AMERICAS ‘Remarkable’ US markets surf crosscurrents

U.S. stocks have been navigating through various challenges in the past week, but they remain resilient thanks to the “remarkable” strength of the U.S. economy, according to the International Monetary Fund (IMF). As third-quarter earnings reports are set to be released later this week, Wall Street indices have reached their highest levels in almost three weeks, bouncing back from early losses in the previous sessions.

Despite the initial market jolt caused by the recent attacks on Israel, the impact on oil prices has been relatively modest, allowing U.S. crude to hover just above $86 per barrel. This is still down almost 10% from the September peaks and 5% lower compared to the same period last year.

The return of cash Treasury markets from the Columbus Day holiday has brought renewed optimism about the Federal Reserve’s policy rate trajectory. Dallas Fed President Lorie Logan suggested that the recent tightening in bond markets may have reduced the need for another policy rate hike. This sentiment is echoed by Fed futures, which now see only a one-in-four chance of further rate increases.

The U.S. Treasury yields are expected to start the day at around 4.65%, slightly lower than the peak following the blowout September jobs report. The IMF highlighted the exceptional strength of the U.S. economy in its latest World Economic Outlook, leaving its overall global growth forecast unchanged despite downgrades for China and the euro area. The IMF upgraded its U.S. growth forecasts for 2023 and 2024, reflecting confidence in the country’s economic performance.

China’s ongoing struggles were evident in the latest twist of its property bust, leading to further declines in its main benchmark stock indices. Country Garden, an embattled developer, experienced losses and expressed concerns about meeting offshore payment obligations. Reports suggest that China’s fiscal policy response may be limited, with plans to increase the budget deficit and issue additional sovereign debt for infrastructure spending.

In the corporate world, U.S.-listed shares of Chinese firms, including Alibaba Group Holding, JD.com, and Baidu, saw gains ahead of the U.S. market opening. Additionally, PepsiCo’s stock edged higher ahead of the beverage maker’s third-quarter results, and Unity, a video-game software maker, experienced a significant jump after announcing the retirement of its CEO.

Looking ahead, key developments such as the U.S. NFIB small business survey, wholesale sales and inventories data, and the annual meetings of the World Bank and IMF in Marrakesh are expected to provide further direction to U.S. markets. Several Federal Reserve officials are also scheduled to speak, including Governor Christopher Waller, Minneapolis Fed President Neel Kashkari, San Francisco Fed Chief Mary Daly, and Atlanta Fed Chief Raphael Bostic. Additionally, U.S. Treasury auctions for 3-year notes and 3- and 6-month bills will take place.

Overall, despite the challenges faced by U.S. stocks in recent days, the underlying strength of the U.S. economy and positive developments in the market continue to support investor confidence.