Markets Week Ahead: Treasury yields turn volatile, debt ceiling looms, while Evergrande uncertainty lingers
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Rene Anthony
US indexes shook off a number of concerns last week to deliver weekly gains, but volatility may not have passed just yet, with 10-year yields surging, and more than 40% of NYSE-listed stocks below their 200-day moving average. ASX futures are providing little clues, pointing to a flat start this morning.
Economic calendar and news
In a week where the local economic agenda is light on news, China, amid the Evergrande situation, and the United States are likely to provide the backdrop for most of this week developments.
A number of officials from the Federal Reserve are expected to speak in the coming days, and after the central bank last week edged closer towards the start of unwinding its QE program, their comments could provide further clues on what to expect. Forecasts from the Fed last week showed that half of the bank officials foresee rates rising in 2022.
Equally as important, US Congress will convene in the following days in an effort to pass a funding plan that would avert a government shutdown starting from the end of September. Government representatives will discuss the notion of raising the debt ceiling, however, that obstacle could be unlikely to resolve without further negotiation over the coming weeks, with both sides of the political aisle at odds over the topic, and Treasury extraordinary measures to cover a cash flow shortfall set to run out in October. Among other items on the agenda will be durable goods orders, the trade balance, home sales and house prices, consumer confidence, regional manufacturing, crude oil inventories, jobless claims, a final reading into second-quarter GDP, as well as personal income and spending that includes the Fed preferred measure of inflation.Among the few items on the calendar this week in Australia are preliminary retail sales for August, lending activity including private sector credit, home loans and investment lending, plus building permits and the latest reading on manufacturing activity.
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Stocks on watch
The energy sector was one of last week bright spots, with a number of names delivering strong gains as the price of oil hovered around a three-year high. In the week ahead, investors will be closely watching how the oil market trades, as a break-out could provide a rallying force for the sector.
Production out of the US remains subdued at the moment, while demand continues to increase as travel starts to pick up in many parts of the world. Oil stocks that could see above-average trading volume include US-listed giants such as BP (NYSE: BP) and Exxon Mobil (NYSE: XOM), and smaller producers closer to home like Beach Energy (ASX: BPT).
Chinese US-listed stocks have seen another bout of selling pressure, which follows fears of financial contagion linked to property developer Evergrande, with its future in doubt after missing bondholder repayment obligations and the Chinese government yet to show any signs of providing financial support. E-commerce giant Alibaba (NYSE: BABA) hit a two-and-a-half-year low last week, while Baidu (NASDAQ: BIDU), Didi (NYSE: DIDI), JD.com (NASDAQ: JD) and Pinduoduo (NASDAQ: PDD) all retreated on sizeable losses.With the 10-year US Treasury yield on the rise again last week, jumping sharply from 1.31% on Wednesday to 1.46% on Friday, tech and high-growth stocks and funds like the ARK Innovation ETF (NYSE: ARKK) will be under the microscope as traders weigh up how they respond to volatility, particularly heading into the end-of-quarter rebalancing period for a number of US fund managers. Elsewhere, gold, iron ore, coal and uranium names are all among the major movers of recent weeks, and price action in the commodity markets is likely to have the biggest sway over names such as Northern Star Resources (ASX: NST), Fortescue Metals Group (ASX: FMG), Whitehaven Coal (ASX: WHC) and Paladin Energy (ASX: PDN).Finally, there were new 52-week highs for the likes of Computershare (ASX: CPU), Flight Centre (ASX: FLT), Liontown Resources (ASX: LTR), Novonix (ASX: NVX), Imugene (ASX: IMU) and AVZ Minerals (ASX: AVZ), which enter the new trading week full of momentum. That is at odds with a number of gold miners that hit yearly lows last week, including Evolution Mining (ASX: EVN) and Newcrest Mining (ASX: NCM) among others.
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