The past few days have been tough for investors due to US political uncertainties, geopolitical tensions in the Middle East, and expectations that the Federal Reserve (Fed) may slow down its monetary easing efforts. Despite rising US yields, gold prices continue to hit record highs. The concerns about the upcoming US presidential election, especially the potential impact of a Trump win on international trade and inflation, have been weighing on the markets. The International Monetary Fund (IMF) has lowered its global growth forecast for next year to 3.2% due to various risks, including wars and protectionism.
At the Fed, there are mixed views on further rate cuts. While some members like Mary Daly believe that rate cuts should continue, others like Neel Kashkari suggest a more moderate approach. The market is pricing in a 92% chance of a 25bp rate cut in the November meeting, but there is speculation that the Fed may pause its easing policy in December.
The US dollar has been strengthening against most major currencies, with the EURUSD dropping to 1.0761 as rate cut expectations in the Eurozone persist. The divergence in outlook between the Fed and the European Central Bank (ECB) is likely to keep the EURUSD under pressure.
In other markets, the USDJPY has broken above key resistance levels, driven by dovish comments from the new Japanese Prime Minister. In the UK, the British Pound is under selling pressure as inflation weakens. The Canadian Dollar has also weakened after the Bank of Canada (BoC) announced a 50bp rate cut.
On the equity front, European stocks are facing pressure due to disappointing earnings reports from companies like ASML and Deutsche Bank. In contrast, US big banks, chipmakers, and tech companies like Netflix and Tesla have reported strong results. Tesla, in particular, surprised investors with an 8% revenue growth, a 17% jump in net income, and improved operating margins. The positive results have led to a 12% jump in Tesla’s stock price in after-hours trading, which could potentially boost the S&P500 and Nasdaq 100.
Overall, while there may be some corrections in the US dollar rally, it is unlikely to happen before the US election. The markets will continue to be influenced by central bank policies, economic data, and corporate earnings reports in the coming days. Investors should stay cautious and seek advice from financial advisors before making any investment decisions.
