Investors moved to profit-taking, assessing the consequences of the official end of the US shutdown

By Thursday’s close, the Dow Jones Index (US30) fell by 1.65%. The S&P 500 Index (US500) dropped 1.66%. The Nasdaq (US100) closed lower at 2.29%. The US stocks plunged as Fed rate expectations were reassessed and AI-sector stocks sold off. The probability of a Fed rate cut in December by 25 basis points, which just a month ago was estimated at around 95%, has now fallen to about 50%. Market participants reacted to a series of cautious comments from Fed officials, who highlighted persistent inflation risks and the limited availability of macro data due to the recent government shutdown. The reassessment of rate expectations reduced demand for growth stocks with high valuations, turning local profit-taking into a broad market decline affecting most sectors.

The Mexican peso (MXN) strengthened above 18.3 per dollar, trading near July 2024 highs. Support for the currency came from slowing inflation, gradual policy easing by the Bank of Mexico, and reduced demand for the dollar amid improved US news flow. Inflation in Mexico continued to decline: headline CPI in October was 3.57%, while core inflation fell just above 4%. Since the rate cut in Mexico was fully priced in, its direct impact on yields was limited. The main drivers were the repricing of risk premiums and renewed carry-trade flows.

European stock markets fell yesterday. Germany’s DAX (DE40) dropped 1.39%, France’s CAC 40 (FR40) closed down 0.11%, Spain’s IBEX 35 (ES35) fell by 0.23%, and the UK’s FTSE 100 (UK100) closed negative 1.05%. After a two-day rally, investors shifted to profit-taking while assessing the consequences of the official end of the US shutdown, which extended government funding only until the end of January. This supported a cautious overall mood, given upcoming releases of key macroeconomic data. Corporate reports also contributed to the decline. Siemens led losses, falling more than 9% after reporting lower Q4 profits despite raising its medium-term sales growth expectations.

WTI crude oil prices rose more than 2% on Friday, climbing to around $60 per barrel and breaking a two-week losing streak. Prices were supported by growing supply risks linked to upcoming US sanctions against Russia’s oil industry. Lukoil began large-scale staff cuts across its global oil trading divisions just days before sanctions took effect – one of the first visible consequences of measures set to begin November 21. Analysts note that nearly one-third of Russia’s seaborne oil exports could be stuck in tankers due to logistical restructuring and slower unloading. The situation is further complicated by India and China temporarily reducing purchases of Russian oil, increasing risks for supply chains.

The US natural gas prices (XNG/USD) rose more than 1%, reaching about $4.6 per MMBtu – the highest since December 2022. The increase was driven by strong export demand and prognosis of colder weather in early December. European buyers continue active imports of US gas in efforts to replace Russian supplies.

Asian markets mostly rose yesterday. Japan’s Nikkei 225 (JP225) gained 0.43%, China’s FTSE China A50 (CHA50) rose 1.04%, Hong Kong’s Hang Seng (HK50) climbed 0.56%, while Australia’s ASX 200 (AU200) closed down 0.52%.

Chinese data point to a slowing industry and weak investment despite stable overall activity. Industrial production slowed to a 14-month low, explained by extended holiday effects and pressure from trade disputes with the US. Retail sales grew 2.9% year-on-year – also a 14-month low, but above expectations of 2.7% thanks to consumption stimulus measures and holiday spending. The unemployment rate fell to a four-month low of 5.1%.
On Friday, the New Zealand dollar rose to $0.569, posting weekly gains on encouraging manufacturing data. In October, manufacturing expanded for the fourth consecutive month, supported by rising new orders and stronger domestic demand. However, further upside potential for the NZD remains limited. Markets expect the Reserve Bank of New Zealand to ease monetary policy at its end-of-month meeting, given weak employment data and moderate inflation prospects. A 25 bps rate cut is already priced in.