With interest rates near zero and the economy bouncing back from the COVID-19-related shutdown, the election results won't have a huge impact on the bond market, according to R.J. Gallo, head of the municipal bond group at Federated Hermes.
“Nothing that happens today (or maybe weeks afterward, if we get a contested election) will change two realities that are favorable for near-term growth and likely the risk asset markets — the U.S. economy almost certainly will continue to recover and more fiscal expansion is on the way,” he said. “President Trump and Vice President Biden have each expressed support for stimulus to counter the deep economic challenges of the coronavirus, so regardless of the winner, we should see a renewed push for a package that could benefit all markets.”
The congressional races could lead to slightly higher yields, in some scenarios, he said.
“You can restrain policy extremes by having a divided government — especially with the Republicans in the Senate, then Biden can take the White House, Nancy Pelosi can stay as the speaker of the House of Representatives,” he said. “If that were to happen, I think there would be a little bit of a relief trade in risk assets, and I would think yields might head a little bit higher. But they wouldn't rise too much because, under any scenario, the Fed is at zero and buying tons of bonds. I wouldn't expect a big washout in a risk on scenario for Treasury yields.”
Gallo termed “sobering” rising federal debt levels. “Moody’s estimates the annual deficit will top $2 trillion over each of the next four years under Trump or Biden,” he said.
Factory orders
Factory orders gained 1.1% in September after increasing a downwardly revised 0.6% in August, first reported as a 0.7% rise, according to the Commerce Department.
Economists polled by IFR Markets expected an increase of 1.0%.
New orders excluding transportation rose 0.5% after an upwardly revised 0.9% gain a month earlier, first reported as a 0.7% climb.
New York PMI
The Institute for Supply Management-New York's current business conditions index climbed to 65.1 in October, its highest level in a year and a half, from 56.1 in September.
A year ago, the index registered 47.7.
The six-month outlook climbed to 62.9 in October from 48.9 in September and 53.6 in October 2019.
The NY-BCI grew to 814.8 from 807.3 in September. A year ago, it was at 874.3.
The employment index came in at 58.4, higher than the 40.2 in September and the 58.3 in October 2019, while the quantity of purchases index climbed to 56.7 from 46.7. A year ago it was at 45.0.
The prices paid index dropped to 53.3 from 65.4 and is also lower than the 65.5 posted a year ago.
The current revenues index dipped to 46.7 from 50.0 the previous month and 53.6 12 months ago, while the expected revenues index gained to 60.0 from 42.9 the prior month and 57.1 in October of last year.
