A look at the day ahead in U.S. and global markets from Mike

Dolan

The dollar continues to ride higher on the back of an

anxious pre-election climb in U.S. Treasury yields, notching its

best levels in almost three months against the euro and yen on

starkly contrasting economic and interest rate pictures.

With the International Monetary Fund's annual meeting

underway and G7 finance chiefs and central bankers gathering,

the exceptional performance of the U.S. economy was underlined

in updated IMF global forecasts on Tuesday.

The IMF revised its 2024 and 2025 U.S. GDP growth forecasts

upward yet again - by two-tenths of a percentage point to 2.8%

for this year and by three-tenths of a point to 2.2% for 2025.

While world growth forecasts at large have remained little

changed, the U.S. GDP outlook for this year and next has now

been lifted by a cumulative 0.7 and 0.5 points respectively

since January. And only Canada among the G7 is expected to grow

faster than the United States next year.

With U.S. economic surprise indexes at their most positive

since April, this sort of backdrop partly explains the sharp

rise in Treasury yields this month and the rising 'terminal

rate' for Federal Reserve easing expectations.

The other driver of both Treasury yields and the dollar is

the approach of Nov. 5's election, where betting markets now

lean heavily toward a win for Republican Donald Trump despite

some concerns about distortions and manipulation by small groups

of deep-pocketed punters.

Trump's tax cuts and tariff plans, alongside rising

speculation of a Republican clean sweep of Congress to boot,

have unnerved investors about the implications for a U.S. budget

deficit already at 6.4% of GDP as well as for domestic inflation

and overseas growth.

With a 20-year bond auction in the wings on Wednesday,

10-year yields hit their highest level since July

and, at 4.24%, have now climbed 25 basis points in just a week.

The New York Fed's estimate of a 10-year Treasury 'term premium'

- a measure of compensation for risk investors demand to hold

long-term debt - topped 20bps for the first time this year.

And yet, election bets may be just a little wary still of

whiplash - not least given the dramatic change of fortunes and

polling already seen over the summer.

Opinion polls still don't suggest any concrete outcome, the

latest Reuters/IPSOS opinion poll tracker this week still puts

Democrat Kamala Harris three points ahead nationally and other

polling shows a dead heat in the swing states.

Still, beyond the election, the dollar picture at least is

very much flattered by the interest rate outlook overseas.

The Bank of Canada is expected to cut its interest rates

again later on Wednesday by up to 50bps.

And the euro was also hit on Wednesday by a Reuters

sources story saying European Central Bank policymakers have

begun to debate whether interest rates need to be lowered enough

to start stimulating the economy.

That suggests ECB rates may well return below estimates of

'neutral' - currently estimated anywhere between 2% and 2.5% -

and contrasts with rising assumptions of a U.S. 'terminal rate'

around 3.5%.

The yen, meantime, continued to weaken past 152 per

dollar for the first time since July ahead of the weekend

election in Japan.

Ructions in the rates markets have sent a shot across the

bow of lofty stock markets this week, with Wall Street indexes

stalling on Tuesday and futures in the red again on

Wednesday ahead of the bell.

The earnings season is reaching full throttle in the

background, with Tesla, Boeing ( BA ) and IBM ( IBM )

topping a packed diary later today.

In Europe, Deutsche Bank shares fell back up to

3% after the German banking giant raised its loan-loss

provisions forecast against the backdrop of a weak German

economy - even as it returned to profit in the third quarter and

cut reserves for investor lawsuits over its Postbank division.

And shares of McDonald's fell nearly 6% in

premarket trading after an E. coli outbreak linked to the

restaurant chain's Quarter Pounder hamburgers resulted in the

death of one person and sickened 49 people in the U.S.

Key developments that should provide more direction to U.S.

markets later on Wednesday:

* Bank of Canada policy decision, news conference from governor

Tiff Macklem

* US September existing home sales, Federal Reserve publishes

Beige Book of economic conditions, euro zone October consumer

confidence

* G7/G20 finance chiefs meet on at International Monetary Fund

and World Bank Annual Meetings in Washington, including speaking

engagements with Bank of Japan Governor Kazuo Ueda, Bank of

England Governor Andrew Bailey, European Central Bank President

Christine Lagarde and ECB chief economist Philip Lane, and

German Finance Minister Christian Lindner

* Federal Reserve Board Governor Michelle Bowman, Richmond Fed

President Thomas Barkin speak

* US corporate earnings: Tesla, Boeing ( BA ), IBM ( IBM ), Ameriprise,

Northern Trust, AT&T, Boston Scientific, General Dynamics,

Thermo Fisher Scientific, Coca Cola, Nextera Energy, Hilton

Worldwide, United Rentals, O'Reilly Automotive, Lam Research,

Newmont, Las Vegas Sands, Rollins, Align Technology, CME etc

* US Treasury auctions $13 billion of 20-year bonds

(By Mike Dolan,

[email protected])