As markets seek further guidance on the interest rate outlook, US inflation numbers will be eagerly assessed in the coming week, with expectations for a further easing of inflation, in line with indications from the US PMI data released previously. Additionally, investors will be closely watching Fed policymakers' speeches for any signs of changes to monetary policy. The developments in the Middle East will also take centre stage, potentially driving risk-off sentiment in global markets.
Equities
Global equity markets enter the week with mixed sentiment as geopolitical tensions persist, however, US markets experienced positive momentum with a surprisingly strong US jobs report highlighting underlying strength in the labour market. The S&P 500 and Nasdaq composite both rose over the week, however, European equity markets saw mixed performance, with the STOXX Europe 600 index closing down nearly 1%, while the FTSE 100 finished up 0.7%. Chinese markets were closed last week as part of the Golden Week holiday, however, Chinese assets traded in Hong Kong saw significant gains. The Hang Seng Index surged 11% over the week, reflecting optimism about recent stimulus measures. As the Q3 earnings season kicks off, investors will be closely watching major corporate releases to see if there are any indicators of the strength of the underlying economy.
Commodities
The commodity sector traded higher for a fourth consecutive week, primarily due to surging energy prices amid concerns about an escalation in the Middle East, with Brent crude oil futures hitting a five-week high, settling above $78. However, gold prices dipped at the end of the week, despite initially benefiting from the heightened geopolitical tensions, as stronger-than-expected US jobs data caused prices to slip, with a second bumper Federal Reserve rate cut next month becoming less likely. Additionally, silver prices reached a 12-year high, following heightened industrial demand expectations following China's economic stimulus announcement.
Fixed Income
US Treasury yields surged last week following a stronger-than-expected US jobs report, reflecting the latest expectations that the Federal Reserve might not cut rates as aggressively as previously anticipated. This week, attention will be on upcoming US inflation data and producer prices to assess whether the Fed may shift its policy stance in the near term. A lower-than-expected inflation print could generate a more positive expectation for further rate cuts, however, rising inflationary pressure could further reinforce the negative outlook. Additionally, central bank policy decisions from India, New Zealand, and South Korea, will be closely watched, with expectations of rate cuts in New Zealand and South Korea, and potential easing in India, combined key data from China.
Currencies
Last week, the US dollar gained strength following the significant US jobs data, reaching a seven-week high on Friday. However, the upcoming inflation reports will be key in determining Federal Reserve rate cut expectations in November. Consequently, this week's key focus for currency markets will be US inflation data, FOMC minutes, and central bank rate decisions from New Zealand, South Korea and India. In Asia, the Japanese yen had one of its weakest periods since 2009, with increased volatility in the currency, so investors will be paying attention to whether this trend will continue in the week ahead.
Outlook
As we navigate the week ahead, global markets stand at a critical juncture, with investors across all asset classes closely monitoring economic data releases, central bank communications, and geopolitical developments in the Middle East. Uncertainty remains elevated, with the VIX index above 20, after a considerable increase in the fear gauge over the last week. Investors should remain vigilant and prepared for potential shifts in market trends while keeping a close eye on the delicate balance between economic growth, inflation concerns, and monetary policy adjustments.