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What matters in U.S. and global markets today |
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While U.S. and world markets got a bounce to start the week, spurred by optimism on trade, hopes for an end to the Washington shutdown and some relief from regional bank jitters, the Wall Street rally has stuttered early on Tuesday just as a deluge of corporate updates looms.
The election of Liberal Democratic Party leader and fiscal expansionist Sanae Takaichi as Japan's first female prime minister on Tuesday sustained Monday's surge in the Nikkei stock benchmark at record highs, but attention quickly switched to her pick for finance minister. The yen continued to weaken even after media reports that Satsuki Katayama was in the frame for the job and has previously advocated a much stronger currency.
China's stocks recorded their biggest gain in six weeks, meantime, as U.S. President Donald Trump expressed optimism about a potential fair trade deal with Chinese President Xi Jinping before the latest deadline on draconian tariffs hits on November 1. U.S. Treasury Secretary Scott Bessent is set to meet Chinese Vice Premier He Lifeng this week.
This week's Communist Party meeting on a new five-year economic plan has also buoyed markets there.
Back stateside, there was some hope for an end to what's now set to be a 21-day government shutdown, now matching the second longest on record, after White House economic adviser Kevin Hassett said it could end as soon as this week.
Regional bank jitters also eased a touch as one of the names in the headlines last week, Zions Bancorp, reported decent earnings overnight despite taking a hefty loss on two loans and its stock rose 2% in after-hours trading.
But Wall Street stock futures fell back slightly before Tuesday's bell, however, as the corporate earnings really kick in. Netflix tops the diary, but big industrial and defense names are also reported.
Helped by a drop in crude oil prices to 5-month lows on Monday, U.S. Treasury yields were softer and the dollar was stronger - mainly on the falling yen. In a rare move these days, gold prices fell over 1% from this week's new records. |
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Argentina's peso continued to weaken even after the central bank there signed a $20 billion exchange-rate stabilization agreement with the U.S. Treasury Department, six days ahead of a key midterm election. A group of U.S. banks, including JPMorgan, Bank of America and Goldman Sachs is hesitant to lend $20 billion to Argentina without guarantees or collateral, the Wall Street Journal reported.
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Euro zone banks may come under pressure if U.S. dollar funding - the lifeblood of financial markets - were to dry up, the European Central Bank's chief economist Philip Lane said on Tuesday amid concern over Trump's policies. Dollar funding fears have been at the back of central bankers' minds since Trump announced a wave of trade tariffs and began putting pressure on the Fed earlier this year.
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Trump's backing of Australia's critical minerals will bring much-needed financial support to the industry, but experts say the U.S. president will have to wait longer to shift the supply chain away from China and weaken its market dominance. Goldman Sachs flagged mounting risks to global supply chains of rare earths and other minerals in a note on Monday that emphasized China's dominance - as it controls 69% of rare earth mining, 92% of refining and 98% of magnet manufacturing.
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In today's column, I take a look at the peculiar market mood, which seems
I’d love to hear from you, so please reach out to me at mike.dolan@thomsonreuters.com. |
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European leaders, including from Britain, France, Germany and the European Union, issued a joint statement with Ukraine on Tuesday backing U.S. President Donald Trump's call for a ceasefire at present battle lines.
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Hardline conservative Sanae Takaichi was elected Japan's first female prime minister on Tuesday, shattering the nation's glass ceiling and setting it up for a forceful turn to the right.
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Donald Trump's backing of Australia's critical minerals will bring much-needed financial support to the industry, but experts say the U.S. president will have to wait longer to shift the supply chain away from China and weaken its market dominance.
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The surge in gold, cryptocurrencies and stocks has sparked claims that the U.S. "debasement trade" is in full swing, but the bond and the foreign exchange markets tell a very different story, writes ROI markets columnist Jamie McGeever,.
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The deal to develop critical mineral supply chains between the United States and Australia is not quite the game-changer needed to end Western reliance on China, but it is an important first step, argues ROI Asia commodities columnist Clyde Russell.
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FOMO meets FOWO in edgy markets |
Investors' long-held "fear of missing out" is now vying with their "fear of wipeout", creating a peculiar situation in which there are simultaneously anxieties about all the risks that could upset today's stretched markets, as well as concerns about pulling back from an equity boom that could just keep running.
The tension between the two instincts was on full display last week. The mere suggestion of a credit wobble at U.S. regional banks sent global equities plunging and volatility spiking, yet buyers were drawn back within 24 hours.
"Trick or treat?" was the seasonal question Morgan Stanley posed on Monday, adding that markets may be underestimating the potential for the cycle to run "hotter" on the back of the "triple easing" of U.S. monetary, fiscal and regulatory policies.
Yet it's hard to get a firm consensus about this rally. Is this a cresting bull market that should make you run for the hills or just the beginning of a swelling artificial intelligence mega trend and investment supercycle spurred by government deregulation?
The tension between the two fears was one of the most pondered puzzles on the sidelines of the International Monetary Fund's annual meeting last week.
Credit cracks started to emerge last month with the First Brands auto parts bust, which then rippled through regional banks' bad loan flags last week. This could easily be read with caution as a cyclical or even systemic warning signaling that we could be nearing the market top.
Or maybe they are isolated events getting more attention than they deserve simply because markets are so richly priced. Even though U.S. junk bond credit spreads crept up about 25 basis points over the past month, they're still lower on a year-over-year basis and 100 bps tighter than April's peaks. |
Graphics are produced by Reuters. |
The Federal Reserve appears a touch uncomfortable with all this.
On the one hand, Chair Jay Powell and crew seem intent on continuing with interest rate cuts, as they view tightening money markets as a potential sign of banks hitting their lending reserve buffers and remain concerned that the current immigration shock will lead to weaker labor markets over time.
"Something's gotta give — either economic growth softens to match a soft labor market, or the labor market rebounds to match stronger economic growth," said dovish Fed board member Chris Waller last week. There may be other things that give, of course.
A series of interest rate cuts would come amid the loosest financial market conditions in almost four years, record high stock markets and still wafer-thin credit spreads. If there is a bubble, monetary easing now wi |
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