Bond market volatility eased overnight as Britain backed away from its controversial tax and borrowing plans, giving Wall Street a firm leg up heading into a busy earnings week.
U.S. equity futures moved firmly higher Monday, while the dollar retreated against its global peers, as investors looked for an easing in bond market turmoil ahead ahead of another busy week for earnings releases on Wall Street.
Financial markets in Britain, which have caused global uproar of late amid plans by new Prime Minister Liz Truss to boost borrowing to pay for tax cuts, steadied Monday following the appointment of a new finance minister — Jeremy Hunt — who promised to tear up many of her key fiscal objectives.
The move leaves Truss dangling by a political thread, but has buttressed U.K. bond markets with lower yields and a steady pound, which rose to 1.1288 against the U.S. dollar. Benchmark 10-year U.K. government bond yields were marked 27 basis points lower at 4.06%, helping U.S. 10-year notes fall to around 3.957% in overnight trading.
“Markets appear reassured for now as the new Chancellor set out his emergency measures aimed at stabilixing the extremely choppy waters of the last couple of weeks,” said Nigel Green of London-based financial advisory deVere Group.
“However, we expect that the new measures to calm financial markets will only work temporarily,” he cautioned. “The massive loss of credibility cannot be regained all that rapidly. U-turns and abandoning landmark economic policy after economic policy does not inspire investor confidence and trust. Rather it smacks of humiliating economic incompetence.
Market volatility is likely to remain a fixture for investors this week, however, with the Vix index, the CBOE group’s key volatility gauge, rising 0.66% overnight to 32.15 points. That move suggests daily swings of around 70 points over the next 30 days for the biggest U.S. benchmark.
Earnings and housing data are likely to keep Wall Street focused this week as investors look to the broadening impact of the Federal Reserve’s relentless policy tightening over the final months of the year.
Three jumbo Fed rate hikes, as well as the slow sale of bonds from the central bank’s $8 trillion balance sheet, has taken its biggest toll on the U.S. housing market, where mortgage rates are now nearing 7%, the highest since 2006, triggering marked declines in home prices and stalled new building projects.
Housing starts and building permits data for the month of September will be released at 8:30 am Eastern time Wednesday, bookended by the National Association of Homebuilders monthly update on Tuesday and existing home sales data from the the National Association of Realtors on Thursday, both at 10:00 am Eastern Time.
Around 66 S&P 500 companies are expected to report September quarter earnings this week, including Tesla (TSLA) – Get Tesla Inc. Report, Johnson & Johnson (JNJ) – Get Johnson & Johnson Report, Netflix (NFLX) – Get Netflix Inc. Report, AT&T (T) – Get AT&T Inc. Report, American Airlines (AAL) – Get American Airlines Group Inc. Report and American Express (AXP) – Get American Express Company Report.
Collective third quarter S&P 500 profits are expected to rise by 3.6% from last year to around $46.1 billion, according to data from Refinitiv, with a 5% growth rate forecast for the final three months of the year.
Investors will also be closely tracking moves in the Fed Funds futures market, where traders are betting on a 93.4% chance of a 75 basis point rate hike from the Federal Reserve next month, following last week’s hotter-than-expected September inflation reading of 8.2%, with bets on a fifth consecutive move in December rising to 63.3%.
That said, the U.S. dollar, which tracks the greenback against a basket of its global peers and its typically seen as an indicator of broader risk appetite, was marked 0.33% lower in European trading at 112.94 each, suggesting firmer optimism on Wall Street heading into the start of trading.
Futures contracts tied to the S&P 500 are indicating a 45 point opening bell gain, while those linked to the Dow Jones Industrial Average are priced for a rally of around 332 points. The tech-focused Nasdaq is priced for a 136 point gain.
Bank of America (BAC) – Get Bank of America Corporation Report jumped 3% after it posted better-than-expected third quarter earnings, with solid net interest income gains offsetting the impact of big jump in provisions for bad loans.
News Corp (NWSA) – Get News Corporation Report shares moved 3% higher pre-market trading following a Friday update from billionaire Rupert Murdoch that suggested he could re-combine his print media division with Fox Corp (FOXA) – Get Fox Corporation Report nearly a decade after he chose to separate them.
Stocks in Europe were also higher, with London’s FTSE 100 up 0.87% and the region-wide Stoxx 600 rising 1.1% in Frankfurt.
Overnight in Asia, Japan’s Nikkei 225 ended 1.16% lower as the yen fell to another 24-year low of 148.65 against the dollar, while the MSCI ex-Japan index added 0.55% into the final hours of trading.