Markets climb as stocks head for the best week in a year

Dow jumped 306 taking it over 44K, advancers over decliners better than 3-2 & NAZ slid back 10.  The MLP index retreated 3+ to the 288s & the REIT index rose 6 to the 428s as yields fall.  Junk bond funds crawled higher & Treasuries had more buying which reduced yields (more below).  Oil dropped 2+ to just above 70 after China stimulus disappoints & gold lost 11 to 2694.

Dow Jones Industrials

If inflation resurfaces, the Fed's likely to stay its hand in lowering rates.  That concern might be dampening investors' excitement in the stock market for now.  Powell, in yesterday's press conference, maintained that “the election will have no effect on our policy decisions.”  Still, the Fed would be impacted by the decisions of the next administration.  “Just in principle, it’s possible that any administration’s policies or policies put in place by Congress could have economic effects over time,” he said.  “Forecasts of those economic effects would be included in our models of the economy.”  Data from the CME FedWatch Tool suggests some prudence is filtering into the market.  According to the futures market, just 30.4% of traders think the Fed will cut rates again in Jan.  By contrast, 53% expect the Fed to keep rates steady.  Those percentages are contingent on the central bank lowering rates to 4.25%-4.50% in Dec.  Of course, that’s all prognostication, everybody knows how inaccurate polls & bets can be.  “By December, we’ll have more data, I guess one more employer report, two more inflation reports and lots of other data,” Powell said.  The Fed prefers hard numbers.

Powell maintains that elections won’t sway Fed’s policy

The 10-year Treasury yield fell for a 2nd day, set to finish the week lower even after a big pop triggered by Donald Trump's presidential win.  The benchmark 10-year rate dipped 3 basis points to 4.31% after falling about 11 basis points in the previous session.  The yields is now lower than last Fri's level of 4.37% & the 2-year Treasury yield traded slightly lower at 4.18%.  Yields & prices have an inverted relationship & 1 basis point is equivalent to 0.01%.  Bond yields got a boost Wed with the 10-year yield popping 15 basis points after Trump defeated VP Kamala Harris as traders believe his pro-business policies including tax cuts could spark economic growth.  Investors also digested the Federal Reserve's widely anticipated move to cut interest rates by a qtr point to a target range of 4.50%-4.75%.  Looking ahead, Powell said that policymakers would make their decisions on a meeting by meeting basis & that there was no “preset course” for monetary policy.  Powell also noted that he was “feeling good” about the economy overall.  One Fed meeting remains on the agenda for this year on Dec 17-18, for which traders were last pricing in an around 75% chance of another rate cut, CME Group's FedWatch tool showed.  On the data front, the University of Michigan's consumer sentiment gauge came in at 73 in Nov, rising to the highest level since Apr & the reading was also better than the expectation of 71 & up from 70.5 in Oct.

10-year Treasury yield ending week lower despite postelection pop

China announced a 5-year package totaling 10T yuan ($1.4T) to tackle local gov debt problems, while signaling more economic support would come next year.  Minister of Finance Lan Fo'an said that authorities planned to “actively use” the available deficit space that can be expanded next year.  He called back to Oct, when he had said that the space to take this step was “rather large.”  His comments came after the standing committee for China's parliament, the National People's Congress, wrapped up a 5-day meeting that approved a proposal to allocate an additional 6T yuan to increase the debt limit for local govs.  The program takes effect this year & will run thru the end of 2026 for around 2T yuan a year.  He added that, starting this year, central authorities would issue an annual 800B yuan in local gov special bonds over a 5-year stretch, for a total of 4T yuan.  The policies would contribute to local govs' efforts to reduce their “hidden debt,” which Lan estimates could drop from 14.3T yuan as of the end of 2023 to 2.3T yuan by 2028.  He noted how the new measures would alleviate pressure on local authorities & free up funds for supporting economic growth.  “The local government’s hidden debt resolution measures introduced by China today are a concrete manifestation of the central government’s economic policy shift, with a total debt amount beating market expectations, to a certain extent,” said Haizhong Chang, exec director for corporates at Fitch Bohua.  “Compared with the amount of debt resolution in recent years, the scale is significantly larger this time,” he said.  The debt swap program, however, fell short of many investors' expectations for more direct fiscal support.  Authorities here have ramped up stimulus announcements since late Sep, fueling a stock rally.  On Sep 26, Pres Xi Jinping led a meeting that called for strengthening fiscal & monetary support & stopping the real estate market slump.

China announces $1.4T package to tackle local governments’ ‘hidden’ debt

Stocks hovered near record highs, with NAZ lagging as post-election euphoria drifted & China's latest stimulus plan fell flat.  Stocks edged higher to end a stellar week of gains driven by optimism that Pres-elect Donald Trump's policies will boost the economy.  Disappointment over China's new fiscal stimulus drew investor attention, putting pressure on Chinese stocks & oil prices.  The $1.4T plan to refinance local gov debt left investors unconvinced of its potential to spur a faltering economy.