An overview of the global market

Global Market Trends and Economic Highlights: Asia-Pacific, Europe, and the U.S

Asia-Pacific markets saw a significant sell-off, with both South Korean and Hong Kong markets experiencing approximately 2% losses. European markets opened lower on Thursday, as investors assessed the impact of the Middle East crisis, along with earnings and economic data.​

In September, Australia's seasonally adjusted unemployment rate dropped to 3.6%, which was contrary to the 3.7% expected by economists polled by Reuters. Japan reported a trade surplus of 62.4 billion yen ($416.6 million) for September, with data from Japan's customs agency revealing a 4.3% increase in exports year on year, while imports declined by 16.3% compared to the same period last year.

The Federal Reserve's Beige Book report, released on Wednesday, indicated that the U.S. economy had shown minimal or no change over the past six weeks. It described spending as "mixed" and noted a modest increase in prices, with companies expecting inflation to rise at a slower pace. Later, the focus will shift to U.S. economic data, including initial jobless claims, to gain fresh insights into the state of the economy.

A busy schedule of Fed speakers will be highlighted by Chair Jerome Powell's appearance at the Economic Club of New York.
 
Asia's Property Sector Concerns, Earnings Disappointments in Europe, and Global Interest Rate Trends

In Asia, concerns in the property sector caused declines in Chinese shares, and there were announcements of investigations into Foxconn Technology Group. At the beginning of Asian trading, the yen slipped to 150.11.
European stocks declined due to disappointing earnings, particularly from Volkswagen and Royal Philips. Treasuries and oil prices also fell. The US 10-year note yield increased to 4.98%, while oil dropped to $87 per barrel, and gold fell from a five-month high.
Traders were closely monitoring developments in the Middle East, which included the release of US hostages by Hamas and aid reaching Gaza through Egypt. However, Israel continued air raids on Gaza in preparation for the next phase of its conflict with Hamas.
During this week, traders were seeking hints regarding global interest rates, which included inflation data from Australia and Japan, as well as economic activity data from the US and Europe. Federal Reserve Chairman Jerome Powell was scheduled to give remarks, and the European Central Bank was set to make a policy decision later in the week.
Higher bond yields are posing challenges for equity valuations and may impact companies reporting earnings this week, such as Microsoft, Alphabet, Amazon, Meta, Intel, IBM, General Motors, and General Electric. No major data releases are scheduled for the day.
 
The Impact of Rising Treasury Yields on the US Stock Market

US stock market has been experiencing a decline for the last two weeks, with all major indices falling. The decline can be attributed to the influence of US treasuries, which are contributing to a risk-off sentiment. Higher Treasury yields can curb investors' appetite for stocks and other risky assets by tightening financial conditions as they raise the cost. The stock market has been under pressure from the bond market, where the yield on the 10-year Treasury briefly touched 5% Thursday evening for the first time since 2007. High yields make borrowing more expensive for everyone, and they slow the economy while dragging on prices for stocks and other investments. The role played by earnings should intensify this week as some of the tech giants step up to bat. 2023 has seen an overreliance upon a handful of names to drive market upside, with speculation over potential AI revenues helping to lift valuations. Elevated treasury yields continue to put downward pressure on stock valuations. The yield on the 10-year U.S. Treasury note topped 5% early Monday, reclaiming a peak seen last week which marks the highest point for the yield benchmark since 2007. The week ahead will be busy for markets, with earnings due from Microsoft, Alphabet, Amazon, and Meta Platforms. The market was quick to react to this somewhat hawkish Fed outlook. Treasury yields moved sharply higher, as both the 2-year and 10-year yields moved to highs of this cycle, putting downward pressure on stock and bond returns. Longer-duration parts of the market, including technology and growth sectors, underperformed the broader market.
Geopolitical tensions in the Middle East have been a cause of concern for investors in the US stock market. The Israeli-Hamas war has sharpened focus on rising geopolitical risks for financial markets, as investors wait to see if the conflict draws in other nations. In the past week, concerns about the conflict have fed through to asset prices, contributing to weakness in stocks. Safe-haven assets saw buying with gold ended the week up with more than 2.5%.
 
Global Markets React to Business Activity Data and Economic Uncertainty

Asian-Pacific markets recovered from earlier losses, driven by the evaluation of private business activity surveys in Japan and Australia, along with South Korea's October producer price index. European markets cautiously opened higher on Tuesday, with investors monitoring the latest Eurozone business activity data.
In Japan, flash estimates from au Jibun Bank revealed a contraction in business activity in October, marking the first decline since December 2022. The composite purchasing managers index dropped to 49.9 from 52.1 in September, primarily due to a sharper decline in manufacturing activity. Australia also witnessed a decline in business activity, hitting a 21-month low in October, as reported by Juno Bank. The composite purchasing manager's index fell to 47.3 from 51.5 the previous month, with manufacturing PMI at a six-month low of 48.0 and services PMI at a 10-month low of 47.6.
Meanwhile, Treasuries are bouncing back after prominent market bears warned of an economic slowdown, raising expectations of Federal Reserve interest rate cuts. The erratic swings in government debt are unsettling investors due to the challenge of predicting when the Fed will halt rate hikes amid a resilient economy.
Preliminary Eurozone purchasing manager's index data for October is eagerly awaited, providing insights into the performance of the manufacturing and services sectors.
Bitcoin, on the other hand, started the week trading above the critical $30,000 resistance level, building on gains from the previous week, driven by optimism about the potential launch of the first spot Bitcoin ETF and a flight to safety.
 
China's Property Market Woes: Implications for Economic Recovery and Global Growth

China's economy faces significant challenges, especially in the housing market. Historically, the real estate sector has been a major contributor, accounting for up to 30% of the economy. However, it has struggled for over two years due to a government-initiated crackdown on developer borrowing. Property investments dropped by 9.1% in the first nine months of 2023, indicating worsening investor sentiment. Although GDP growth exceeded expectations, reaching 4.9% in Q3 2023, driven by consumer spending, the ongoing fragility of the property sector impedes China's economic rebound.
Although easing policies reduced buying costs, they failed to generate new demand, and support measures haven't significantly boosted confidence among buyers. New home prices in China fell for the third consecutive month in September, down 0.2% from August, traditionally a peak home buying period. Recent data also shows double-digit declines in property sales and investments, indicating ongoing economic challenges.
As of 2020, the property sector has played a substantial role in the Chinese economy, representing roughly 70% of household wealth. However, its contribution to local government income dropped from over 40% to 37% in 2022. Capital Economics estimates a 4.3% contraction in China's net household wealth in 2022, primarily due to falling home prices and stock market performance.
The Chinese government has implemented numerous stimulus measures, such as cutting mortgage rates and lifting home purchase restrictions, but these efforts haven't led to a sustained market recovery. The IMF warns that China's property downturn will impact global growth prospects.
Addressing the real estate issue requires a comprehensive strategy, including ensuring that pre-financed houses are constructed, as most new homes in China are sold before being built. Fixing the property sector is likely to be a multi-year or even decade-long endeavor.
China's rapid urbanization over the past decade is slowing down, and property market woes have eroded consumer confidence. Troubles at property giants like Evergrande and Country Garden, burdened by debt, contribute to these challenges.
Reducing the dominance of the Chinese property sector can have positive implications for the country's future economic stability.
 
Global Economic Concerns Mount as Markets Reflect a $12 Trillion Loss

Investors eagerly awaited significant economic data from the Asian-Pacific markets as the week began with a mixed start. Meanwhile, investors closely watched the latest inflation figures from Spain and Germany, anticipating a mixed opening for European markets on Monday.

The global stock market has suffered a significant loss in value of $12 trillion since the end of July. This decline has raised concerns about the sustained "higher-for-longer" interest-rate policies of central banks, which could potentially lead the global economy toward a recession.

The Bank of Japan initiated its two-day monetary policy meeting, leading to an 11-year high in 10-year government bond yields. Nearly two-thirds of economists anticipate that the Bank of Japan will end negative rates in 2024, which could lead to higher Japanese yields and present additional challenges to the Treasury market.

Australia reported a 0.9% month-on-month increase in seasonally adjusted retail sales for September, indicating growth in the retail sector.

China Evergrande Group, the world's most indebted developer, experienced a decline in its shares. However, the company gained some breathing space as a Hong Kong court postponed a winding-up hearing to December 4.

The director-general of the World Trade Organization has warned that the ongoing Israel-Hamas war could significantly impact global growth if it spills into the broader Middle East region.

The core personal consumption expenditures (PCE) price index, a closely watched inflation measure by the Federal Reserve, increased by 0.3% in September, aligning with Dow Jones forecasts. The core PCE rose by 3.7% year-over-year, consistent with expectations. Inflation expectations also experienced a significant swing in the final revision of the University of Michigan consumer sentiment survey for October, which was released on Friday.

Bitcoin is expected to record its strongest week since June, following a substantial rally earlier in the week that broke it out of the tight trading range it had been stuck in for most of this year.
 
Asia-Pacific Gains, Europe Optimistic, and U.S. Fed Decision Looms Amid Economic Shifts

Japanese equity markets outperformed other markets in the Asia-Pacific region as the Bank of Japan corrected its yield curve, attracting investor interest while keeping an eye on the U.S. Federal Reserve's upcoming interest rate decision. European equity markets are expected to open on a positive note in anticipation of the Federal Reserve's decision due on Wednesday.
On a separate note, the Caixin/S&P Global manufacturing PMI in China for October fell to 49.5 from September's 50.6, indicating an economic contraction and defying analysts' expectations.
Japanese bond futures recovered marginally after the central bank announced unexpected bond purchases to control a rise in yields following the policy announcement. The Japanese yen appreciated after the country's monetary watchdog hinted at possible market intervention due to discrepancies with economic fundamentals.
Market predictions heavily favor the Federal Reserve keeping interest rates unchanged, with futures markets indicating a 97% likelihood of this outcome.
European data revealed inflation has decreased to its lowest in two years, and contrary to the stagnant growth forecasted, the economy contracted slightly in the third quarter. This economic update comes after the European Central Bank paused its streak of interest rate hikes.
Additionally, there is interest in the U.S. government's new borrowing plan, which is expected to be disclosed shortly before the Federal Reserve shares its policy decision.
 
Global Markets React to Trade Data and Central Bank Actions

Global markets experienced significant fluctuations on Tuesday. South Korean stocks led losses in the Asia-Pacific region with a 3% decline. Investors closely monitored trade data from China and reacted to the Reserve Bank of Australia's recent interest rate hike.
In Europe, markets were set for a negative opening as the positive momentum of the previous week began to fade. On Monday, regional markets closed lower after a period of buoyant sentiment. Tuesday promised a plethora of earnings reports in Europe, including releases from UBS, Deutsche Post, Metro Bank, and Associated British Foods.
China reported October's trade figures, which proved to be a mixed bag. Exports in U.S. dollar terms fell by 6.4% compared to the previous year, worse than the Reuters poll's prediction of a 3.3% drop. Surprisingly, imports rose by 3% in U.S. dollar terms compared to the previous year, defying Reuters' forecast of a 4.8% decline.
Australia's central bank took action on Tuesday by raising interest rates to a 12-year high, marking the end of four months of steady policy. The Reserve Bank of Australia (RBA) left the door open for potential further tightening to address ongoing inflation concerns.
The RBA concluded its November policy meeting by increasing the cash rate by 25 basis points to 4.35%, citing data suggesting a risk of prolonged high inflation.
In the United Kingdom, retail sales for October showed a 2.5% increase, exceeding the 1.6% growth from the previous year but falling short of the three-month and twelve-month averages of 3.1% and 4.2%, respectively.
Market observers are now anticipating the Federal Reserve's response to the recent easing of financial conditions. Minneapolis Fed President Neel Kashkari emphasized that it is too soon to declare victory over inflation, despite some positive signs of easing price pressures. Several Fed officials, including Chair Jerome Powell, are scheduled to speak in the coming days.
Market swaps currently indicate expectations of over 100 basis points in rate cuts by the Fed by the end of 2024, down from an expected peak rate of 5.37%.
 
Market Insights: Asia-Pacific Rebounds, European Markets Weaken, and Bitcoin Hits 18-Month High
Most Asia-Pacific markets rebounded on Thursday following two consecutive days of declines. Meanwhile,data from China revealed a faster-than-expected decrease in consumer prices.

In contrast, European markets are poised for a negative start on Thursday as momentum continues to wane. China's consumer prices dropped in October amid challenges in the country's post-Covid recovery. This follows an unexpected flat CPI in September, underscoring the need for additional policy support.

Hong Kong-listed shares of Country Garden, one of China's largest property developers, saw activity.

Federal Reserve Chair Jerome Powell chose not to discuss monetary policy during the opening remarks at a U.S. Central Bank statistics conference. However, he is scheduled to speak at another conference on Thursday, where traders will keenly analyze his words.

European Central Bank Chief Economist Philip Lane emphasized the necessity for further efforts to curb inflationary pressures, urging both companies and governments to contribute to avoiding tighter policies. U.S. Federal Reserve Bank of Philadelphia President Patrick Harker supported the Fed's recent decision to maintain interest rates unchanged and cautioned market participants not to get ahead of themselves.

Philip Lane from the ECB is set to address the audience again on Thursday, while Bank of England Chief Economist Huw Pill will also speak at an event, potentially impacting the market in light of a sparse economic calendar.

Furthermore, Bitcoin surged to an 18-month high due to growing expectations of approval for exchange-traded funds (ETFs) investing in the leading cryptocurrency. It climbed by as much as 3.6% to reach $36,856 on Thursday.
 
Global Markets React to Powell's Inflation Focus and Economic Developments


On Friday, Asia-Pacific markets saw declines, influenced by a negative sentiment from U.S. markets overnight. However, South Korea's benchmark index outperformed its regional counterparts for the week. European equity futures followed a similar trajectory as Asian and U.S. shares.

Investors in Europe faced a bearish market, as they abandoned hopes of a risk asset rally following Fed Chair Jerome Powell's clear focus on addressing inflation, with potential rate hikes still under consideration. This statement, although consistent with previous remarks by several Fed speakers, caught investors' attention on Thursday, particularly after a recent rally in both stocks and bonds. Traders adjusted their expectations, with slightly higher odds of an additional rate hike and a delay in the anticipated 25-basis point rate cut, now projected for July instead of June.

U.S. Treasury yields rose following Powell's comments, along with a disappointing $24 billion 30-year Treasury auction.

Later in the day, ECB President Christine Lagarde is scheduled to participate in a fireside chat, and traders will analyze her every word.

Initial figures revealed that the U.K. economy stagnated in the third quarter, with Gross Domestic Product showing no growth in the three months ending in September, following a 0.2% increase in the previous quarter. On an annual basis, third-quarter GDP was 0.6% higher than the same period in 2022.

Investors will follow the University of Michigan Consumer Sentiment Survey and pay attention to comments from Dallas Fed President Lorie Logan and her Atlanta counterpart, Raphael Bostic.
 
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