Morning Bid: Treasury Yields Plunge as Oil Craters and Economy Slows

A look at the day ahead in the US and global markets by Mike Dolan

A fall in oil prices and further signs of a slowing economy saw Treasury yields hit their lowest level in two months, supporting Wall Street stock indexes despite notable falls in shares of Walmart, Cisco and Alibaba.

Two-year U.S. Treasury yields fell below 4.80% on Friday for the first time since September 1, with 10-year yields also falling below 4.40% to hit their September low.

Although falling slightly on Friday, U.S. crude oil prices have fallen this week – hitting a four-month low on Thursday due to a mix of rising U.S. inventories and global demand levels that JP said Morgan, are halfway to their standing forecast for November. far. Crude has now lost almost 25% in just six weeks – helped by the gradual lifting of oil sanctions on Venezuela by the United States.

But the demand situation in the United States has also weakened significantly. Signs of a softening U.S. labor market were evident in a surprising rise in jobless claims over the past week, while other reports showed homebuilder confidence fell sharply this month and a disproportionate decline in the manufacturing sector took place in October.

It wasn’t all bad news Thursday — with better mid-Atlantic business optimism from the Philadelphia Federal Reserve than many expected.

But the real cause of the relief lies in how the whole picture sparks new optimism about disinflation – and how that will deter the Fed from raising interest rates again and, according to futures markets at least, will lighten them by up to 100 basis points next year. .

The Labor Ministry said import prices fell 0.8% in October, the biggest drop in seven months amid a broad decline in goods costs, worsening annual consumer price deflation. import up to 2.0%.

Although Walmart’s own shares (WMT.N) fell nearly 8% on Thursday, signaling more cautious consumers heading into the holiday season – despite higher profits and rising targets – its bottom line global should please the Fed.

The retail giant said shoppers were becoming increasingly “choiceful and discreet” and seeking the deep discounts the company plans to offer, particularly in the food sector.

The net result in the stock markets was that the S&P500 (.SPX) posted another slight gain on Thursday and stock futures – helped by the latest drop in borrowing rates – rose again before the bell Today. The VIX (.VIX) was lower again.

Even though the dollar (.DXY) is being hit by falling U.S. Treasury yields, the decline in sovereign borrowing rates has been reflected around the world, in Europe, and even in Japan.

Mirroring slowing demand elsewhere, UK retail sales volumes fell unexpectedly in October as tense consumers stayed home.

Italian bond yields and spreads also fell even as investors awaited a review of Italy’s sovereign credit ratings later in the day – although analysts see little risk that Moody’s will relegate the country’s debt to status junk. The Italian FTSE MIB index (.FTMIB) rose 0.7%.

As is often the case these days, Chinese stocks have underperformed.

Shares of Alibaba (9988.HK) in Hong Kong fell 10% on Friday after it abandoned plans to spin off its cloud business, citing uncertainties fueled by U.S. restrictions on exports to China of used semiconductors in artificial intelligence applications.

The drop, potentially the biggest one-day drop in more than a year, wiped about $20 billion off the Chinese tech giant’s market value. The company’s U.S.-listed shares closed 9% lower on Thursday.

The day ahead is relatively quiet on the calendar.

While the Fed’s rhetoric hasn’t changed much so far despite recent data flows, markets will be watching another slate of key central bank speakers later today.

October housing starts numbers are the main highlight of the data, while many will also be interested in an update to the Atlanta Fed’s real-time GDP estimate after a week also loaded with new data.

Main developments that should further orient US markets later on Friday:

* Housing starts/permits in the United States in October

* Boston Federal Reserve President Susan Collins, San Francisco Fed President Mary Daly, Chicago Fed Chief Austan Goolsbee, and Fed Vice President for Supervision Michael Barr, everyone speak up. Bank of England Deputy Governor Dave Ramsden speaks

* US hosts APEC leaders meeting in San Francisco

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