We see ongoing thin trading but sign of a shift in sentiment as investors become increasingly concerned whether they were not too optimistic about upcoming rate cuts. European markets opened slightly lower and show little action - Stoxx 600 is currently 0.2% lower. European financial shares saw an uplift, with UBS Group rising over 4% despite absorbing Credit Suisse losses, buoyed by robust client inflows.
Germany's industrial output in September fell by 1.4%, signaling that the economic downturn continues, particularly in key sectors such as automotive, electrical, and pharmaceuticals. This decline coincides with a broader contraction in Europe's construction industry, as reflected by a dip in the Eurozone Construction PMI to 42.70 points in October. While Italy showed some resilience with a modest improvement, Germany's construction sector experienced a significant slump, marking the lowest HCOB Construction PMI reading since April 2020, underscored by a decrease in residential projects, job losses, and dropping prices. France's construction sector also reported a sharp decline, with the steepest contraction in activity for the year, accompanied by a reduction in new orders due to weakening demand.
Weak consumption in the Eurozone is also reflected in the sharp fall in producer prices, which are now at -12.5% YoY - a clear sign that consumer inflation will also fall significantly slowdown in coming months.
US futures dipped by around 0.25%, indicating investors' skepticism about the central banks’ move towards interest rate reductions. The USD and US Treasury yields ascended after declining last week, spurred by Minneapolis Fed President Neel Kashkari's remarks suggesting it's premature to consider inflation as under control. His preference for over-tightening rather than under-tightening monetary policy has heightened anticipation for upcoming speeches from Fed Chair Jerome Powell and other officials, potentially impacting traders' expectations for rate cuts by mid-2024, there is plenty of scope for the markets to scale back dovish hopes after the market went from oversold to overbought following the NFP data and the Fed's latest interest rate decision.
The Reserve Bank of Australia's hike of the cash rate to 4.35% reflects the highest borrowing costs since 2011 and suggests cautious steps by new governor Michelle Bullock in navigating inflationary pressures and economic risks, with a keen eye on CPI inflation trends and labor market conditions. This sends another message that rate hikes are still on the table not only in Australia.
Asian stocks mostly saw declines. China's trade surplus contracted to $56.53 billion in October, with exports declining for a sixth consecutive month and imports rising unexpectedly, a potential sign of domestic stockpiling and stimulus efforts. South Korea’s Kospi Index shed over 3% after a temporary surge following a short-selling ban.
Oil and gas prices declined, after Saudi Aramco released a disappointing earnings report, with over -20% Y/Y revenue in September. WTI Crude oil is currently trading close to 2% lower at $79/barrel. Gold prices also saw a decline of 0.6% after FED comments and higher yields, currently trading at $1,965/oz.
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