Morning Bid: Fed peak rate talk meets China curbs, grain strain

A look at the day ahead in US and international markets from Mike Dolan.

What could be a key week for US monetary policy has also changed the outlook for the ‘terminal rate’, with concerns about global growth from China and fears of global inflation due to rising grain prices.

Despite some risky investments from US mega caps, the major stock market was boosted last week by the hope that the decision of the Federal Reserve this week will show a decrease in the rate of growth from the fourth consecutive increase of 75 on Wednesday to a half-point move in December.

But separate reports over the weekend suggested this could be accompanied by a much higher rate of 5%, with the Fed’s May rate futures now just a whisker below that level and Goldman Sachs saying it has raised its target by a quarter to 5% by March.

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That pushed short- and long-term Treasury yields higher on Monday, with the dollar also rising across the board.

US stock futures were in the red along with European bourses and major Chinese indices, while Hong Kong pared its biggest monthly loss in 14 years to its lowest since 2009, amid more economic readings in China.

The yuan also fell, registering its eighth monthly loss and the longest loss since 1994.

China’s industrial activity and employment fell sharply in October, weighed down by softening global demand and tough domestic measures against COVID-19. The sentiment dropped oil prices by 1%.

Production of Apple’s ( AAPL.O ) iPhones, meanwhile, could drop by 30% at one of the world’s largest factories next month due to the tightening of barriers. Manufacturer Foxconn is working to ramp up production at another factory in the city of Shenzhen to address the problem.

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But fears of global inflation grew amid rising food prices after Russia over the weekend pulled out of a UN deal to sell Black Sea grains. Chicago wheat futures jumped nearly 6% on Monday and corn rose more than 2%.

Brazil’s foreign exchange stocks fell on Monday after leftist leader Luiz Inacio Lula da Silva narrowly defeated President Jair Bolsonaro in a runoff election. Markets are now looking for confirmation of Bolsonaro’s approval and indications of who Lula will choose for his cabinet in key positions such as finance.

In banking, Credit Suisse ( CSGN.S ) on Monday unveiled details of its plans to raise 4 billion Swiss francs ($4.01 billion) from investors to tackle the biggest crisis in its 166-year history.

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And the Swiss National Bank ( SNBN.S ) said it lost 142.2 billion Swiss francs ($142.6 billion) in the first nine months of 2022 as rising interest rates and a strong franc reduced the value of its foreign businesses.

Key events that should provide guidance to US markets on Monday:

* Chicago Oct Purchasing Managers Index, Dallas Fed Oct manufacturing index

* Acquisitions of US Companies: Loews, Global Payments, Caesars Entertainment etc

Reuters photos
Reuters photos
Brazil Election Lula has won the Brazilian elections

Written by Mike Dolan, edited by John Stonestreet; [email protected]. Twitter: @reutersMikeD

Our Standards: Thomson Reuters Trust Principles.

The opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from discrimination.


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