(Bloomberg) — The world’s largest bond market took a hit as traders weighed some of the potential implications of the November U.S. election after last week’s presidential debate between Joe Biden and Donald Trump.
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Treasuries fell, with long-term maturities significantly underperforming short-term maturities. After struggling to find direction in the early hours of trading, stocks advanced, led by gains in mega-cap tech stocks. The dollar edged higher.
“During last week’s presidential debate, neither candidate proposed policies that would reduce the country’s budget deficit, which is becoming unsustainable,” said Jose Torres of Interactive Brokers. “Meanwhile, the US political landscape is very uncertain as members of the media and various Democrats call on Biden to withdraw from the race for the White House following his weak performance in the debates. »
Meanwhile, a divided US Supreme Court ruled that Trump has some immunity from criminal charges for trying to overturn the 2020 election results, while ensuring that a trial would not take place before the November election.
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 rulings revise investors’ calculus: Street Wrap
U.S. Treasury Interest Rates Gaining Popularity Mid-Year: Research Review
After last week’s presidential debate shifted Trump’s odds over Biden, Morgan Stanley strategists Matthew Hornbach and Guneet Dhingra are re-evaluating their assumptions heading into the election.
“The key issue is that the market now faces increasing odds of changes in immigration and tariff policies in an economy where growth has already slowed, making the market more likely to price in more rate cuts,” they write. “On the other hand, the higher prospects of a Republican victory, amid growing attention to 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, equity strategists at Morgan Stanley, led by Michael Wilson, say investors “should remain selective” and maintain a bias toward quality U.S. stocks as election season approaches. These companies have more stable profits, 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 beats is expected to decline as consensus forecasts have set the bar higher than in previous quarters,” Kostin said. “We expect the outperformance ‘reward’ for stocks beating expectations to be below average again this quarter.”
Company Highlights:
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Chewy Inc., known as Keith Gill — known online as “Roaring Kitty” — disclosed a 6.6% passive stake in the online pet food and supply retailer.
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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.
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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.
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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.
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Meta Platforms Inc. received a warning over its ad-free service subscription model on Instagram and Facebook, facing potentially hefty fines in the European Union’s latest attack on big tech under tough new rules .
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SVB Financial Group has secured a more than $600 million reduction in its potential tax bill, shoring up some obligations tied to the bankrupt former parent company of Silicon Valley Bank and removing a hurdle in its path to repaying its Chapter 11 creditors.
Key events this week:
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Eurozone CPI, unemployment, Tuesday
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Job openings in the United States, Tuesday
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Jerome Powell and Christine Lagarde speak at an ECB forum in Portugal on Tuesday
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Caixin Chinese Services PMI, Wednesday
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S&P Global PMI and Eurozone Services PPI, Wednesday
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US Fed Minutes, ADP Employment, ISM Services, Factory Orders, Initial Jobless Claims, Durable Goods, Wednesday
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Fed’s John Williams speaks Wednesday
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UK General Election, Thursday
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United States Independence Day, Thursday
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Eurozone retail sales, Friday
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US jobs report on Friday
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Fed Chairman John Williams speaks Friday
Some of the main movements in the markets:
Actions
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The S&P 500 rose 0.2% as of 1:41 p.m. New York time
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The Nasdaq 100 rose 0.4%
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The Dow Jones Industrial Average rose 0.2%
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The MSCI World Index rose 0.2%
Currencies
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The Bloomberg Dollar Spot Index rose 0.1%
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The euro rose 0.2% to $1.0731
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Sterling was little changed at $1.2644.
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The Japanese yen fell 0.4% to 161.47 per dollar
Cryptocurrencies
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Bitcoin rose 2.5% to $63,474.13
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Ether rose 1.9% to $3,481.73
Obligations
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The yield on the 10-year Treasury note rose eight basis points to 4.48%.
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Germany’s 10-year yield rose 11 basis points to 2.61%
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The UK 10-year yield rose 11 basis points to 4.28%
Raw materials
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West Texas Intermediate crude rose 2.2% to $83.30 a barrel
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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.
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