Headlines:
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What are the main events for today?
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Markets:
WTI crude oil down -1.97% to $91.91
Gold up +0.30% to $4183
NZD leads, USD lags
S&P 500 down -0.08% to 7852
US 10y Treasury yield down 6 bps to 5.18%
Bitcoin up +2.17% to $83,481
There’s been an improvement in risk sentiment as oil prices eased, but the macro or geopolitical picture hasn’t changed one bit. We haven’t got any catalyst to trigger the reversal in crude oil, so the current relief might be just a pullback. The Houthis continue to attack Saudi Arabia and the US-Iran negotiations remain at a stalemate.
This week is also a bit empty on the economic data front, with the main event being the US CPI report tomorrow. We could see some rangebound price action heading into the release or even some weakness in risk assets as traders hedge into potentially hot data.
Higher than expected core inflation could raise the probabilities for an October rate hike, while soft data will seal a pause. In the bigger picture, it won’t change the inflationary pressures from the higher energy prices but it could lead to a short-term relief.
The focus is also increasingly shifting to the US midterm elections on November 3. According to the Bank of America Fund Manager Survey, majority of investors are expecting a Democratic House and Republican Senate, while 31% expect a Democratic sweep. In the latter scenario, 32% expect bond yields to rise and equities to fall, while 22% anticipate a fall in yields and stocks. A Democratic sweep has certainly become more likely given the mess caused by Trump since last year.
Keep in mind that even a Democratic sweep wouldn’t change much as Trump would retain the power to continue the Iran war or impose tariffs. It could reduce fiscal fears though, supporting long-term bonds and leading to a fall in Treasury yields. The stock market might react positively initially if Treasury yields fall, but going forward, the US-Iran war and deteriorating growth expectations could drag it down to new lows.
This article was written by Giuseppe Dellamotta at investinglive.com.
