Treasuries hit as traders weigh US election risks: Markets close

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(Bloomberg) — The world’s largest bond market took a hit as traders weighed some of the potential implications of November’s U.S. election following last week’s presidential debate between Joe Biden and Donald Trump.

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Treasuries fell – with longer maturities largely underperforming shorter ones. After struggling to find direction in early trading, stocks advanced, led by gains in tech megacaps. The dollar rose.

“During last week’s presidential debate, neither candidate proposed policies that would reduce the country’s fiscal deficit, which is becoming unsustainable,” said Jose Torres at Interactive Brokers. “Meanwhile, the US political landscape is very uncertain as members of the media and various Democrats call for Biden to withdraw from the race for the White House after his poor debate performance.”

Meanwhile, a divided US Supreme Court ruled that Trump has some immunity from criminal charges for trying to change the results of the 2020 election, but only by ensuring that a trial does not take place before the November election.

10-year Treasury yields advanced eight basis points to 4.48%. The S&P 500 stood near 5,470. European shares snapped a four-day losing streak and the euro rose after French election results suggested there is less likelihood of extreme policies coming from the far right.

Supreme Court rulings reset investors’ calculations: Road to closure

Treasury supporters gain mid-year favors: Research Summary

After last week’s presidential debate changed the odds of a Trump victory over Biden, Morgan Stanley strategists Matthew Hornbach and Guneet Dhingra are reevaluating their assumptions going into the election.

“The bottom line is that the market must now face the increased probabilities of changes in immigration and tariff policies in an economy where growth has already cooled, making the market more likely to cut prices further,” they wrote. “On the other hand, higher prospects of a Republican purge, amid increased focus on deficits, could put upward pressure on long-term premiums.”

The dollar should remain elevated in the second half of the year as the Treasury yield advantage improves, the strength of U.S. growth and November election risks, JPMorgan Chase & Co. strategists wrote. led by Meera Chandan.

Fiscal policies that support growth should also be positive for the dollar in the short term, despite deficit implications in the medium term, they noted.

Meanwhile, Morgan Stanley equity strategists led by Michael Wilson say investors “need to remain selective” and maintain a bias toward quality U.S. stocks heading into the election season. These companies have more stable earnings, stronger balance sheets and higher margins.

“Risks are tilted to the downside for growth under Republican victory scenarios, in part due to immigration reform and tariffs,” they wrote. With inflation and fiscal sustainability also in focus, such dynamics “are likely to be headwinds to lower-quality, cyclical areas of the market and small caps in this scenario.”

Corporate America faces its highest earnings bar in nearly three years as it prepares to report second-quarter results, according to Goldman Sachs Group Inc. strategists. led by David Kostin.

“The amount of earnings per share growth is likely to moderate as consensus estimates set a higher bar than in previous quarters,” Kostin said. “We expect the ‘reward’ of outperformance for stock outperform ratings to be smaller than average again this quarter.”

Corporate Highlights:

  • Chewy Inc., aka Keith Gill, known online as “Roaring Kitty” – disclosed a passive 6.6% stake in the online pet food and products retailer.

  • Teva Pharmaceutical Industries Ltd. is being investigated by the U.S. Federal Trade Commission over patents for certain drugs, including asthma inhalers, according to a person familiar with the matter.

  • Boeing Co. agreed to buy back Spirit AeroSystems Holdings Inc. for $37.25 a share in a stock deal that values ​​the supplier at $4.7 billion, smoothing a two-decade split as the U.S. plane maker tries to fix its manufacturing woes.

  • French antitrust enforcers are preparing to charge Nvidia Corp. with alleged anti-competitive practices, Reuters reported, as the world’s most valuable chipmaker faces increasing regulatory scrutiny.

  • Meta Platforms Inc. has been hit with a warning over its subscription model for ad-free services on Instagram and Facebook, risking potentially heavy fines in the European Union’s latest crackdown on Big Tech under tough new rules.

  • SVB Financial Group secured a more than $600 million cut in its potential tax bill, raising some bonds tied to the bankrupt former parent of Silicon Valley Bank and removing a hurdle in its path to pay off creditors in Chapter 11.

This week’s highlights:

  • Eurozone CPI, unemployment, Tuesday

  • US job opening, Tuesday

  • Jerome Powell and Christine Lagarde speak at the ECB forum in Portugal on Tuesday

  • China Caixin services PMI, Wednesday

  • S&P Eurozone Global Eurozone Services PMI, PPI, Wednesday

  • US Fed Minutes, ADP Employment, ISM Services, Factory Orders, Initial Jobless Claims, Durable Goods, Wednesday

  • Fed John Williams of the Fed, on Wednesday

  • UK general election on Thursday

  • US Independence Day holiday, Thursday

  • Retail sales in the Eurozone on Friday

  • US jobs report, Friday

  • Fed of Fed John Williams, Friday

Some of the main movements in the markets:

INVENTORY

  • The S&P 500 was up 0.2% as of 1:41 p.m. New York time.

  • Nasdaq 100 rose 0.4%

  • The Dow Jones Industrial Average rose 0.2%

  • MSCI World Index rose 0.2%

currencies

  • The Bloomberg Dollar Spot Index rose 0.1%

  • The euro rose 0.2% to $1.0731

  • The British pound was little changed at $1.2644

  • The Japanese yen fell 0.4% to 161.47 per dollar

Cryptocurrencies

  • Bitcoin rose 2.5% to $63,474.13

  • Ether rose 1.9% to $3,481.73

BONDS

  • The 10-year Treasury yield advanced eight basis points to 4.48%

  • Germany’s 10-year yield advanced 11 basis points to 2.61%

  • Britain’s 10-year yield advanced 11 basis points to 4.28%

wares

  • West Texas Intermediate crude rose 2.2% to $83.30 a barrel

  • Spot gold rose 0.1% to $2,329.52 an ounce

This story was produced with the help of Bloomberg Automation.

–With assistance from Lynn Thomasson, Julien Ponthus, John Viljoen, Catherine Bosley, Matthew Burgess, Vildana Hajric, Sagarika Jaisinghani, Masaki Kondo and Felice Maranz.

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