Trading Day: Nasdaq highs, Brazil surprise 

By Jamie McGeever

ORLANDO, Florida, Oct 5 (Reuters) - The Nasdaq surged to a fresh high on Monday, as earnings optimism and lower oil prices offset rising bond yields. The biggest moves of the day were in Brazilian assets, which logged historic gains after right-wing candidate Flavio Bolsonaro's strong showing in the first round of voting in the presidential election suggests he is a strong favorite to win the second and decisive round in three weeks.

In my column today, I look at when traders and financial TV anchors on the NYSE floor should start ordering their "S&P 10,000" caps. That milestone is only 30% from current levels, and if Q3 earnings are anywhere near as strong as Q2, it suddenly won't feel too far away at all.

Today's Key Reads

• Spain's Sanchez gambles on snap election after housing protests give rare boost

• Right-wing wave in Brazil's Congress boosts Bolsonaro camp ahead of presidential runoff

• What will Washington do next if US bond yields keep rising?

• US goes into midterm elections with a less dynamic form of full employment

• EU risks becoming sick man of the world if it doesn’t reform quickly: Mike Peacock

• Today's Key Market Moves STOCKS: Brazil +8%, biggest rise this century outside GFC and pandemic. Nasdaq +1% to new high, S&P 500 +0.7%, Dow +0.2%.SECTORS/SHARES: Every sector on the S&P 500 rises except real estate. Comms services, materials +1.2%. Nvidia +2% to new record high, market cap closing in on $6 trillion.FX: Brazilian real +4%, biggest rise in 4 years. Euro -0.3% to 17-month low. Dollar index hits 18-month high.BONDS: French/German spread narrows 5 bps. US yields rise, 10-year and 30-year highest closes in over two decades.COMMODITIES/METALS: Oil -2%, gold little-changed above $4,100/oz.

Today's Talking Points:

Brazil

That rumbling you feel beneath your feet is the first tremors of what could be a political earthquake in Brazil. Right-wing candidate Flavio Bolsonaro, son of former hard-right President Jair Bolsonaro, did much better than expected in the first round of voting in Sunday's presidential election, and from a financial markets viewpoint at least, the verdict is clear — the sizzling rally in Brazilian assets on Monday says it all.

Incumbent Luiz Inacio Lula da Silva, the left-wing veteran going for his fourth non-consecutive term, is considering tapping Vice President Geraldo Alckmin to be his next finance minister if re-elected, in a bid to bolster his fiscal credibility and win over centrist voters. But it may be too little too late — online betting markets are pointing to an 83% likelihood that Bolsonaro wins in the second round of voting.

Europe

To France, Italy and Germany last week, investors can add Spain to their European political risk watch-list, after Prime Minister Pedro Sanchez called a snap election following nationwide protests over housing. It's a high-stakes gamble for Sanchez, whose Socialist Party trails in nearly every opinion poll. Defeat would spell the end of one of Europe's last remaining left-leaning governments at a time when the far right is making unprecedented gains across the region.

Spain's political turmoil isn't tied to fiscal concerns like other countries — Spain is one of the fastest-growing economies in the euro zone, its deficit is around 2-2.5% of GDP, and yield spreads are under relative control. Still, markets are twitchy — Spanish yields rose 5 bps and the euro slumped to a fresh 17-month low around $1.12.

Dollar

In G10 FX, the big beneficiary of deepening political and bond market uncertainty sweeping, to varying degrees, across Europe, the UK and Japan is the dollar. The US doesn't have its political, debt or bond market troubles to seek either, of course. But to coin an old FX market adage, the greenback is once again proving to be the cleanest dirty shirt in the laundry.

This isn't what President Trump or Treasury Secretary Scott Bessent really want. They would prefer a weaker dollar that is more competitive in the global marketplace, which would theoretically help boost US exports and narrow the trade deficit that Trump says is a result of America being "ripped off" by the rest of the world. On the other hand, a stronger dollar helps suppress imported price pressures and the need for tighter monetary policy. Now that's music to Trump's ears.

What could move markets tomorrow?

• Germany industrial orders (August)

• Euro zone retail sales (August)

• US trade (August)

• US Treasury sells $58 billion of 3-year notes at auction

• US Federal Reserve officials scheduled to speak include New York Fed's John Williams, Dallas Fed's Lorie Logan, and Vice Chair for Supervision Michelle Bowman

Want to receive Trading Day in your inbox every weekday morning? Sign up for my newsletter here. Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.

(Reporting by Jamie McGeever;)