Morning Bid: Lower yields lift investor spirits

Traders work on the floor at the New York Stock Exchange (NYSE) in New York City, U.S., October 26, 2023. REUTERS/Brendan McDermid/File Photo Acquire Licensing Rights

A look at the day ahead in European and global markets from Kevin Buckland

The pressure is coming off bond markets, taking pressure off every other market at the same time as we enter the final trading day in another torpid week.

A sharp retreat for long-term U.S. Treasury rates gave investors across the Asia-Pacific a chance to exhale, with bond yields dropping from decade highs in Tokyo and Sydney.

Equities bounced despite another sharp Wall Street selloff overnight, giving European investors some cause for optimism. Japan’s Nikkei jumped 1.5%, with Hong Kong’s Hang Seng not far behind.

There’s little doubt the U.S. dollar is still king, but the yen has at least pulled itself back from a one-year low, while the euro has recovered some composure after European Central Bank President Christine Lagarde & Co’s “inaction is action” pause in its hiking cycle.

Some market cheer on a Friday would be a nice respite before what could well be a volatile few days next week, with back-to-back-to-back policy decisions from the Bank of Japan, U.S. Federal Reserve and Bank of England.

The ECB has raised expectations that tightening has reached its conclusion in the U.S. and U.K. – making the meeting in Japan potentially the one to watch. Perhaps fittingly for a central bank with a penchant for surprises, the BOJ’s announcement comes on Halloween, and a weakening yen and spiking yields have fomented speculation for another hawkish policy tweak.

The European data diary is light, but Lagarde has the chance to speak again at the Euro Summit in Brussels.

The U.S. sees the release of the PCE deflator, one of the Fed’s preferred inflation gauges, along with financial results from Big Oil: Exxon and Chevron.

In geopolitics, China’s foreign minister Wang Yi continues his long-anticipated Washington visit, at a time of some sudden and saddening news at home: former Premier Li Keqiang died of a heart attack in the early hours of Friday at the age of 68, only 10 months after retiring from the post he held for a decade.

Key developments that could influence markets on Friday:

-Sweden, Spain retail sales (both September), Spain GDP (Q3), France, Italy consumer confidence (both October)

-U.S. PCE deflator, personal consumption (both September), University of Michigan sentiment (October)

-Exxon, Chevron earnings

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