US interest rates, effects of the war in the Middle East on oil prices and IMF increases forecast for Brazilian GDP
US stock futures rose slightly on Tuesday (Oct 10, 2023), as investors closely monitored policy comments from Fed officials and the effects of the war between Israel and Hamas in the Middle East.
Investors seek safety in U.S. Treasuries as markets return from the Columbus Day holiday, while Country Garden shares fall after the cash-strapped Chinese developer defaults on an international debt. Furthermore, the IMF (International Monetary Fund) raises Brazil’s growth projection.
1. Fed speech and the conflict in the Middle East
US stock futures rose on Tuesday but remained relatively close to the flat line as investors digested comments from Fed speakers on the interest rates and with an eye on violence in the Middle East.
At 8am (Brasília time), the contract Dow futures amounted to 0.20%, the S&P 500 futures gained 0.18%, and the Nasdaq 100 futures rose 0.22%.
The main indices ended the previous session in the green, reversing previous declines. Wall Street was buoyed in part by dovish statements from Fed officials, who suggested that a recent rise in U.S. Treasury yields could lessen the need for the central bank to raise borrowing costs in the near term.
Energy stocks were among the best performers, boosted by a jump in oil prices on Monday coupled with concerns about the geopolitical ramifications of escalating hostilities between Israel and the Palestinian Islamist group Hamas.
Shares of major airlines fell following rising oil prices and the decision by many airlines to cancel flights to Tel Aviv, the main gateway for travel to Israel.
Meanwhile, defense stocks rallied on news of the conflict, with the S&P 500 Aerospace & Defense index posting its biggest one-day percentage gain since 2020.
2. US Treasury Yields Fall in Asia
US Treasury yields were mostly lower as investors sought the relative safety of US debt following the intensification of turmoil in Gaza.
The reference note yield 10 year treasury it fell to 4.62% at one point in Asian trade, marking its biggest drop since March. It also pulled back somewhat from a recent sharp sell-off triggered by concerns that the Fed would choose to keep interest rates high for a longer period than initially anticipated.
However, by 8 a.m. the 10-year yield had risen 0.78% to 4.678%. In other time frames, the yield of 2 yearsrate-sensitive, lost 1.66% to 4.99%, and the yield of 30 years, longer term, fell 1.78%, to 4.854%. Typically, yields move inversely to prices.
US bond markets were closed on Monday (Oct 9) due to the Columbus Day holiday, making this morning the first time investors were able to put capital into government debt since the surprise attack of Hamas in Israeli areas close to Gaza.
Yields were also lowered by comments from two senior government officials. Federal Reservewhich helped calm some market fears that the US Central Bank would further tighten monetary policy.
Since the Fed’s last meeting in September, yields on 10-year Treasury bonds have risen sharply, leaving policymakers to assess whether this is the result of expectations of a stronger economy or whether investors are asking for returns. better to bear interest rate risk.
At a conference, Dallas Fed President Lorie Logan said higher yields could offset the need to raise the Fed’s benchmark interest rate. At the same event, Fed Vice President Philip Jefferson also signaled that the central bank must now “proceed with caution” in the wake of the jump in long-term yields.
Markets will be watching to see if these sentiments are echoed by several other Fed officials scheduled to speak this week. The minutes of the Central Bank’s September meeting should also be released on Wednesday (Oct 11), while the very important consumer price numbers should be published on Thursday (October 12).
3. IMF raises estimate for Brazilian growth
The Brazilian economy measured by Gross Domestic Product (GDP) is expected to grow 3.1% in 2023, according to the World Economic Panorama report, released by the International Monetary Fund (IMF) this Tuesday, 10.
According to the IMF, among the reasons compared to the previous projection, which was growth of 2.1%, with the last update in July, are the strong activity of the agricultural and services sectors in the first half of 2023. remained strong, supported by fiscal stimulus”, he highlighted in the document. For 2024, the IMF sees lower growth, of 1.5%.
The fund also revised projections for GDP in Latin America and the Caribbean to 2.3% this year, against a previous estimate of 1.9% released in July, based on the faster expansion expected in Brazil and Mexico.
At 8 am (Brasília time), the EWZ ETF (NYSE:EWZ) rose 0.70% in the pre-market.
4. Oil wobbles as Middle East turmoil comes into focus
Oil prices fluctuated this Tuesday (Oct 10), as investors tried to assess the potential for supply disruptions caused by the conflict between Israel and Hamas.
At 8am, futures US oil were traded 0.56% lower at US$85.90 per barrel, while the Brent fell 0.56% to US$87.66.
Both benchmarks rose more than 4% on Monday after Hamas launched the biggest attack on Israel in decades over the weekend, provoking severe retaliation from Israel with a wave of airstrikes in Gaza.
Investors feared that violence could expand deeper into the Middle East, possibly threatening an already tight supply picture in the region.
5. Country Garden is unable to make loan payments
Country Garden (HK) shares2007) lost more than 10% of their value this Tuesday, after the embattled Chinese real estate developer was unable to make payments on an international loan that was coming due.
In a regulatory filing with the Hong Kong Stock Exchange, the Foshan-based company also signaled that it does not expect to meet all of its US dollar-denominated payment obligations and other offshore payment obligations. “when due or within the relevant grace periods”raising fears of possible default.
Country Garden added that sales have suffered “remarkable pressure” since the beginning of the year. In September, the group’s pre-sales declined for the sixth consecutive month to RMB 6.17 billion – an 80.7% drop compared with the same month in 2022.
The company, which previously managed to avoid a technical default last month, noted that it had hired financial advisors to help develop the “most pragmatic and ideal solution” to your creditors.
With information from Investing Brazil.
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