Black & Decker (NYSE: SWK), Ecolab (NYSE: ECL), American Tower (NYSE: AMT), Masco (NYSE: MAS), Incyte (NASDAQ: INCY), FirstEnergy (NYSE: FE), Zebra Technologies, Royal Caribbean (NYSE: RCL) Cruises, IDEX (NYSE: IEX), FMC (NYSE: FMC), Mondelez (NASDAQ: MDLZ), Stryker (NYSE: SYK), DaVita (NYSE: DVA), Essex Property (NYSE: ESS).
• Speech: Bank of Canada Governor Tiff Macklem speaks.
• Treasury Sales: U.S. Treasury sells $44 billion of 7-year notes and $48 billion of 12-month bills, along with 2-year floating rate notes.