InvestMacro

At Thursday’s close, the Dow Jones Index (US30) was down 0.14%, while the S&P 500 Index (US500) decreased by 0.21%. The NASDAQ Technology Index (US100) closed negative 0.05%. The US stocks closed slightly lower on Thursday following the release of a sharper-than-expected inflation report, adding to uncertainty over the Federal Reserve’s upcoming rate decision in November.

The US inflation eased to 2.4% in September but exceeded average expectations of 2.3%, halting recent progress on disinflation amid rising housing, transportation, and food prices. Nevertheless, bullish assets received support from a surge in jobless claims, which refuted the view that the US labor market remains too resistant to restrictive interest rates following the release of the latest jobs report. Despite the inflation data, Fed officials are divided on whether to keep cutting rates, with some favoring a pause.

The Canadian dollar weakened to 1.37 per US dollar in October, hitting a nine-week low amid declining foreign exchange inflows and a stronger US dollar. Canada’s trade deficit widened to 1.10 billion Canadian dollars in August, the widest since May. This was helped by a 1.0% drop in exports, particularly a 4.1% drop in shipments of crude oil, the country’s main export. In addition, expectations of softening labor market data due out today fueled speculation of further monetary easing by the Bank of Canada.

Equity markets in Europe mostly fell yesterday. Germany’s DAX (DE40) fell by 0.23%, France’s CAC 40 (FR40) closed down 0.24%, Spain’s IBEX 35 (ES35) lost 0.72%, and the UK’s FTSE 100 (UK100) closed negative 0.07%.

In Europe, reports from the ECB’s last monetary policy meeting in September showed that the ECB wanted to keep options open for the next meetings and took a cautious stance on the next move. The Central Bank is expected to cut interest rates by 25 bps next week, the third cut this year.

WTI crude prices rose by 3.5% to $75.8 a barrel on Thursday amid rising demand for fuel in the US after Hurricane Milton hit Florida, concerns about supply disruptions from the Middle East, and expectations of rising energy demand in the US and China. Hurricane Milton knocked out power to more than 3.4 million homes and businesses, and nearly a quarter of gas stations across the state ran out of gasoline. These outages in one of the world’s largest oil-consuming regions contributed to the price spike. In addition, markets remain choppy, especially after Israel’s defense minister vowed that the response to Iran will be “deadly, precise and unexpected.” Additional pressure on prices comes from weak demand estimates, reinforced by China’s recent briefing, which provided few specifics on additional stimulus measures.

The US natural gas (XNG/USD) prices fell to $2.66/MMBtu, extending their decline from a three-month high of $3, as evidence of high supply reinforced weaker demand caused by hurricanes in the southeastern United States. New data from the EIA showed that natural gas inventories in the lower 48 states rose by 82 billion cubic feet in the week ending October 4, the biggest increase since March, and sharply above market expectations of a 71 billion cubic feet increase. Bearish pressure was also driven by the aftermath of Hurricane Milton on Florida’s Gulf Coast, which forced residential power outages and reduced electricity demand from gas-fired generators.

Asian markets were mostly down yesterday. Japan’s Nikkei 225 (JP225) was up 0.26%, China’s FTSE China A50 (CHA50) jumped 2.24%, Hong Kong’s Hang Seng (HK50) added 2.98%, and Australia’s ASX 200 (AU200) posted a modest 0.43% gain. Investors are cautiously awaiting the announcement of further stimulus measures from the Finance Ministry’s press conference on Saturday. Markets anticipate that officials will announce a major fiscal stimulus package, which is expected to amount to 2–3 trillion yuan. On Thursday, China’s Central Bank opened a 500 billion yuan swap facility to fund stock purchases by financial institutions as the recent stimulus rally began to fade.

The Bank of Korea cut its benchmark rate by 25 bps to 3.25% at its October meeting, the first cut since May 2020, in line with market estimates. The move brought borrowing costs to the lowest level in nearly two years, reflecting easing inflation, lower economic output, and efforts to curb household debt caused by mortgages.

At the end of Wednesday, the Dow Jones Index (US30) rose by 1.03%, while the S&P 500 Index (US500) gained 0.71%. The NASDAQ Technology Index (US100) closed yesterday positive 0.60%. Positive comments from Fed Vice Chairman Jefferson are helping stocks rise as he said the US economy is growing at a “robust pace”. Stocks also rose on speculation that today’s US consumer price report will ease price pressures. Economists expect annualized core inflation, which excludes food and fuel costs, to slow to 3.1% from 3.2%. Overall inflation is forecast at 2.3% y/y, down from 2.5% y/y in the previous month. The easing inflationary pressures and Friday’s strong employment report will convince the US Fed that inflation is on a steady path towards the 2% target. This will increase the likelihood that the US Fed will cut rates by 0.25% at each of its meetings in November and December. A sharper decline in inflationary pressures would be a negative scenario for the US dollar but positive for gold and risk assets (euro, pound, equities).

Minutes from the last FOMC meeting in September showed that Fed policymakers were divided over the size of the rate cut, with some participants favoring a quarter-point cut instead of the mandated 50 bps. Investors currently estimate the probability of a quarter-point rate cut in November at 78%.

Boeing’s (BA) stock price is down more than 3% and tops the list of losers in the S&P 500 (US500) and Dow Jones (US30). After talks to end a nearly month-long labor strike, it failed. Alphabet (GOOGL) shares fell more than 1% after the US Justice Department told a federal judge that it was considering recommending that Google be forced to sell some of its operations to settle an antitrust lawsuit.

Mexico’s core annual inflation rate fell to 3.91% in September, the lowest level since February 2021, down from 4% in August and slightly below forecasts. The annual inflation rate fell for the second consecutive month to 4.58%, the lowest level since March and below market expectations of 4.62%. Weakening price pressures may prompt the Bank of Mexico to consider further interest rate cuts after recent cuts, which would put pressure on the Mexican peso.

Equity markets in Europe mostly went up yesterday. Germany’s DAX (DE40) rose by 0.99%, France’s CAC 40 (FR40) closed up 0.52%, Spain’s IBEX 35 (ES35) added 0.06%, and the UK’s FTSE 100 (UK100) closed positive 0.65%.

ECB Governing Council representative Villeroy de Galhau said yesterday that an ECB interest rate cut next week is very likely and will not be the last. Still, the subsequent pace will depend on developments in the fight against inflation. His colleague, ECB Governing Council spokesman Kazaks, also said interest rates should be cut further because of the weakening Eurozone economy. Swaps discount the odds of a 25 bps ECB rate cut at the October 17 meeting by 94% and a 25 bps rate cut at the December 12 meeting by 100%.

WTI crude oil prices fell to $73.2 a barrel on Wednesday after falling 4.6% the previous day amid weak demand and rising supply. EIA data showed a 5.810 million barrel increase in US crude inventories, which exceeded market expectations by 2 million barrels, while API data totaled nearly 11 million. In addition, the US EIA revised its 2025 demand forecast downward, citing slowing economic growth in China and North America, which put additional pressure on oil prices.

Asian markets were mostly down yesterday. Japan’s Nikkei 225 (JP225) rose by 0.67%, China’s FTSE China A50 (CHA50) fell by 5.79%, Hong Kong’s Hang Seng (HK50) lost 0.91%, and Australia’s ASX 200 (AU200) posted modest gains of 0.17% over yesterday.

Today, the People’s Bank of China (PBOC) launched a RMB500 billion swap facility, allowing eligible financial institutions to use assets as collateral to provide liquidity. The initiative, known as the Swap Fund for Securities, Funds and Insurance Companies (SFISF), is part of the central bank’s efforts to develop a new structural monetary policy tool to support the stock market. This facility allows securities, funds, and insurance companies to obtain liquid assets to purchase equities using their bonds, ETFs, and stocks included in the CSI 300 index as guarantees.

At Monday’s close, the Dow Jones Index (US30) was up 0.30%, while the S& P500 Index (US500) was up 0.97%. The NASDAQ Technology Index (US100) closed positive 1.45% yesterday. Stocks rose amid upbeat comments from New York Fed Chairman Williams, who said the Fed is “well positioned” to provide a soft landing for the US economy. In addition, today’s news that the US trade deficit narrowed to a 5-month low in August was a positive for US Q3 GDP.

Nvidia (NVDA) jumped by 3% after Hon Hai said it is building the world’s largest Nvidia GB200 AI chip fab. Shares of American Express (AXP) are down more than 1% after BTIG LLC downgraded the stock to “sell” from “neutral” with a $230 price target.

The Canadian dollar weakened to 1.37 per US dollar in October, hitting an eight-week low amid a worsening outlook for foreign inflows and a strengthening US dollar. Canada’s trade deficit widened to CAD1.10 billion in August from a revised CAD0.29 billion in July, exceeding expectations of CAD0.5 billion. This is the widest gap since May, driven by a 1.0% drop in exports and a 3.0% drop in energy shipments, particularly crude oil, Canada’s main export, which fell by 4.1%. Meanwhile, upcoming labor market data is expected to show further weakness in the labor market, raising the stakes for further monetary easing by the Bank of Canada (BoC).

Equity markets in Europe were mostly down yesterday. Germany’s DAX (DE40) fell by 0.20%, France’s CAC 40 (FR40) closed down 0.72%, Spain’s IBEX 35 (ES35) gained 0.15%, and the UK’s FTSE 100 (UK100) closed negative 1.36%.  European stocks fell sharply on Tuesday, pressured by China-related sectors, as markets were stunned by the scope of Beijing’s new fiscal support and investors continued to assess the extent of rate cuts expected by global central banks in near-term decisions.

ECB Executive Board spokesman Elderson said the Eurozone economy is weaker than expected, and “if our projections that inflation will converge to our 2% target in the second half of 2025 are confirmed, the ECB will continue to gradually ease its restrictive policy stance.” Nagel, another representative of the ECB Governing Council and president of the Bundesbank, said he was “willing to consider the possibility” of an ECB interest rate cut at next week’s ECB meeting.

Oil prices fell by 4% yesterday. Expected supply disruptions caused by geopolitical risks in the Middle East have yet to materialize, and investors have shifted their attention back to Chinese demand. China’s National Development and Reform Commission has not announced any new support measures. In the absence of policy intervention, slowing economic growth could reduce Chinese oil demand in the short to medium term.

Asian markets were mostly down yesterday. Japan’s Nikkei 225 (JP225) was down 1.00%, China’s FTSE China A50 (CHA50) was up 4.08%, Hong Kong’s Hang Seng (HK50) decreased by 9.41%, and Australia’s ASX 200 (AU200) was negative 0.35%.

The Hang Seng Index (HK50) fell by 9.4% to finish at 20,927 on Tuesday after rising sharply in the previous two sessions as investors booked profits after the index rose to its highest level since early 2022. Market sentiment deteriorated further on disappointment over a media briefing in China that failed to announce major new economic stimulus measures. The government unveiled a 100 billion yuan investment plan for next year, up from the 1 trillion yuan allocated this year.

The Reserve Bank of India (RBI) kept the benchmark repo rate at 6.5% for the tenth consecutive meeting to ensure inflation falls to its medium-term target of 4%. The latest move came after annual inflation accelerated slightly to 3.65% in August 2024 on rising food prices but remained below the RBI’s target of 4% over five years.

The Reserve Bank of New Zealand (RBNZ) cut the official cash rate (OCR) by 50 basis points to 4.75%, the second consecutive rate cut in line with market expectations. New Zealand’s annual inflation rate in Q2 2024 fell to 3.3% from 4% in the previous quarter and was below market expectations of 3.5%.