Yesterday, the Treasury market experienced significant selling pressure, leading to a rise in benchmark 10-year yields to over 4.15%, the highest since late July. While the exact reason for this surge is unclear, some speculate it may be due to supply pressure from European government bonds or hedging before heavy issuance later in the week. This sell-off in Treasuries also contributed to a stronger dollar, reversing losses from Friday.
Although some attribute the dollar’s strength and higher Treasury yields to a resurgence of the ‘Trump trade’, others believe it reflects a theme of ‘US exceptionalism’ regardless of the election outcome. With swing state polls close and both candidates having similar views on fiscal and monetary policy, the market seems to expect continued US outperformance.
In the equity market, there was a soft day with the tech sector leading the downside, particularly the Nasdaq. Despite this, medium-term outlook remains bullish due to strong earnings and economic growth, as well as the support from the Fed. However, investors may continue to reduce risk ahead of the presidential election, the next jobs report, and the FOMC decision.
Gold prices reached a fresh record high, exceeding $2,700/oz, driven by bullish momentum despite conflicting traditional drivers. WTI crude oil also rose above $70bbl as geopolitical tensions in the Middle East, particularly between Israel and Iran, kept investors on edge.
Looking ahead, the economic calendar remains quiet with only one notable release, the Richmond Fed’s manufacturing survey. While this data can shape expectations for the ISM survey, it is unlikely to have a major impact on the market. However, central bank speakers at the annual IMF-World Bank meetings in Washington DC, including BoE Governor Bailey and ECB President Lagarde, could provide some interesting insights.
Earnings releases are also in focus, with companies like Lockheed Martin, RTX, and 3M reporting before the market opens. Investors hope to see the strong earnings performance continue, as the S&P heads towards its fifth consecutive quarter of year-over-year earnings growth.
