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UBS analysts express a "constructive outlook" for global equities, driven by positive US economic data, Chinese stimulus measures, and potential global interest rate cuts. They highlight opportunities in US technology stocks and expect significant growth in Asia ex-Japan and European small- and mid-cap equities.
Wall Street is increasingly anxious as the race tightens between Kamala Harris and Donald Trump, with projections suggesting Trump could secure a majority in Congress. This potential shift raises concerns over corporate tax cuts and increased national debt, which could lead to rising inflation and disrupt the Federal Reserve's policies. Consequently, bond yields are climbing, signaling investor unease as the favorable trend in stock prices may be at risk.
UBS analysts advise investors to remain steady amid U.S. election uncertainty, asserting that market volatility should not prompt drastic portfolio changes. Historical trends show that equities typically perform well around elections, with strong earnings growth expected in the coming years. Despite potential policy shifts post-election, focusing on long-term fundamentals is crucial for investment success.
The Bank of Japan's monetary meeting on October 30-31, 2024, is anticipated to maintain current rates, with a potential 0.10% hike in December being a possibility. Governor Kazuo Ueda's cautious stance on inflation and growth, alongside uncertainties from the US elections, may influence future rate decisions. Market participants are closely watching economic forecasts and the widening US-Japan bond yield differentials, which have strengthened the USD/JPY, while the Nikkei 225 faces upward trendline support amid limited risk-taking.
The latest Federal Reserve Beige Book indicates a modest economic growth, aligning with economists' projections, while consumers show resistance to profit-led inflation. Bank of England Governor Bailey noted unexpected disinflation, highlighting the disconnect between economic cycles and margin expansions. Business sentiment surveys suggest dire outcomes for manufacturing that have not materialized, as central bank speaker fatigue begins to set in among markets.
Bond traders are driving Treasury yields higher, suggesting that the Federal Reserve's recent half-percentage point interest rate cut may have been excessive. This rise in yields is exerting pressure on the stock market, particularly affecting companies linked to the housing sector.
The US Treasury market is experiencing significant challenges, highlighted by a notable increase in the term premium on 10-year Treasury notes. This premium, which reflects the additional yield investors seek for holding longer-term debt over shorter-term securities, has risen from near zero to just under a quarter point this month, marking its highest level since last November. As yields surge, this trend signals escalating risks within the bond market.
Citi Chair John Dugan indicated that the revised bank-capital rules, known as Basel III, are unlikely to be finalized before the next presidential inauguration. He highlighted a "fundamental stalemate" at the Federal Deposit Insurance Corp. regarding the latest version of the rules, with significant changes still pending from US regulators.
Treasury yields rose for the third consecutive day, with the 10-year rate hitting 4.25%, the highest since July. This increase is driven by expectations of gradual interest rate cuts by the Federal Reserve and concerns over inflation linked to the upcoming presidential election, particularly with speculation around former President Donald Trump's potential victory. Signs of a resilient US economy and persistent inflation are further contributing to the upward trend in yields.
Extreme tariffs proposed by Donald Trump could disrupt disinflation efforts and lead to higher U.S. interest rates, according to Tim Adams, head of the Institute of International Finance. He warned that while some inflationary impacts might be absorbed in the short term, the overall economic package could exert upward pressure on prices. As Trump positions himself as a change candidate focused on protectionism, analysts express concerns about his potential isolationist policies compared to his opponent, Kamala Harris, who is expected to engage more with the global community.
Federal Reserve Bank of Boston N.A.
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