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Watch Now: Here’s What Will Move Markets This Week

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Investing.com – Our markets analyst Jesse Cohen gives us his top five things to know this week on Wall Street, including:

1. (NASDAQ:) Earnings – Wednesday Afternoon

2. (NASDAQ:) Earnings – Tuesday Afternoon

3. (NASDAQ:), (NYSE:) Also Report Results

4. Fiscal Stimulus Headlines

5. Covid-19 Cases, Vaccine Developments

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.





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Economy

Betting on further U.S. yield curve steepening? Not so fast! By Reuters

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© Reuters. FILE PHOTO: The United States Department of the Treasury is seen in Washington, D.C.

By Gertrude Chavez-Dreyfuss

NEW YORK (Reuters) – Investors betting that optimism over the U.S. economic outlook will lift yields on longer-term U.S. Treasury securities faster than short-term rates could be in for a major surprise.

A potentially chaotic U.S. presidential election next month and a resurgence in global coronavirus cases that throttles nascent economic growth could spur more safe-haven buying of Treasuries that could flatten the yield curve and upend the consensus view for continued steepening.

The Federal Reserve is also determined to keep interest rates low and is likely ready to intervene and scoop up Treasuries at any sign of a yield back-up that is not consistent with economic fundamentals, analysts said.

The yield curve, which refers to the usually upward sloping line that plots the interest rates of U.S. government debt across different maturities, has been steepening for several weeks amid expectations of additional government stimulus that could help the economy and require more borrowing by the Treasury.

The extra supply of U.S. debt could pressure Treasury prices and push up yields, which move in the opposite direction.

A steepening curve, when longer-dated yields rise faster than shorter-dated ones, typically signals higher inflation and brighter economic prospects.

Bond investors have started to price in a victory for Democratic challenger Joe Biden over President Donald Trump, an outcome which could mean billions of dollars of additional COVID-19 stimulus, aid for state and local governments, and infrastructure spending.

Big banks such as JP Morgan, Barclays (LON:), and BofA Securities have recommended curve steepeners, with hedge funds piling into the trade as well, analysts said, making it an already crowded bet.

The closely watched spread between two-year and 10-year yields hit its widest since June 8 on Tuesday, up more than 30 basis points since late July. The five-year note/30-year bond spread was also more than 30 basis points wider since July.

Two weeks ago, the U.S. 10-year note and 30-year bond yield gap hit its widest since November 2016.

GRAPHIC: The 10/30-year spread is at its widest since November, 2016 – https://fingfx.thomsonreuters.com/gfx/mkt/nmovawanmva/Pasted%20image%201601931358623.png

GRAPHIC: The 10/2-year spread is at its widest since June – https://fingfx.thomsonreuters.com/gfx/mkt/dgkvlbymrvb/Pasted%20image%201601931177563.png

Rob Robis, chief global fixed income strategist at BCA Research, doesn’t buy the curve steepening view just yet.

“The growth is shaky enough with so much uncertainty that the bond market is not comfortable re-pricing for higher yields and a steeper curve,” he said.

Global coronavirus cases rose by more than 400,000 for the first time late Friday, a record one-day increase.

Jeff Snider, head of global research, at Alhambra Investments, said the 30 basis-point widening since July in both the five-year/30-year and the two-year/10-year yield spreads is not significant compared to historical bond moves.

“The movements are nothing more than market fluctuations,” Snider said, adding that yields are trading within narrow ranges despite massive Fed action and indicate that economic risks are still tilted to the downside.

J.P. Morgan said in a research note that while it projects a steeper curve going into year-end, steepening positions are stretched, which poses a near-term risk.

GRAPHIC: The big short – https://fingfx.thomsonreuters.com/gfx/mkt/rlgpdjrjjpo/Pasted%20image%201602272720386.png

Kevin Muir, an independent prop trader in Toronto who broadly sees further curve steepening, thinks the market could see a 30-basis point correction “that comes out of the blue and shake some people out,” in say, the yield spread between five-year notes and 30-year bonds.

Analysts also said a drawn-out and contested presidential election outcome could spur massive covering of shorts on the long end of the curve that could push yields lower.

DON’T FIGHT THE FED

Moreover, the Fed is committed to keeping short-term rates near zero for at least another three years.

Since March, the Fed has bought nearly $2 trillion in Treasuries, concentrating on short-dated to medium-term maturities.

“Investors and traders are likely to be cautious in shorting the market too hard or too far with the Fed in the wings,” said Patrick Leary, chief market strategist at broker-dealer Incapital.

Low interest rates have spurred more U.S. companies to issue corporate debt, as demand for those bonds stayed robust despite the pandemic.

The last thing the Fed wants to do is to scupper a recovery with higher yields that undermine corporations trying to raise funds in the market, BCA’s Robis said.

For now, Fed policymakers have no plan to change the nature of their asset purchases and go for longer-dated bonds.

But if rates were to rise too quickly, “it’s safe to assume they would make this policy shift, especially if it caused a correction in the stock market,” said Incapital’s Leary.





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U.S. offers Brazil telecoms financing to buy 5G equipment from Huawei rivals By Reuters

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2/2
© Reuters. U.S. Ambassador Todd Chapman walks between flags during a meeting at Sao Paulo’s Industries Federation in Sao Paulo

2/2

By Lisandra Paraguassu and Andrea Shalal

BRASILIA/WASHINGTON (Reuters) – The U.S. government stepped up an offensive on Tuesday to keep China’s Huawei Technologies out of Brazil’s 5G market, with Washington offering to finance purchases by Brazilian telecom companies of equipment from its competitors.

During a visit to Brasilia, officials of the U.S. International Development Finance Corporation (DFC), the U.S. EXIM bank and the National Security Council told reporters that funding was available to buy equipment from other companies.

The U.S. delegation was headed by National Security adviser Robert O’Brien, who met with Bolsonaro before they attended the signing of an EXIM bank financing agreement that identifies areas of business cooperation that includes 5G telecoms.

In Washington, top U.S. officials urged Brazil to carefully monitor Chinese investments in Brazil and moves by Beijing to expand its influence in Latin America’s largest economy through sale of 5G technology by Huawei.

U.S. Trade Representative Robert Lighthizer said trade agreements reached with Brazil on Monday would pave the way for further negotiations on steel, ethanol and sugar, and promote greater U.S. investment as Washington moves to provide a counter-weight to China’s expansion in the region.

“I would say clearly there is a China element … in everything that all of us do,” Lighthizer told an event hosted by the U.S. Chamber of Commerce. “China has made a very significant move in Brazil. They’re Brazil’s biggest trading partner, so it’s something that we’re concerned about.”

Lighthizer’s remarks were part of a full-court press. White House economic adviser Larry Kudlow said Washington had urged Brazilian President Jair Bolsonaro and other Brazilian officials to keep a close watch on China’s investments and advanced technologies, as Washington had done.

“We have encouraged Brazil .. to try to work together to make sure that we watch China carefully with respect to all manner of technology and telephoning and 5G,” he told the event.

“We have taken actions here in the States; we continue to move, and it is my great hope that Brazil will move with us,” he added. “We hope that Brazil will also keep a careful, critical eye on Chinese investment.”

Washington believes Huawei would hand over data to the Chinese government for spying, a claim Huawei denies.

Brazil plans to auction 5G frequencies next year to telecom companies operating in Brazil, many of which already buy from Huawei and would like to continue doing for their 5G networks because the Chinese equipment is cheaper.

“The U.S. concern is how they use the data, how they use the technology for state benefit, not for the individuals who use that the technology,” Joshua Hodges, senior director for Western Hemisphere affairs on the NSC, said in Brasilia.

DFC Managing Director Sabrina Teichman said 20% of its $135 billion portfolio was available for commercial deals with companies that wanted to partner with the United States as part of the Trump administration’s China and Transformational Exports program, which is aimed at neutralizing Chinese competition.

“We have equity financing and we also have debt financing and those plans are available to Brazilian companies” that are looking to acquire new technology,” she told the reporters.

“We are looking forward to supporting the Brazilian telecom sector,” she added.





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Fed’s Evans says recovery could stall without more fiscal stimulus By Reuters

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(Reuters) – Chicago Federal Reserve Bank President Charles Evans said on Tuesday he is “reasonably confident” the U.S. economic recovery will maintain momentum into next year, but without more fiscal stimulus the recovery could stall and more job losses could become permanent.

“I am worried about the lack of fiscal support,” Evans said at a virtual event hosted by the Detroit Economic Club, adding that the prospect of no new relief “really makes me nervous” particularly because it could mean state and local governments would need to cut more jobs.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.





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