(Bloomberg) — The world’s biggest bond market got hit as traders weighed some of the potential implications of the November US election after last week’s presidential debate between Joe Biden and Donald Trump.
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Treasuries fell — with longer-term maturities largely underperforming shorter ones. After struggling to find direction in the first few hours of trading, stocks advanced, led by gains in tech megacaps. The dollar edged up.
“During last week’s presidential debate, neither candidate proposed policies that would reduce the country’s fiscal deficit, which is growing unsustainable,” said Jose Torres at Interactive Brokers. “Meanwhile, the US political landscape is highly uncertain as members of the media and various Democrats call for Biden to step down from the race for the White House following his weak debate performance.”
Treasury 10-year yields advanced nine basis points to 4.49%. The S&P 500 hovered near 5,470. European shares snapped a four-day losing streak and the euro climbed as French election results suggested there’s a smaller probability of extreme policies coming from the far-right.
Following last week’s presidential debate that’s shifted the probabilities of Trump winning over Biden, Morgan Stanley strategists Matthew Hornbach and Guneet Dhingra are re-evaluating their assumptions going into the elections.
“The key issue is the market now has to contend with rising probabilities of changes in immigration and tariff policies in an economy where growth has already been cooling, making the market more likely to price more rate cuts,” they wrote. “On the other hand, higher prospects of a Republican sweep, amid growing focus on deficits, could put upward pressure on long-end term premiums.”
The dollar should stay elevated in second half of the year as a result of improving Treasury yield advantage, decent US growth strength and November election risks, JPMorgan Chase & Co. strategists led by Meera Chandan wrote.
Growth-supportive fiscal policies should also be dollar-positive in near term, despite deficit implications in the medium term, they noted.
Meantime, Morgan Stanley equity strategists led by Michael Wilson say investors “should stay selective” and maintain a bias toward quality US stocks heading into election season. Those companies have more stable earnings, stronger balance sheets and higher margins.
“Risks are skewed to the downside for growth under Republican win scenarios due in part to immigration reform and tariffs,” they wrote. With inflation and fiscal sustainability also in focus, such dynamics “are likely headwinds to lower quality, cyclical areas of the market and small caps in this scenario.”
Corporate America faces the highest earnings bar in almost three years as it prepares to report second-quarter results, according to Goldman Sachs Group Inc. strategists led by David Kostin.
“The magnitude of earnings-per-share beats is likely to diminish as consensus forecasts set a higher bar than in previous quarters,” Kostin said. “We expect the outperformance ‘reward’ for stocks beating estimates will be smaller than average again this quarter.”
Corporate Highlights:
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Chewy Inc. whipsawed as Keith Gill — known online as “Roaring Kitty” — disclosed a 6.6% passive stake in the online pet food and product retailer.
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Boeing Co. agreed to buy back Spirit AeroSystems Holdings Inc. for $37.25 a share in an all-stock deal that values the supplier at $4.7 billion, unwinding a two-decade separation as the embattled US planemaker tries to fix its manufacturing defects.
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Meta Platforms Inc. has been slapped with a warning over its subscription model for ad-free services on Instagram and Facebook, risking potentially heavy fines in the European Union’s latest attack on Big Tech under tough new rules.
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A.P. Moller-Maersk A/S withdrew its bid for DB Schenker, the logistics unit of Deutsche Bahn AG that’s been reported to be valued at more than €15 billion ($16.1 billion).
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Air France-KLM is experiencing pressure on projected unit revenue this summer season at French units because passengers are avoiding Paris in the summer months to skirt possible disruptions and high prices during the Olympic Games.
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BYD Co. sold a record number of electric and hybrid cars in the second quarter, sales data compiled by Bloomberg News shows, as price cuts and new technology stoked consumers into purchases.
Key events this week:
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Eurozone CPI, unemployment, Tuesday
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US job openings, Tuesday
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Jerome Powell and Christine Lagarde speak at ECB forum in Portugal, Tuesday
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China Caixin services PMI, Wednesday
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Eurozone S&P Global Eurozone Services PMI, 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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US Independence Day holiday, Thursday
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Eurozone retail sales, Friday
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US jobs report, Friday
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Fed’s John Williams speaks, Friday
Some of the main moves in markets:
Stocks
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The S&P 500 rose 0.2% as of 1:07 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 0.2%
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The euro rose 0.2% to $1.0730
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The British pound was little changed at $1.2647
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The Japanese yen fell 0.4% to 161.48 per dollar
Cryptocurrencies
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Bitcoin rose 1.8% to $63,032.51
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Ether rose 1.4% to $3,463.25
Bonds
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The yield on 10-year Treasuries advanced nine basis points to 4.49%
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Germany’s 10-year yield advanced 11 basis points to 2.61%
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Britain’s 10-year yield advanced 11 basis points to 4.28%
Commodities
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Lynn Thomasson, Julien Ponthus, John Viljoen, Catherine Bosley, Matthew Burgess, Vildana Hajric, Sagarika Jaisinghani and Masaki Kondo.
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