In today’s market outlook, Mike Dolan highlights the strengthening dollar, which has reached its highest levels in nearly three months against the euro and yen, fueled by rising U.S. Treasury yields amid pre-election jitters.
As the International Monetary Fund (IMF) holds its annual meeting and G7 finance ministers and central bankers convene, the robust performance of the U.S. economy is evident in the latest IMF global forecasts released on Tuesday.
The IMF has raised its GDP growth predictions for the U.S. for 2024 and 2025, increasing its estimate for this year by two-tenths of a percentage point to 2.8%, and for next year by three-tenths of a point to 2.2%.
While global growth forecasts remain largely unchanged, the U.S. outlook has seen cumulative increases of 0.7 and 0.5 points since January. Notably, only Canada is projected to grow at a faster rate than the U.S. among G7 nations next year.
With U.S. economic surprise indexes reaching their highest levels since April, this context helps clarify the significant increase in Treasury yields this month, along with the rising expectations for a ‘terminal rate’ regarding Federal Reserve easing.
Another factor influencing both Treasury yields and the dollar is the upcoming election on November 5. Betting markets currently show a strong inclination toward a Republican victory for Donald Trump, although there are some concerns about potential distortions and manipulation by a few wealthy bettors.
Election bettors might still approach with caution due to the potential for whiplash, especially given the significant shifts in polling that have occurred over the summer.
Current opinion polls remain inconclusive, with the latest Reuters/IPSOS tracker showing Democrat Kamala Harris leading by three points nationally, while other polls indicate a tie in key swing states.
On a broader economic front, the dollar is benefiting from the interest rate outlook abroad. The Bank of Canada is anticipated to cut interest rates again later today by as much as 50 basis points.
Meanwhile, the euro faced pressure on Wednesday following a Reuters report indicating that European Central Bank policymakers are discussing whether to lower interest rates sufficiently to stimulate the economy. This could mean ECB rates might drop below the estimated ‘neutral’ range of 2% to 2.5%, contrasting with growing expectations for a U.S. ‘terminal rate’ around 3.5%.
The yen continued to weaken, dropping past 152 per dollar for the first time since July, as Japan approaches its weekend election.
Turbulence in the rates markets has impacted high stock valuations this week, causing Wall Street indexes to stall on Tuesday, with futures showing losses again on Wednesday ahead of the opening bell.
The earnings season is in full swing, with Tesla (NASDAQ:TSLA), Boeing (NYSE:BA), and IBM (NYSE:IBM) scheduled to report later today.
In Europe, Deutsche Bank shares fell by up to 3% after the bank increased its loan-loss provisions forecast amid a struggling German economy, despite posting a profit in the third quarter and reducing reserves for investor lawsuits related to its Postbank division.
Shares of McDonald’s (NYSE:MCD) dropped nearly 6% in premarket trading after an E. coli outbreak linked to the chain’s Quarter Pounder hamburgers resulted in one death and 49 reported illnesses in the U.S.
Key developments to watch for direction in U.S. markets later on Wednesday include:
* The Bank of Canada’s policy decision and a news conference with Governor Tiff Macklem.
* September existing home sales data in the U.S., alongside the Federal Reserve’s release of the Beige Book detailing economic conditions, and October consumer confidence figures from the euro zone.
* Meetings of G7/G20 finance chiefs at the International Monetary Fund and World Bank Annual Meetings in Washington, featuring speeches by Bank of Japan Governor Kazuo Ueda, Bank of England Governor Andrew Bailey, European Central Bank President Christine Lagarde, ECB chief economist Philip Lane, and German Finance Minister Christian Lindner.
* Federal Reserve Board Governor Michelle Bowman and Richmond Fed President Thomas Barkin are set to speak.
* Upcoming US corporate earnings reports include Tesla, Boeing, IBM, Ameriprise, Northern Trust (NASDAQ:NTRS), AT&T (NYSE:T), Boston Scientific (NYSE:BSX), General Dynamics (NYSE:GD), Thermo Fisher Scientific (NYSE:TMO), Coca-Cola, NextEra Energy, Hilton Worldwide, United Rentals (NYSE:URI), O’Reilly Automotive (NASDAQ:ORLY), Lam Research (NASDAQ:LRCX), Newmont, Las Vegas Sands (NYSE:LVS), Rollins (NYSE:ROL), Align Technology (NASDAQ:ALGN), and CME, among others..
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