Today marks the start of a new trading month for the market, but the early disposition of the futures market isn’t overly enthusiastic about that understanding.
Currently, the S&P 500 futures are up one point and are trading in-line with fair value, the Nasdaq 100 futures are up six points and are trading fractionally above fair value, and the Dow Jones Industrial Average futures are down 39 points and are trading 0.1% below fair value.
That’s not a particularly strong leaning. If anything, it seems to reflect a general lack of buying interest more than a strong determination to sell. There is also some analysis paralysis in the mix as there are a lot of inputs firing at market participants this morning.
Some are known, like the earnings results; some are unknown, like the Israel-Hamas War; and some of the unknown, like the October ISM Manufacturing Index at 10:00 a.m. ET and Fed Chair Powell’s FOMC press conference at 2:30 p.m. ET, will soon be known.
We left the actual FOMC policy decision out of the “unknown,” because it is effectively known. According to the CME FedWatch Tool, there is a 0.8% probability of a rate hike today. That leaves all the intrigue about the Fed’s monetary policy thoughts to the press conference.
There isn’t any more intrigue regarding the Treasury’s quarterly refunding announcement. It was released at 8:30 a.m. ET and it was deemed better than feared as it relates to upcoming issuance of longer-term debt. The Treasury said:
“Based on projected intermediate- to long-term borrowing needs, Treasury intends to continue gradually increasing coupon auction sizes in the upcoming November 2023 to January 2024 quarter… Treasury plans to increase the auction sizes of the 2- and 5-year by $3 billion per month, the 3-year by $2 billion per month, and the 7-year by $1 billion per month. As a result, the auction sizes of the 2-, 3-, 5-, and 7-year will increase by $9 billion, $6 billion, $9 billion, and $3 billion, respectively, by the end of January 2024. Treasury plans to increase both the new issue and the reopening auction size of the 10-year note by $2 billion and the 30-year bond by $1 billion. Treasury plans to maintain the 20-year bond new issue and reopening auction size.”
This news appeared to placate the Treasury market some. The 10-yr note yield dropped from 4.89% ahead of the announcement to 4.85% in its wake, but has returned to 4.89%. The equity futures market improved as the 10-yr note yield dropped.
The latter point notwithstanding, it is hard to get overly excited by the refunding news. Granted it might be better than feared, but the fact of the matter is that there is a load of new debt issuance on the way (an estimated $776 billion this quarter and an estimated $816 billion in the first quarter of 2024). The nettlesome point is that all this debt issuance is projected before there has been any real economic slowing seen in the U.S.
Recall that the Fed believes we need a period of below-trend growth to help tame inflation. That may be, but below-trend growth — or a recession — will curtail tax receipts that presumably will increase borrowing needs without any spending offsets. We digress, but suffice to say, that isn’t a celebratory consideration.
Overall, the stock market doesn’t appear to be in much of a celebratory mood over the latest round of earnings results or the ADP Employment Change Report for October. The mood summation is more “meh” than “ahhhh.”
Adv. Micro Devices (AMD), CVS Health (CVS) DuPont (DD), Estee Lauder (EL), Paycom Software (PAYC), Yum! Bands (YUM), and Norwegian Cruise Line Holdings (NCLH) have been among the earnings reporters, which have elicited mixed and company-specific reactions.
Meanwhile, the ADP report showed 113,000 jobs were added to private-sector payrolls in October (Briefing.com consensus 100,000) following an unrevised 89,000 in September. The market acknowledged the headline, but didn’t get caught up in it, knowing that this report hasn’t been a very good gauge of late with respect to the government’s nonfarm payrolls number, which will be released this Friday.
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Originally Posted November 1, 2023 – Market digesting a lot of inputs as November begins
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