InvestMacro

The Dow Jones Index (US30) fell by 0.28% on Tuesday. The S&P500 Index (US500) was up 0.40%, and the Nasdaq Technology Index (US100) rose by 0.71%. The escalating Ukraine-Russia war caused a de-risking of stock markets and liquidation of equities. Investors sought safer assets after Ukraine used Western-made missiles to strike Russia, and President Vladimir Putin expanded Russia’s nuclear doctrine to authorize a nuclear response to major conventional attacks.

The Canadian dollar strengthened above 1.4 per dollar as inflation data tempered expectations about the extent of the Bank of Canada’s (BoC) rate cuts. The reduced average core inflation rate, the Bank of Canada’s preferred measure of core inflation, rose to 2.6% in October from a three-year low of 2.4% in September, beating expectations. This came amid favorable economic data, including a lower-than-expected unemployment rate and strong PMI readings, further dampening prospects for a significant rate cut.

Equity markets in Europe ended trading yesterday on a weak note. Germany’s DAX (DE40) fell by 0.67%, France’s CAC 40 (FR40) closed down 0.67%, Spain’s IBEX 35 (ES35) lost 0.74%, and the UK’s FTSE 100 (UK100) closed down 0.13% on Tuesday. Concerns over the impact of US trade tariffs on Eurozone growth and geopolitical tensions weighed on sentiment.

WTI crude oil prices traded around $69 per barrel, caught between geopolitical tensions and easing worries in the Middle East. Russia’s conflict with Ukraine intensified as Ukrainian forces used Western-supplied missiles for the first time, and President Putin expanded Russia’s nuclear doctrine. Meanwhile, the IAEA announced that Iran has agreed to halt uranium production, potentially reducing tensions in the region.

Asian markets mostly rose yesterday. Japan’s Nikkei 225 (JP225) rose by 0.51%, China’s FTSE China A50 (CHA50) gained 0.35%, Hong Kong’s Hang Seng (HK50) added 0.44%, and Australia’s ASX 200 (AU200) increased by 0.89%.

The People’s Bank of China (PBOC) kept key lending rates unchanged at the November fixing, in line with market assessments. The one-year prime rate (LPR), the benchmark for most corporate and household loans, was maintained at 3/1%. The five-year rate, the benchmark for mortgage loans, remained at 3/6 %. Both rates remain at record lows following rate cuts in October and July. The latest decision reflects the Chinese Central Bank’s current assessment of existing stimulus measures.

At the end of Monday, the Dow Jones Index (US30) fell by 0.13%. The S&P 500 (US500) was up 0.39%. The Nasdaq Technology Index (US100) was up 0.71%. The US stock indices changed a little as investors await key earnings reports this week, including Nvidia (NVDA) and major retailers. In after-hours trading, Walmart (WMT) is up 1.5% ahead of its earnings release scheduled for Tuesday morning. Conversely, Alphabet (GOOG) shares are down nearly 1% following reports that the US Justice Department plans to ask a judge to force Google to abandon its Chrome browser, citing antitrust concerns. Tesla is up 5.6% following reports that President-elect Donald Trump’s team is exploring easing regulations for self-driving cars. In addition, shares of Advance Micro Devices (AMD) are up more than 3% after IBM said it had signed a deal with the company to supply MI300x gas pedal chips for its cloud network.

Equity markets in Europe ended trading yesterday on a weak note. Germany’s DAX (DE40) fell by 0.11%, France’s CAC 40 (FR40) closed up 0.12%, Spain’s IBEX 35 (ES35) rose by 0.33%, and the UK’s FTSE 100 (UK100) closed up 0.57%. Nagel, a representative of the ECB’s governing council and president of the Bundesbank, said that if international tensions escalate, this could lead to increased inflationary pressures or increased volatility in consumer price growth, and central banks may have to respond by raising interest rates. His colleague, also a representative of the ECB’s governing council, Stournaras, warned that economic activity could weaken and the Eurozone could fall into recession if the US imposes additional tariffs. Swaps discount the odds of a 25bp ECB rate cut at the December 12 meeting at 100% and a 50bp rate cut at the same meeting at 17%.

WTI crude oil prices traded above $69 per barrel on Tuesday after rising 3.2% in the previous session amid concerns over supply disruptions and ongoing geopolitical tensions. Tensions between Russia and Ukraine escalated after the US and other countries approved Ukraine’s use of US-made long-range missiles on Russian territory, which could draw the US into the conflict. Oil prices were further supported by a weaker US dollar, making oil more attractive to foreign buyers.

Asian markets traded yesterday without any unified dynamics. Japanese Nikkei 225 (JP225) declined by 1.09%, Chinese FTSE China A50 (CHA50) fell by 1.02%, Hong Kong Hang Seng (HK50) rose by 0.77%, and Australian ASX 200 (AU200) yesterday showed a positive result of 0.07%.

Top Chinese officials are gathering for an investment summit in Hong Kong, where the heads of key economic and financial bodies are expected to discuss the latest developments in China’s financial sector. Investors are also focused on the PBOC’s upcoming LPR decision scheduled for Wednesday.

The Australian dollar climbed above $0.65 on Tuesday, rising for the third consecutive session, as investors reacted to minutes from the Reserve Bank of Australia’s November meeting. The minutes showed that the Central Bank plans to maintain a restrictive monetary policy until it is confident that inflation is moving steadily toward the target while remaining cautious about upside risks to inflation. Currently, markets do not expect the RBA to cut the RBA rate until May next year, and the probability of this happening in February is estimated at 38%.

At the end of Friday, the Dow Jones (US30) fell by 0.70% (-1.39% for the week). The S&P 500 Index (US500) was down 1.23% (for the week -2.30%). The Nasdaq Technology Index (US100) was down 2.40% (-3.67% for the week). Wall Street saw a sharp decline on Friday as investors evaluated Fed Chair Powell’s remarks. Fed Chair Powell’s hawkish stance on interest rates pressured the market as he emphasized the strength of the economy, a robust labor market, and steady inflation, which led to lower expectations for a rate cut. The Fed’s hawkish comments lowered the odds of a Fed rate cut next month to 55% from 82% a day earlier. US retail sales in October exceeded estimates, rising by 0.4%. The technology sector suffered significant losses, with major companies such as Nvidia, Amazon, Meta, and Alphabet falling by more than 2%. The pharmaceutical sector also came under pressure due to news that Trump may nominate vaccine skeptic Robert F. Kennedy Jr. to head the Department of Health and Human Services.

The Dollar Index held near 106.6 on Monday, trading near two-year highs amid expectations of Federal Reserve interest rate cuts and bets on US economic growth under a Trump presidency. Last week, Fed Chairman Jerome Powell said the Central Bank has no immediate plans to cut rates, citing the strength of the economy, a stable labor market, and continued inflationary pressures. Stronger-than-expected reports on retail sales and inflation supported hawkish views on Fed policy. Markets rate the odds of a 25 bps rate cut at the December 17–18 FOMC meeting as 55%.

Pfizer (PFE) shares are down more than 3% after Wolfe Research initiated coverage on the stock with an “underperform” recommendation and a $25 price target. Palantir (PLTR) is up more than 9%, leading gains in S&P 500 stocks after the company said its listing on the New York Stock Exchange will close at the close of trading on November 25, with trading on the Nasdaq beginning the following day.

Equity markets in Europe were declining on Friday. Germany’s DAX (DE40) fell by 0.27% (week ended -0.91%), France’s CAC 40 (FR40) closed down 0.58% (week ended -1.70%), Spain’s IBEX 35 (ES35) gained 0.97% (week ended -0.03%), and the UK’s FTSE 100 (UK100) closed down 0.09% (week ended -0.11%) on Friday. The European Commission’s Fall 2024 estimates call for the Eurozone economy to grow by 0.8% this year, the same as the previous Spring prognosis. Growth estimates for 2025 have been revised downward to 1.3% from 1.4%, and for 2026, the euro area economy is predicted to grow by 1.6%. As for inflation, despite a small rise in October, mainly driven by energy prices, core inflation in the Eurozone will more than halve to 2.4% in 2024 from 5.4% in 2023 and then gradually decline to 2.1% in 2025 and 1.9% in 2026.

WTI crude oil prices rose above $67 a barrel on Monday, pausing a recent decline, as the escalating conflict between Russia and Ukraine raised concerns about possible supply disruptions. Over the weekend, Russia launched its largest airstrike on Ukraine in nearly three months, further undermining an already crippled energy system. Meanwhile, concerns about weakening demand in China, the world’s largest oil importer, contributed to the bearish market sentiment. In addition, downward pressure on prices is exerted by the strengthening of the US dollar, supported by expectations of a slowdown in the pace of rate cuts by the Federal Reserve.

Asian markets were mostly declining last week. Japan’s Nikkei 225 (JP225) decreased by 1.96%, China’s FTSE China A50 (CHA50) fell by 2.40%, Hong Kong’s Hang Seng (HK50) lost 4.11%, and Australia’s ASX 200 (AU200) was negative 0.16%.

The offshore yuan weakened to 7.24 per dollar, back to its lowest level in more than three months, as investors await a decision on China’s marginal lending rate this week. Markets expect the People’s Bank of China to keep the one-year and five-year LPR rates at 3.1 percent and 3.6 percent, respectively. Last week, investors reacted to mixed economic data indicating that Beijing’s stimulus measures may not yet be yielding the expected results.

The Australian dollar stabilized above $0.645 on Monday, supported by a hawkish view on the Reserve Bank of Australia’s (RBA) monetary policy. Last week, RBA Governor Michele Bullock said that interest rates are quite restrictive and will remain at current levels until the Central Bank is confident about the inflation outlook. Investors are awaiting the release of the minutes of the latest RBA meeting this week for further guidance on the Central Bank’s policy direction.