The event of the week arrived. NVDA posted results that exceeded expectations, but its sales forecast fails to meet lofty expectations. Currently shares are down about 5%. The hype leading into the announcement was great and generally speaking a market nonevent as NASDAQ futures are up about 0.1%. Dow futures are up about 0.4%.
Changing topics, the markets have fully discounted a 25-bps reduction at the September FOMC meeting and additional 75 bps by year’s end. The markets have also discounted 225 bps in cuts by the end of next year. Is this realistic?
A basic tenant of Goldman’s bullish equity outlook is that some of the $6.5 trillion in money markets will gravitate into stocks.
The Treasury Department has indicated that $9 trillion in Treasuries will mature in 2025. The budget deficit is forecasted to be around $2 trillion. China, who was a formerly large buyer of Treasuries have reduced their holding down from $1.2 trillion to around $800 billion according to government statistics.
Japan is no long a buyer given currency turmoil.
Approximately 23% to 24% of the nation’s $35 trillion deficit is invested in Treasuries maturing in less than a year. The recommended range is around 18% to 20%.
It is a certainty that the vast majority of the $9 trillion in maturing debt will be rolled over. But what about the rest? Who is going to buy, especially if Goldman’s outlook materializes as investors swap their money market accounts for equities?
Will the duration increase given that the nation’s debt maturity profile is already greater than recommended levels?
As noted many times, neither candidate has addressed the deficit. How long until this becomes the major narrative? Six months? Six years? No one knows until it becomes one.
The current interest coverage of $1 trillion or approximately 15% of the federal budget should already be crowding out other spending.
Today revised GDP and its ancillary inflation data is released. The economy is expected grow by 2.8% and the core PCE rising by 2.9%. Can this data influence monetary policy expectations?
Last night the foreign markets were up. London was up 0.28%, Paris up 0.71% and Frankfurt up 0.65%. China was down 0.50%, Japan down 0.02% and Hang Seng up 0.53%.
As indicated above, Dow and NASDAQ futures are up 0.4% and 0.1%, respectively. The 10-year is up 1/32 to yield 3.84%.
