(Bloomberg) — The world’s largest bond market took a hit as traders weighed some of the potential implications of November’s U.S. election after last week’s presidential debate between Joe Biden and Donald Trump.
Bloomberg’s most read articles
Treasury bonds fell, with long-term maturities significantly underperforming short-term ones. After struggling to find direction in the first few hours of trading, stocks advanced, driven by gains in tech mega-caps. The dollar rose slightly.
“During last week’s presidential debate, neither candidate proposed any policies that would reduce the country’s budget deficit, which is becoming unsustainable,” said Jose Torres of Interactive Brokers. “Meanwhile, the U.S. political landscape is highly uncertain as members of the media and various Democrats call for Biden to withdraw from the White House race following his weak debate performance.”
Meanwhile, a divided US Supreme Court ruled that Trump had some immunity from criminal charges for trying to overturn the results of the 2020 election, while ensuring that a trial would not take place until after the November elections.
Yields on the 10-year Treasury rose eight basis points to 4.48%. The S&P 500 was hovering near 5,470. European stocks ended a four-day losing streak and the euro climbed as French election results suggest there is a lower likelihood of extreme policies come from the far right.
Supreme Court Decisions Reset Investors’ Calculus: Street Wrap
U.S. Treasury Interest Rates Gaining Popularity Mid-Year: Research Review
In the wake of last week’s presidential debate that shifted the odds of Trump winning over Biden, Morgan Stanley strategists Matthew Hornbach and Guneet Dhingra are reassessing their assumptions heading into the election.
“The main problem is that the market must now deal with increasing probabilities of changes in immigration and tariff policies in an economy where growth is already slowing, making the market more likely to consider further rate cuts,” they write. “On the other hand, the higher prospects of a Republican victory, amid a growing focus on deficits, could put upward pressure on long-term premiums.”
The dollar is likely to remain elevated in the second half of the year on improving Treasury yield advantage, decent strength in U.S. growth and risks from the November election, wrote JPMorgan Chase & Co. strategists led by Meera Chandan.
Growth-friendly fiscal policies should also be positive for the dollar in the near term, despite the medium-term deficit implications, they noted.
At the same time, Morgan Stanley equity strategists led by Michael Wilson say investors “should remain selective” and maintain a bias toward quality U.S. stocks heading into the election season. These companies have more stable earnings, stronger balance sheets and higher margins.
“Growth risks are tilted to the downside in the scenario of a Republican victory, in part due to immigration and tariff reform,” they write. With inflation and fiscal sustainability also in focus, such dynamics “likely pose a headwind for lower quality and cyclical sectors of the market and for small caps in this scenario.”
U.S. companies are facing the highest profit bar in nearly three years as they prepare to report second-quarter results, according to Goldman Sachs Group Inc. strategists led by David Kostin.
“The magnitude of earnings-per-share earnings will likely decline as consensus forecasts raise the bar higher than in previous quarters,” Kostin said. “We expect the outperformance ‘reward’ for stocks beating estimates to be even lower than average this quarter.”
Company Highlights:
-
Chewy Inc. has made a disclosure as Keith Gill — known online as “Roaring Kitty” — revealed a 6.6% passive stake in the online pet food and supply retailer.
-
Teva Pharmaceutical Industries Ltd. is under investigation by the U.S. Federal Trade Commission over patents on certain drugs, including asthma inhalers, according to a person familiar with the matter.
-
Boeing Co. agreed to buy Spirit AeroSystems Holdings Inc. for $37.25 per share in an all-stock deal that values the supplier at $4.7 billion, ending a two-decade separation then that the American aircraft manufacturer in difficulty is trying to correct its manufacturing defects.
-
French competition authorities prepare to charge Nvidia Corp. for allegedly anticompetitive practices, Reuters reported, as the world’s most valuable chipmaker faces increasing regulatory scrutiny.
-
Meta Platforms Inc. has been warned over its ad-free subscription model for services on Instagram and Facebook, risking potentially hefty fines in the European Union’s latest crackdown on big tech under tough new rules.
-
SVB Financial Group has secured a reduction of more than $600 million in its potential tax bill, increasing some obligations linked to the bankrupt former parent of Silicon Valley Bank and removing a hurdle in its path to repayment Chapter 11 creditors.
Key events this week:
-
Eurozone CPI, unemployment, Tuesday
-
Job openings in the United States, Tuesday
-
Jerome Powell and Christine Lagarde speak at the ECB forum in Portugal on Tuesday
-
Caixin China Services PMI, Wednesday
-
S&P Global Eurozone Services PMI and PPI, Wednesday
-
US Fed Minutes, ADP Employment, ISM Services, Factory Orders, Initial Jobless Claims, Durable Goods, Wednesday
-
Fed’s John Williams speaks Wednesday
-
UK General Election, Thursday
-
United States Independence Day holiday, Thursday
-
Eurozone retail sales, Friday
-
US jobs report on Friday
-
Fed Chairman John Williams Speaks Friday
Some of the major market movements:
Actions
-
The S&P 500 rose 0.2% as of 1:41 p.m. New York time
-
The Nasdaq 100 gained 0.4%
-
The Dow Jones Industrial Average rose 0.2%
-
The MSCI World Index rose 0.2%
Currencies
-
The Bloomberg Dollar Spot Index rose 0.1%
-
The euro rose 0.2% to $1.0731
-
The pound was little changed at $1.2644.
-
The Japanese yen fell 0.4% to 161.47 per dollar
Cryptocurrencies
-
Bitcoin rose 2.5% to $63,474.13
-
Ether rose 1.9% to $3,481.73
Obligations
-
The yield on 10-year Treasury notes rose eight basis points to 4.48%.
-
Germany’s 10-year yield rose 11 basis points to 2.61%
-
The UK 10-year yield rose 11 basis points to 4.28%
Raw materials
-
West Texas Intermediate crude oil rose 2.2% to $83.30 a barrel
-
Spot gold rose 0.1% to $2,329.52 an ounce
This story was produced with assistance from Bloomberg Automation.
–With help from Lynn Thomasson, Julien Ponthus, John Viljoen, Catherine Bosley, Matthew Burgess, Vildana Hajric, Sagarika Jaisinghani, Masaki Kondo and Felice Maranz.
Most read articles from Bloomberg Businessweek
©2024 Bloomberg LP