A softer U.S. dollar and a pullback in Treasury bond yields has stocks edging higher Monday ahead of mid-term elections and a key October inflation reading later in the week.
U.S. equity futures moved higher Monday, while the dollar slipped lower against its global peers and Treasury bond yield eased, as investors peered into another key week for domestic markets amid questions over the Federal Reserve‘s appetite for prolonged rate hikes.
Modestly easing wage pressures in last week’s October jobs report, alongside the seemingly dovish Fed statement that followed its fourth 75 basis point rate hike last week, has given rise to at least some suggestion that the Fed will begin slowing the pace of its planned rate hikes starting next month.
Fed Chair Powell did his best to tame those expectations last week, however, insisting it was ‘premature’ to talk about a change in tact, but with traders noting the stark difference in his comments from the agreed statement, markets are likely to focus on the seven Fed officials slated to make public speeches this week for clarification on the central bank’s messaging.
The need for clarity is even more important now that the third quarter earnings season in drawing to a close, and investors are growing increasingly concerned over the market’s ability to sustain its short-lived October rally into the final months of the year.
Bank of America’s closely tracked ‘Flow Show’ report suggests fund mangers are moving into cash at the fastest rate since the pandemic, with $62.1 billion of inflow last week, while data from Refinitv suggest fourth quarter earnings will likely decline by 0.4% from last year to a share-weighted $459.6 billion.
With just over 85% of the S&P 500 reporting for the October quarter, earnings are likely to grow 4.3% from last year to $464.1 billion, but stripping away the energy sector cuts that rate to -3.4%.
Stocks Edge Higher, Week Ahead, Apple, Activision And Warren Buffett – Five Things To Know
Mid-term elections and inflation data will form the focus for market direction this week as investors continue to pick through clues as to when, or indeed how, the Federal Reserve will conclude its relentless series of rate hikes.
Polls suggest the increasing chance of a Republican sweep in both the House and the Senate on Tuesday, with key races in Georgia potentially allowing the GOP to hold control of the upper chamber for a fourth consecutive Congress. That composition would likely thwart any fiscal agenda put forward by President Joe Biden over this final two years in office, and possibly remove a key market risk that deeper fiscal spending from the Democrats would further accelerate inflation pressures.
On that front, key CPI data for October, set to be released at 8:30 am Thursday, is likely to show at least a modest easing in headline inflation on an annual basis, although higher gas prices will lift the month-on-month reading to 0.7%. Big declines in used car prices will clip the core component to around 0.5%, according to forecasts.
The U.S. dollar index, which tracks the greenback against a basket of its global peers, was marked 0.24% lower at 110.605 while benchmark 10-year note yields eased to 4.141%.
In the meantime, China’s decision to double-down on its ‘zero Covid’ health policies continues to take its toll on both the region’s broader economy and supply chains brining products into the United States. China, in fact, posted the first simultaneous decline in both exports and imports in more than two years last month, while Apple (AAPL) – Get Apple Inc. Report warned that Covid restrictions at a key factory in Zhengzhou would affect high-end iPhone shipments over the holiday quarter.
Heading into the start of the trading day on Wall Street, futures contracts tied to the S&P 500 are priced for a 16 point opening bell gain while those linked to the Dow Jones Industrial Average are priced for a 155 point bump.
The tech-focused Nasdaq is priced for a modest 37 point advance, thanks in part to a 1.9% decline for Apple (AAPL) – Get Apple Inc. Report after the iPhone maker warned that Covid restrictions at a key plant in China would curtail shipments of its higher-end handsets heading into the holiday season.
Meta Platforms (META) – Get Meta Platforms Inc. Report shares were also on the move, rising 3.6% following a weekend report from the Wall Street Journal that suggested the social media group is planning to unveil ‘large scale’ layoffs over the coming days.
In overseas markets, China stocks booked modest gains on hopes that weakening trade data will elicit a policy response from Beijing, with the region-wide MSCI ex-Japan index rising 1.78% heading into the close of tradeing.
In Europe, the Stoxx 600 gained 0.54% while Britain’s FTSE 100 was marked 0.22% lower by mid-trading in London.
