Global Stocks Start the Week on a Tepid Note Amid Rising Uncertainty
By Medha Singh and Rae Wee
LONDON (Reuters) – As the new week unfolds, global stocks are treading cautiously, reflecting a tepid sentiment in the markets. This comes on the heels of a strong performance last week, where equities saw significant gains. However, the atmosphere has shifted slightly, influenced by a mix of geopolitical tensions and evolving economic indicators.
The Impact of Geopolitical Tensions
One of the key factors contributing to the current market sentiment is the heightened uncertainty surrounding conflicts in the Middle East. This instability has bolstered the appeal of gold, which recently surged to record highs, reaching approximately $2,733 an ounce. Investors often flock to gold during times of uncertainty, viewing it as a safe haven asset. This trend underscores the intricate relationship between geopolitical events and market dynamics.
European Markets Await Earnings Reports
In Europe, the benchmark STOXX 600 index remained largely flat as investors await crucial earnings reports, particularly from German tech giant SAP. The results from SAP could set the tone for a busy earnings week across both Europe and the United States. Chris Scicluna, head of economic research at Daiwa Capital Markets in London, emphasized the importance of these earnings, stating, "Earnings will be very important in giving direction to stocks – whether or not current U.S. valuations can be justified."
Wall Street Futures Show Mixed Signals
Across the Atlantic, Wall Street futures indicated a mixed opening after the S&P 500 achieved a record closing high, marking its sixth consecutive week of gains. This performance reflects a resilient U.S. market, but the mixed signals suggest that investors are weighing their options carefully as they navigate through the current economic landscape.
Caution in the Face of Chinese Stimulus
Meanwhile, optimism surrounding China’s recent stimulus measures has begun to wane. Initially announced in late September, these measures have led to a cautious approach among investors as they await further details on fiscal support from Chinese policymakers. Although China cut its benchmark lending rates on Monday, the move was largely anticipated, resulting in only a modest 0.2% rise in China’s blue-chip index. Chaoping Zhu, a global market strategist at J.P. Morgan Asset Management, noted, "We might have to wait until late October or early November for concrete plans from the Standing Committee meeting of the National People’s Congress."
U.S. Election Watch: Trump’s Rising Odds
As the U.S. presidential election approaches, the political landscape is becoming increasingly relevant to market dynamics. With just two weeks until the November 5 election, bets on a Donald Trump victory are gaining traction. Analysts suggest that Trump’s policies on tariffs, taxes, and immigration could be inflationary, which would negatively impact bonds but positively influence the dollar. Furthermore, Trump’s anticipated favorable stance towards cryptocurrencies has added to the excitement in the crypto market.
Tony Sycamore, a market analyst at IG, remarked, "It seems now that Trump’s ahead in the key battleground states, which suggests he’s quite well placed to regain the White House." This sentiment has been reflected in the markets, with stronger equities, rising yields, and a robust performance from the dollar and bitcoin.
Bitcoin and the Dollar: A Week of Gains
Bitcoin has emerged as a significant player in this evolving narrative, recently hitting its highest price since late July at $69,487 before experiencing a slight retreat. The world’s largest cryptocurrency gained 9.6% last week and is up over 8% for the month, reflecting growing investor confidence. The dollar index, which measures the greenback’s value against a basket of currencies, rose 0.16% to 103.61, nearing two-month highs.
In the currency markets, both the British pound and the euro saw declines of about 0.2% against the dollar, while the U.S. currency strengthened by 0.25% against the yen, trading at 149.91.
Bond Markets and Oil Prices
In the bond markets, the benchmark 10-year U.S. Treasury yield rose by 3.4 basis points to 4.10%, while the two-year yield increased by 2.5 basis points to 3.98%. These movements indicate a shift in investor sentiment, as they adjust their expectations in light of the evolving economic landscape.
Oil prices also saw a slight uptick following a significant drop of over 7% last week, driven by concerns about demand in China and easing worries about potential supply disruptions in the Middle East. Brent crude futures rose by 1% to $73.76 a barrel, while U.S. West Texas Intermediate crude futures increased by 1.17% to $70.74 a barrel.
As the week progresses, investors will be closely monitoring earnings reports, geopolitical developments, and the unfolding narrative of the U.S. election, all of which will play crucial roles in shaping market sentiment.