Wayne Cole provides an overview of the European and international markets for the next day. Asia’s markets have had a cautious start to the week as they wait to see if or when Israel will invade Gaza on foot as bonds continue their relentless decline.
Near Lebanon’s border, the Israeli military continued to bomb Gaza and engage in combat with Hezbollah, which has Iranian support.
In a statement released on Sunday, the presidents of the United States, Canada, France, Germany, Italy, and the United Kingdom reaffirmed their support for Israel and its right to self-defense while pleading with it to abide by international humanitarian law and protect civilians.
Nevertheless, some relief trucks did manage to pass, which was enough progress to cause an increase in oil prices. However, bond markets were unimpressed as U.S. 10-year rates slowly climbed to 4.967% after jumping over 30 basis points just last week.
As investors want a higher real return and term premia, the market has notably failed to attract any safe-haven buyers, igniting suspicion that it is pricing in a new normal for rates higher than the Federal Reserve’s target of 2.5%.
Given that Washington disclosed a $1.695 trillion budget deficit for fiscal 2023, which is about 23% more than the previous year and exceeds all pre-pandemic shortfalls, the size of U.S. borrowing is also likely a cause for concern.
After the Nikkei newspaper reported that the Bank of Japan was debating another adjustment to its yield curve management strategy, which might be disclosed at its policy meeting on October 31, yields in Japan also increased.
The market has already discounted practically all risks of the Fed raising rates next week and has around 70% odds that it will stop tightening entirely due to the worldwide increase in borrowing costs.
Similarly, markets see little probability that the European Central Bank will raise rates when it meets this week and is teasing the possibility of rate cuts starting in April next year.
Higher bond rates also put pressure on equity prices and threaten pain for any firm that fails to meet this week’s market earnings forecasts.
This week, several large-cap darlings, including Microsoft (MSFT.O), Alphabet (GOOGL.O), Amazon (AMZN.O), Meta (META.O), Intel (INTC.O), IBM (IBM.N), General Motors (GM.N), and General Electric (GE.N), announced earnings.
Important events that might affect markets on Monday include:
– No significant data are planned
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