At the end of Wednesday, the Dow Jones Index (US30) gained 0.09%, while the S&P 500 Index (US500) added 0.01%. NASDAQ Technology Index (US100) closed positive 0.08%. Increasing geopolitical risks dampened optimism over a possible interest rate cut in the US. Meanwhile, economic data showed stronger-than-expected employment growth, with 143,000 private sector jobs created in September. Investors await Friday’s employment report to gain further insight into the economy and the Fed’s interest rate decisions.

Corporate news pressured the market, with Nike (NKE) shares falling 6.8% after withdrawing its full-year guidance and Tesla (TSLA) down 3.5% after weaker-than-expected deliveries, though Nvidia (NVDA) rose by 1.6% and helped support technology stocks higher. Meanwhile, defense and energy stocks rose as investors weighed the impact of heightened geopolitical risks.

The Mexican peso strengthened to 19.4 per US dollar (USD/MXN), rebounding from a two-week low, following President Claudia Sheinbaum’s inauguration speech and hawkish comments from Banxico’s deputy governor. Investor sentiment improved as Sheinbaum reassured markets of the safety of foreign investment, signaling policy continuity. Meanwhile, Jonathan Heath, deputy governor of Banxico, said that while core inflation is roughly in line with the monetary authority’s target, persistent services inflation warrants a pause in the current easing cycle.

Equity markets in Europe traded flat yesterday. The German DAX (DE40) declined by 0.25%, the French CAC 40 (FR40) closed higher by 0.05%, the Spanish IBEX 35 (ES35) fell by 0.55%, and the British FTSE 100 (UK100) closed positive by 0.17% on Wednesday.

Noticeably deteriorating business survey data in the Eurozone, the first inflation reading below 2% in more than three years, and encouraging statements from the Federal Reserve about a shift to policy easing have led to the ECB likely to cut rates at its October 17 meeting. Economists, previously unanimous in predicting only a December move, have changed their views, with forecasters at Morgan Stanley and Barclays among those who did so earlier this week.

Key drivers of the UK Financial Policy Committee’s (FPC) Q3 2024 report:

• The UK is seeing further signs of easing credit conditions, reflecting an improving macroeconomic outlook;
• UK households and corporate borrowers remain resilient to rising interest rates, although some highly leveraged businesses, including small businesses and private equity firms, remain under pressure;
• The UK banking system remains in a strong position to support households and businesses, even if economic and financial conditions have been significantly worse than expected;
• Global vulnerabilities remain significant, as do uncertainties in the geopolitical environment and global outlook.

Oil prices declined slightly and consolidated around $70-71 per barrel as rising US crude oil inventories indicated the market would be well supplied despite escalating tensions in the Middle East. EIA data showed a 3.89 million barrel increase in crude inventories, while gasoline demand fell to its lowest level in six months, easing fears of a supply shortage. In addition, OPEC+ maintained its plan to gradually increase production, suggesting no immediate threat to the global oil supply.

Asian markets traded yesterday without any unified dynamics. Japan’s Nikkei 225 (JP225) fell by 2.18%, China’s FTSE China A50 (CHA50) was not traded due to holidays, Hong Kong’s Hang Seng (HK50) rose by 6.20%, and Australia’s ASX 200 (AU200) was negative 0.13% for yesterday. Hong Kong stocks were down 3.2% in early trading on Thursday after some profit-taking after Wednesday’s Hang Seng hit its highest since early February 2023 on the back of Beijing’s bold stimulus measures last week. Many traders were also reluctant to open new positions as Chinese markets remain closed until next week due to the Golden Week break.

The Australian dollar continues to be supported by expectations that the Reserve Bank of Australia will start cutting interest rates much later than its peers. Markets are currently pricing in a 72% chance of the RBA cutting rates in December, but if core inflation remains elevated, it is likely to keep policy steady until early 2025.