At Tuesday’s close, the Dow Jones Index (US30) was down 0.41%, while the S&P 500 Index (US500) lost 0.93%. The NASDAQ Technology Index (US100) closed negative 1.53%. Escalating tensions in the Middle East caused long liquidation pressure in equities on Tuesday. Israel launched a limited ground operation in Lebanon, and Iran launched a ballistic missile strike on Israel.

Economic data came out mixed yesterday. August job openings rose by 329,000 to 8.04 million, indicating a stronger labor market than expectations of 7.693 million. The ISM Manufacturing Index for September was unchanged from August at 47.2, weaker than expectations of a rise to 47.5.

The Canadian dollar strengthened above 1.35 per US dollar, rebounding from a one-week low of 1.352 hit on September 30, as positive economic data and an improving outlook for the foreign currency outweighed US dollar strength. Canada’s manufacturing PMI rose to 50.4 in September 2024 from 49.5 in August, marking the first improvement in working conditions since April 2023. This coincided with the start of the Bank of Canada’s rate-cutting cycle, easing pressure for further monetary easing. In addition, rising geopolitical tensions in the Middle East drove oil prices higher, raising the outlook for foreign exchange inflows from Canada’s main export.

Equity markets in Europe fell steadily yesterday. Germany’s DAX (DE40) fell 0.58%, France’s CAC 40 (FR40) closed down 0.81%, Spain’s IBEX 35 (ES35) lost 1.72%, and the UK’s FTSE 100 (UK100) closed plus 0.48%.

Eurozone Consumer Price Index for September rose 1.8% y/y, the slowest pace in nearly 3 years and below the ECB’s 2% target, reinforcing expectations that the ECB will cut interest rates at its October 17 policy meeting.

WTI crude prices rose 3% on Tuesday to above the $70 a barrel mark after Iran fired a barrage of missiles at Israel, heightening fears of a wider regional conflict in the Middle East. The Israel Defense Forces intercepted numerous rockets. Tensions in the Middle East rose sharply as Israel stepped up airstrikes against the Iranian-backed Hezbollah militia, killing its leader, Hassan Nasrallah. On Tuesday, Israel sent ground troops into southern Lebanon. The extent of the oil market reaction will depend on the scale and damage of the Iranian attack, which could dictate an Israeli response and further destabilize the region.

Asian markets traded flat yesterday. Japan’s Nikkei 225 (JP225) was up 1.93%, China’s FTSE China A50 (CHA50) and Hong Kong’s Hang Seng (HK50) were not trading due to holidays, and Australia’s ASX 200 (AU200) was negative 0.74%.

Japan’s newly appointed economy minister said that the Central Bank should be cautious about raising rates again as it takes time to fully recover from deflation. He added that incoming Prime Minister Shigeru Ishiba would not necessarily favor further rate hikes without a number of conditions being met. On Tuesday, Ishiba pledged to support households amid rising prices and a sluggish economy. The Bank of Japan, which has been planning to raise rates, may face the interests of the new government in the near future.