October 21 – Stock futures are pointing to a slightly weaker open to the week after the S&P 500 and Dow Jones carved out new all-time highs last week. The VIX starts the week slightly firmer than where it finished Friday, hovering around the 19 level. The dollar is firming again after a strong last week, rising above 103.4 this morning. Treasuries are starting the week off on a firm note as well, with 10-year yields rising to 4.14% and 2-year yields trading at 3.99%. Crude oil is looking to recover some of Friday’s sharp losses, with the nearby WTI contract pushing back above $70 to start the week. The ags are quietly mixed to start the session, with export inspections and crop progress on tap later today with expectations of another week of rapid harvest progress as the U.S. looks to finish up well ahead of schedule.
Interest on federal debt exceeded one trillion dollars for the first time in history, according to the U.S. government budget released Friday afternoon. The deficit for the fiscal year ended September 30th rose by 8.1% year-on-year to $1.833 trillion, the highest since the pandemic-affected $2.772 trillion in fiscal year 2021. This equates to 6.4% of U.S. GDP, up from 6.2% in the year prior. The biggest increase in the deficit was, as could be expected, the aforementioned massive interest expense. It is worth pointing out that the weighted average interest rate on our federal debt did fall 3 basis points from the month prior, now sitting at 3.32% compared to the 3.35% seen in August. With the U.S. presidential election now only two weeks from tomorrow, markets are keeping a close eye on ever-shifting odds and reacting in turn. Neither side has proposed policy that would actually address the growing federal deficit as they make big promises on the campaign trail to sway those still undecided, but with control of Congress still uncertain as well, it will likely prove difficult to fulfill said promises regardless. As such, the market is content to kick the proverbial can down the road and keep this lingering problem in the back of its mind for another day.
China’s central bank its key lending rates more than expected, starting the week off on an optimistic note. The 1-year loan prime rate (LPR) was cut by 25 basis points down to 3.10%, while the 5-year LPR was cut by the same amount to now sit at 3.60%. This was the first cut seen since July and continues the path of stimulus measures aimed at kickstarting the slowing Chinese economy. Recent data has shown improvement in many sectors of China’s economy, but much of the pessimism continues to center on the all-important property sector, with recent stimulus measures likely to take time to show enough of an impact to quell concerns.
It may be a light start to the week in terms of U.S. economic data releases, but the market still gets plenty to digest, with another huge week of corporate earnings on deck, the World Bank’s 2024 Annual Meetings kicking off today in D.C., and a handful of Fed members set to deliver speeches. While there will be a huge number of companies reporting this week, much of the focus will be on a handful of majors like Tesla, General Motors, Boeing, American Airlines, and UPS. With much of last week’s focus on the tech sector, all eyes will be on Wednesday’s report from Tesla. Obviously, third quarter results will be parsed through with a fine-tooth comb, but much of the interest will be on forward-looking aspects following their recent event as details around their planned “Cybercab” and other products have thus far been sparse. In other corporate news, Boeing has reportedly reached a tentative agreement to end their costly five-week strike, making their upcoming earnings report that much more interesting, also due out on Wednesday. On the macroeconomic side of things, traders will look to highlights from speakers including European Central Bank President Christine Lagarde today, with the shaky E.U. economy and loosening fiscal policy also garnering attention for its potential impact on the U.S. dollar going forward.
