Russell 2000 dips ahead of a week with little news

This morning's highlight was a 1.5% fall in the Russell 2000, with equity and bond markets generally weaker. This week, little data is scheduled for release, leaving Wall Street steered by final Q3 earnings and Middle East headlines. At least nine speeches by members of the Federal Reserve are scheduled for this week, fodder for the crystal ball gazers. No further rate rises are now priced into the market, and more than 90 basis points of cuts are forecast in 2024. The most significant data scheduled for release this week looks to be the weekly jobless claims report on Thursday, followed by consumer sentiment on Friday.

Bottom line: Risk-off.

TODAY’S MAJOR NEWS

More challenging borrowing conditions in Q3

Senior Loan Officers reported tighter standards and weaker demand for commercial, industrial, commercial, and residential real estate loans in the Fed’s October 2023 Senior Loan Officer Opinion Survey. Together with higher short- and long-term rates, this attitude should have further throttled the economy, yet GDP data didn’t show much effect.  The October survey included special questions about banks’ reasons for changing standards for all loan categories in the third quarter of 2023. Banks most frequently cited a less favorable or more uncertain economic outlook, reduced tolerance for risk, deterioration in the credit quality of loans and collateral values, and concerns about funding costs.

Chinese bond issuance rises sharply

• Chinese local governments have issued 8.5 trillion yuan ($1.2 trillion) of bonds year to date, nearly double the pace seen pre-Covid, and offsetting lost revenue from taxes on property sales
• China’s central government granted local government entities the right to issue another one trillion yuan in bonds in the past month alone, in addition to providing fiscal aid and expanded bond quotas for next year
• Data showed the surge in bond sales was mainly for these local governments to pay the principal and interest on old debt
• There is a risk that growing Chinese debt issues will compete with the country's demand for US Treasury bonds

TODAY’S MAJOR MARKETS

Russell 2000 falls back

• The Russell 2000 fell 1.5%, whilethe Nasdaq and S&P 500 were both down 0.2%
• Foreign equity markets were mixed, with the Nikkei 225 up 2.4%, the Dax was off 0.4% and the FTSE 100 was unchanged
• The VIX, Wall Street’s fear index, fell to 15.1 (the year’s low was 13.0)

Bonds yields and the dollar unchanged

• 2-year yields were unchanged at 4.90%, while 10-year yields rose modestly to 4.65%
• The dollar index was unchanged at 105.0
• Versus the dollar, the Yen was up 0.3%, Sterling was up 0.1%, and the Euro was off 0.2%

Oil rallies on extended production cuts

• Oil prices rose 1.7% after Saudi Arabia and Russia reaffirmed their continued commitment to extra oil supply cuts until the end of December. Saudi Arabia’s Ministry of Energy is keeping voluntary cuts of 1 million barrels per day (bpd), and Russia is keeping voluntary cuts of 300,000 bpd
• Spot gold prices fell 0.4% to 1,990 per ounce, while Silver fell 0.2% to $23.2 per ounce
• The grain and oilseed sector was mixed at the start of the week

Analysis by Arlan Suderman, Chief Commodities Economist: Arlan.Suderman@StoneX.com

Market outlook by Paul Walton, Financial Writer: Paul.Walton@StoneX.com