A Look at the Day Ahead in U.S. and Global Markets

Overview

By Mike Dolan

The final day of another punchy quarter for U.S. stocks has proven to be more volatile overseas. China’s impressive stock recovery saw an additional 8% pre-holiday, while Tokyo’s market experienced a slump due to the new Japanese prime minister’s policies.

U.S. Context

Federal Reserve Chair Jerome Powell will speak in Nashville, providing insights on the unfolding Fed easing cycle amidst reassuring August inflation numbers. The week will focus on labor market updates, the upcoming earnings season, and the start of an election-focused final quarter.

China’s Market Dynamics

Despite challenges, China remains a focal point for global investors following last week’s significant monetary stimuli and measures to support the real estate and stock markets. Notably, the People’s Bank of China urged banks to reduce mortgage rates for existing home loans before the end of October.
On the last trading day before a four-day national holiday, China’s benchmark stock indexes (CSI300) soared over 8%, marking the best single day in 16 years and erasing year-to-date and 12-month losses.
Investor sentiment suggests that Beijing’s strong policymaking is needed in light of poor business survey readings for September.

Japanese Market Reaction

Conversely, as interest in Chinese stocks renewed, Japan’s Nikkei index dropped nearly 5% on the last day of Q3. Concerns about newly appointed Prime Minister Shigeru Ishiba, perceived as a hawk on monetary policy, contributed to the decline. The yen experienced a slight decline amidst ambiguity surrounding Ishiba’s policies.

European Market Trends

Europe’s focus was on disappointing inflation numbers from Germany and alarming manufacturing and automotive sector trends. Austria’s recent election of the Nazi-rooted Freedom Party added to investor apprehensions.
European stock benchmarks fell almost 1%, but the euro gained against a weaker dollar. Notable declines in auto shares occurred as major companies cut guidance amidst a deteriorating global industry environment.

U.S. Market Outlook

Ahead of Monday’s market opening, U.S. stock futures showed slight declines following a quarter of record highs for the S&P 500. With elections looming on the horizon, the VIX volatility gauge saw an uptick. Treasury yields also rose in anticipation of Powell’s address.

Key Upcoming Developments

• Dallas Fed September manufacturing survey, Chicago Sept PMI
• Federal Reserve Chair Jerome Powell speaks in Nashville, alongside other notable speakers from the Federal Reserve and European Central Bank.
• U.S. corporate earnings: Carnival, Precision Optics, Spectra Systems, EnerSys, Repositrak
• U.S. Treasury to sell 3-month and 6-month bills.

(By Mike Dolan, editing by Mark Heinrich; mike.dolan@thomsonreuters.com)