Global stock markets exhibited resilience on Tuesday as investor risk appetite made a cautious return, offering some respite for equities and commodities. However, trading sentiment remained tempered by ongoing conflicts in the Middle East and the impending release of pivotal data that could shape the trajectory of U.S. interest rates.
Oil prices showed signs of recovery, mitigating some of the previous day’s losses. Worries persisted that the Israel-Hamas conflict might escalate, potentially triggering a broader crisis in the oil-exporting region.
Meanwhile, Bitcoin, fresh from its significant 10.2% rally on Monday, continued its ascent with a 3% gain.
The MSCI All-World index recorded a modest 0.1% increase, marking its first daily gain since October 17. Simultaneously, an index of Asia-Pacific shares outside Japan managed to climb above a one-year low.
Early October’s monthly surveys of business activity unveiled a decline in both the Eurozone and the UK. This decline comes ahead of a separate report for the United States, further underscoring the challenges faced by these economies.
TraderX strategist Michael Brown emphasized, “The only real growth that is out there is in the United States.” He pointed to the eagerly anticipated monthly U.S. Purchasing Managers’ Index (PMI) survey as a pivotal indicator of economic health.
Brown also noted, “The risks facing the Eurozone were pretty significant already before everything kicked off in the Middle East, but now we are potentially looking at a second consecutive winter where the Eurozone is having to grapple with an energy shock.
However, the STOXX 600 experienced a 0.2% dip, led by losses in banking shares, with Barclays dropping almost 9% at one point as it hinted at major cost-cutting measures this year, driven by margin pressures.
Market observers do not anticipate the European Central Bank to raise interest rates in their upcoming meeting, but they are prepared for high borrowing costs to persist.
Dalma Capital Chief Investment Officer Gary Dugan noted, “The looming spectre of inflation grows even more imposing, especially considering the recent sharp ascent in oil prices.” He further stated, “If oil prices persist at this level throughout the rest of 2023 and into 2024, this could potentially inject another bout of inflation into the global economy.
Global bond yields have trended higher recently, reflecting a growing belief that central banks will have limited room to cut interest rates until well into 2024. The 10-year Treasury note’s yield reached 5% on Monday, symbolizing this belief. It currently stands at 4.831%, remaining unchanged on the day.
BlackRock Chief Executive Larry Fink shared his perspective, suggesting that U.S. rates will stay elevated for an extended period due to fiscal stimulus and robust wage growth. He added, “I do believe the Federal Reserve will have to raise rates higher, which probably will mean that by 2025 we may have a soft landing, we may have a hard landing.”
Investor attention this week is split between earnings reports from high-profile companies like Microsoft, Meta Platforms (the parent company of Facebook), and Amazon, and a plethora of economic data ahead of the Federal Reserve’s meeting scheduled from October 31 to November 1.
Economic indicators such as the third-quarter gross domestic product report and the Personal Consumption Expenditures (PCE) report, the U.S. central bank’s preferred inflation gauge, will significantly influence medium-term expectations for U.S. interest rates.
In the currency market, the dollar remained steady against a basket of currencies after a 0.5% drop on Monday. The yen inched up against the dollar, with the exchange rate hovering close to 150 per dollar, a level that could prompt Japanese authorities to intervene in support of the currency. The dollar was down 0.1% at 149.51 against the yen.
In the world of cryptocurrencies, Bitcoin reached 18-month highs, boosted by speculation regarding the possibility of an exchange-traded fund. This enthusiasm prompted short-sellers to exit their positions. Bitcoin traded as high as $35,198 before easing to $34,151, representing a 3.3% gain for the day.
In the commodities market, U.S. West Texas Intermediate crude futures remained stable at $85.48 a barrel, while Brent crude inched up 0.1% to $89.88, and copper rose 0.1% to $7,977 per tonne.
The global financial landscape continues to navigate through a complex web of geopolitical challenges and economic uncertainties, with market participants keeping a close eye on developments on multiple fronts.