InvestMacro

At Wednesday’s close, the Dow Jones (US30) Index was down 0.96%, the S&P 500 Index (US500) decreased by 0.92%, and the NASDAQ Technology Index (US100) closed yesterday negative 1.55%. All three major US equity indices closed sharply lower on Wednesday amid rising Treasury yields and concerns over the upcoming US elections. Investors and hedge funds are locking in their profits to reduce uncertainty risks.

Stocks also declined amid negative corporate news: McDonald’s (MCD) shares fell by 5% after an E. coli outbreak was linked to Quarter Pounder sandwiches that sickened dozens of people in several states. Additionally, Boeing (BA) shares are down 1.7% after the company reported larger-than-expected negative adjusted free cash flow for the third quarter. Coca-Cola’s (KO) share price is down 2.00% after reporting an unexpected 1% decline in third-quarter sales.

The Canadian dollar fell to 1.38 per dollar, its lowest since August, after the Bank of Canada (BoC) cut rates by 50 bps and signaled that it will likely continue to lower its benchmark rate. It was the first significant rate cut in the current easing cycle after three consecutive 25 bps cuts. The MPC noted that recent data showed slowing inflation and a weakening labor market.  CAD was also pressured by lower oil prices, which limited the Canadian economy’s export turnover.

Equity markets in Europe were declining on Wednesday. Germany’s DAX (DE40) fell by 0.23%, France’s CAC 40 (FR40) closed down 0.50%, Spain’s IBEX 35 (ES35) gained 0.27%, and the UK’s FTSE 100 (UK100) closed down 0.58% yesterday.

WTI crude oil prices fell below $71 per barrel on Wednesday, ending a two-day rally, after the latest EIA data showed that US oil inventories remain high. The EIA reported a 5.5 million barrel increase in crude inventories, which was well above forecasts

Asian markets were mostly rising on Wednesday. Japan’s Nikkei 225 (JP225) fell by 0.80%, China’s FTSE China A50 (CHA50) gained 0.37%, Hong Kong’s Hang Seng (HK50) rose by 1.27%, and Australia’s ASX 200 (AU200) was positive 0.13% over yesterday. Chinese markets are rising for a fourth day, buoyed by bets on creating a 2 trillion yuan market stabilization fund, as suggested by a government-affiliated think tank. In addition, China’s central bank plans to expand the size of its new swap fund to support stock market liquidity after an initial quota of 500 billion yuan.

Judo Bank’s Australian Manufacturing PMI Index fell to 46.6 in October 2024 from 46.7 in September, This marks the ninth consecutive month of deterioration in the sector and the fastest pace since May 2020. The services PMI business activity index rose to 50.6 in October from 50.5 in September. This was the ninth consecutive month of growth. On the monetary policy front, Reserve Bank of Australia (RBA) Deputy Governor Andrew Hauser said earlier this week that the strong employment growth was a bit of a surprise, indicating that the central bank is prepared to react in either direction depending on incoming data. Markets expect the RBA to keep policy steady this year, with the first-rate cut not fully expected until May next year.

The New Zealand dollar traded near a two-month low as the US dollar strengthened amid growing expectations that the Federal Reserve will continue to moderate interest rate cuts in the coming months and improve the odds of Donald Trump winning the 2024 presidential election. Domestically, the Kiwi faced additional pressure as the Reserve Bank of New Zealand is expected to deliver another 50 bps rate cut at its final meeting in November, with markets pricing at some risk of a 75 bps rate hike.

At Monday’s close, the Dow Jones Index (US30) was down 0.80%. The S&P 500 Index (US500) was down 0.18%. The NASDAQ Technology Index (US100) closed positive 0.18%.

On Monday, the Dollar Index approached levels not seen since early August as hopes of a near-term interest rate cut by the Federal Reserve wane. Strong US economic data, such as strong retail sales, combined with the growing likelihood of a Donald Trump presidency, as well as his proposed policies on tariffs and taxes, are lending support to the dollar.

Now that the US Federal Reserve is cutting interest rates to support the economy, optimists expect stocks could rise further. However, critics warn that stock prices look too expensive, given that they are rising much faster than corporate profits. That’s forcing companies to push for profit growth to justify their stock prices, and this week, more than 100 companies in the S&P 500 are expected to detail their performance over the summer. They include heavyweights such as AT&T, Coca-Cola, IBM, General Motors and Tesla. Boeing will report its results on Wednesday. The company’s stock is up 3.1% after reaching an agreement with the union representing striking machinists on a contract proposal. Union members could vote Wednesday on the proposal, which could end a costly strike that has halted airplane production for more than a month.

The Mexican peso fell to 20 per US dollar in October, hitting a six-week low, amid external and domestic pressures that have intensified calls for easing borrowing conditions. Fears of disruptions in Mexico’s vital auto sector were heightened by former US President Donald Trump’s threats to impose tariffs of up to 300% on Mexican-made cars, coupled with his rising electoral prospects. Meanwhile, minutes from the Bank of Mexico’s meeting emphasized a willingness to pursue a less tight monetary policy. Economists estimate a 50 basis point rate cut by the end of the year.

Equity markets in Europe steadily went down on Monday. Germany’s DAX (DE40) fell by 1.00%, France’s CAC 40 (FR40) closed down 1.01%, Spain’s IBEX 35 (ES35) lost 0.71%, and the UK’s FTSE 100 (UK100) closed down 0.48%.

WTI crude oil prices rose by 1.9% on Monday to above $70.5 per barrel after falling 8.4% last week, helped by economic stimulus measures from China, the world’s largest oil importer.

The US natural gas prices rose about 3% to above $2.3/mmbtu on Monday, recovering from a significant 14.2% drop last week, thanks to lower production and estimates of colder weather that could boost heating demand.

Asian markets were mostly down on Monday. Japan’s Nikkei 225 (JP225) fell by 0.07%, China’s FTSE China A50 (CHA50) lost 0.39%, Hong Kong’s Hang Seng (HK50) decreased by 1.57%, and Australia’s ASX 200 (AU200) was positive 0.74%.

The Australian dollar edged above $0.665 on Tuesday. Still, it remained near its lowest levels in six weeks as the US dollar and Treasury yields rose on signs of continued strength in the US economy and improved chances of a Trump victory in November’s election. Domestically, Reserve Bank of Australia Deputy Governor Andrew Hauser said earlier this week that the strong pace of job growth was a small surprise while indicating that the Central Bank was prepared to react in either direction depending on incoming data.

The New Zealand dollar rose to 0.605 against the US dollar on Tuesday after hitting a two-month low earlier in the session. The kiwi received support from the recent rate cuts in China, given that China is New Zealand’s largest trading partner. However, the local currency remains under pressure due to the strong US dollar.

The Dow Jones (US30) Index was up 0.09% on Friday (+1.11% for the week). The S&P 500 Index (US500) was up 0.40% (for the week +0.60%). The NASDAQ Technology Index (US100) closed positive 0.63% (for the week +0.34%).

Atlanta Federal Reserve Bank President Raphael Bostic said he was in no hurry to cut interest rates to the so-called neutral level, emphasizing that policymakers intend to achieve the 2% inflation target. The Atlanta Fed chief reiterated that the central bank’s benchmark rate is still “somewhat above” the level at which it neither stimulates nor slows the economy, which he estimated at 3% to 3.5%. Bostic also said he expects inflation to fall to the Fed’s target level by the end of next year.

Netflix (NFLX) shares are up 11% after better-than-expected third-quarter earnings, revenue, and subscriber growth.

The world’s Central Bank governors and finance ministers will gather in Washington today for the annual meeting of the International Monetary Fund and the World Bank to discuss how countries can cope with low growth and high debt levels. Last week, the IMF warned that global public debt is expected to exceed $100 billion by the end of this year, driven by rising debt in the US and China. High debt levels could trigger a negative market reaction and limit budgetary efforts to respond to economic shocks.

Equity markets in Europe rose steadily on Friday. Germany’s DAX (DE40) rose by 0.38% (for the week +1.28%), France’s CAC 40 (FR40) closed 0.39% higher (for the week +0.39%), Spain’s IBEX 35 (ES35) gained 0.17% (for the week +1.78%), and the UK’s FTSE 100 (UK100) lost 0.32% (for the week +1.27%). European stocks closed solidly higher, helped by projections that the ECB will continue to cut key interest rates. Markets expect rates to be cut by 25 basis points at each meeting until mid-2025.

WTI crude oil prices fell by 2% to $69.2 a barrel, the biggest weekly decline since early September, falling more than 8%. The decline was driven by weakening demand estimates from OPEC and the IEA, slowing economic growth in China, and signs of easing geopolitical tensions in the Middle East. Both OPEC and the International Energy Agency (IEA) lowered their demand projections for 2024 and 2025. Output at China’s refineries declined for the sixth consecutive month, impacted by weak fuel demand and the rise of electric vehicles (EVs). Meanwhile, US crude oil production hit another record last week, although prices were supported by lower US crude inventories and better-than-expected US retail sales in September. In addition, investors are keeping a close eye on the possible development of the conflict between Israel and Iran, which could affect the global oil supply.

For the week, natural gas prices (XNG/USD) fell about 11% after falling 8% the week before. Traders are increasingly skeptical that extreme cold weather this winter will cause prices to spike. Gas production in the lower 48 states fell slightly in October, and production in 2024 could decline for the first time since 2020.

Asian markets were mostly down last week. Japan’s Nikkei 225 (JP225) fell by 1.65%, China’s FTSE China A50 (CHA50) lost 1.80%, Hong Kong’s Hang Seng (HK50) decreased by 2.00%, and Australia’s ASX 200 (AU200) was negative 0.87%.

Bank of Japan (BoJ) officials see no need to rush to raise interest rates this month, while they retain the option of raising rates at a later date if inflation remains in line with prognoses. Officials see only a small risk that prices will significantly exceed the Central Bank’s quarterly estimates set in July, reducing the need to act quickly. The Bank of Japan is expected to leave its benchmark rate unchanged at 0.25% at its policy meeting that ends October 31.

Traders reacted with restraint to the People’s Bank of China’s (PBoC) recent monetary easing, which sent rates to new record lows. The one-year LPR, which serves as a benchmark for most corporate and household loans, was cut by 25 bps, while the five-year LPR, often used as a benchmark for mortgages, was also cut by 25 bps to 3.6%. The decision followed PBOC head Pan Gongsheng’s announcement last week of a 20–25 bps LPR cut and his suggestion that the RRR for commercial banks could be further reduced in 4Q2.