Daily Global Market Overview By zForex

zForex

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Market Volatility and Central Bank Decisions: A Weekly Overview

Asian-Pacific markets declined on Monday in anticipation of central bank decisions scheduled for the week. Meanwhile, European markets had a negative start to the week.
The troubled Chinese real estate developer Evergrande saw its shares plummet by as much as 22.6% on Monday following the detention of some staff from the group's wealth management unit by the police over the weekend.
There are reports suggesting that the Japanese investment holding company SoftBank is planning to make significant investments, potentially reaching "tens of billions," in the field of artificial intelligence.
Societe Generale SA's stock dropped by more than 7%, significantly impacting Europe's Stoxx 600 Index, as the lender's strategic plan failed to meet investor expectations.
Oil prices continued to rise for the third consecutive day, with Brent crude approaching $95 per barrel due to OPEC+ supply cuts tightening the market. Investors are closely monitoring Saudi Energy Minister Prince Abdulaziz bin Salman's address at an industry conference on Monday for insights into the global oil supply outlook.
The US Federal Reserve is set to announce its decision on Wednesday. While it is widely expected that the central bank will maintain interest rates, investors are keen to discern the Fed's stance on inflation.
In other developments this week, Australia's central bank will release the minutes of its September 5 policy meeting on Tuesday, and the Bank of Japan will conclude its monetary policy meeting on Friday. Additionally, the People's Bank of China is expected to announce its loan prime rate decisions on Friday.
Last week in Europe, the European Central Bank raised interest rates by 25 basis points, marking the 10th consecutive hike and bringing its main rate to a record high of 4%.
 

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China's Steady Loan Rates, UK Inflation, and Fed's Upcoming Policy Update

Across the Asia-Pacific markets, there was a widespread decline in response to China's decision to keep its one-year and five-year loan prime rates unchanged. In contrast, European markets are gearing up for a mixed opening on Wednesday, as global investors eagerly await the upcoming monetary policy announcement from the U.S. Federal Reserve.
Specifically, China has maintained its one-year and five-year loan prime rates at 3.45% and 4.2%, respectively, for the month of September. The People's Bank of China had last reduced the one-year LPR rates in August, lowering them from 3.55% to 3.45%, while the five-year LPR saw its last cut in June, dropping from 4.3% to 4.2%.
Meanwhile, Japan experienced a significant improvement in its trade deficit for August, which plummeted by 66.7% to 930.5 billion yen ($6.3 billion), compared to the 2.79 trillion yen deficit recorded a year earlier.
On the other hand, the United Kingdom observed a 6.7% inflation rate in August, slightly below expectations and a marginal decrease from the previous month. This development may influence the Bank of England's decision to potentially halt its tightening cycle after tomorrow. The likelihood of a quarter-point increase on Thursday has also decreased, with the market assigning it a probability of less than 60%, down from the previous 90%, as indicated by swap pricing.
The Federal Reserve is widely anticipated to maintain its current interest rates on Wednesday. However, market attention will be focused on the central bank's updated economic outlook, including the "dot plot" charting the projected Fed funds rate movements. Chair Powell's subsequent press conference will provide investors with insights into the direction of policy changes leading up to the November meeting and into 2024.
Additionally, Canada has experienced a notable increase in consumer prices, primarily driven by surging gasoline costs. This development might provide supporting evidence for the Federal Reserve to adopt a more restrictive stance on interest rates. Market expectations have roughly doubled the likelihood of a rate hike in Canada, now standing at approximately 40%, following a rise in annual headline inflation from 3.3% in the previous month to 4% in August.
 

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Global Markets React to US Federal Reserve's Rate Decision and Economic Updates

Asia-Pacific markets experienced a decline today as a reaction to the US Federal Reserve's decision to maintain its benchmark policy rate. The central bank also disclosed its intention to raise interest rates once more this year, in accordance with its projections.
These projections indicate that the central bank anticipates raising rates to a median level of 5.6% by the conclusion of 2023, an increase from the current range of 5.25% to 5.5%. Additionally, the Federal Open Market Committee, responsible for rate-setting, projected two rate cuts for 2024, a reduction from its previous June forecast, potentially setting the funds rate at around 5.1%.
On another note, New Zealand's gross domestic product (GDP) showed a stronger-than-expected growth of 0.9% quarter-on-quarter in the second quarter of the year, surpassing economists' expectations of 0.5%. This positive performance followed a revised 0.0% growth rate in the first quarter, preventing the country from slipping into a technical recession. The previous reported figure for Q1 was -0.1%.
In the European markets, there was a downward trend at the opening bell. This comes ahead of a series of interest rate decisions scheduled for Thursday from central banks in England, Turkey, Sweden, Switzerland, and Norway. Additionally, there are preliminary consumer confidence figures for the Eurozone in September set for release.
The Bank of England's announcement marks a busy day for European central bankers. Notably, the Swiss franc depreciated after the Swiss National Bank unexpectedly maintained its rates, while Sweden's Riksbank raised its key rate as anticipated and expressed the possibility of more rate hikes. A decision from Norway's central bank is also on the horizon.
 

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Japan's Economic Landscape: BOJ Policy and Inflation Trends

The Asia-Pacific markets are experiencing mixed performance after the Bank of Japan decided to maintain its current monetary policy in its latest meeting on Friday.
The central bank has kept rates at -0.1% and has set a target for the 10-year Japanese government bond yield at approximately zero. BOJ Governor Kazuo Ueda continues to assert the necessity of an ultra-easy monetary policy until Japan achieves a sustained inflation rate of 2%. Japan's headline inflation has consistently exceeded this target since April 2022, with the latest reading at 3.2% in August. However, Japan's private sector activity has expanded at its slowest pace since February, as indicated by flash estimates from au Jibun Bank, with a September composite purchasing managers index of 51.8, down from August's 52.6. It's worth noting that Japan's headline inflation rate for August was 3.2%, slightly lower than the 3.3% seen in July, marking the 17th consecutive month that inflation has surpassed the Bank of Japan's 2% target. Meanwhile, the core inflation rate, excluding fresh food prices, remained steady at 3.1%, matching July's figure and slightly above the 3% expected by economists polled by Reuters.
In European markets, there is a likelihood of a retreat on Friday due to the emerging prospect of prolonged higher interest rates following a series of central bank decisions this week.
In Great Britain, data published on Friday by the Office for National Statistics reveals a 0.4% increase in the number of goods purchased between July and August, rebounding from a drop in July when inclement weather discouraged shoppers. This growth in August was slightly below the 0.5% expansion forecasted by economists.
On Thursday, both the Bank of England and the Swiss National Bank chose to conclude their recent interest rate hike cycles, though they emphasized the need for continued vigilance and the possibility of further rate increases and sustained higher rates. Additionally, both the Swedish and Norwegian central banks raised interest rates.
 

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Bank of England Halts Aggressive Interest-Rate Hike Cycle Amid Recession Concerns

The Bank of England has paused its aggressive interest-rate hike cycle, due to growing concerns about an impending recession outweighing worry about inflation. After 14 consecutive rate hikes since December 2021 when rates were at 0.1%, the central bank decided to maintain the key rate at 5.25%. The Monetary Policy Committee was split, with five members voting to keep rates steady and four advocating for an increase to 5.5%. Governor Andrew Bailey, holding the deciding vote, opted to maintain the rate.
Although the Bank of England signaled a temporary pause, it emphasized readiness to respond if inflation, currently more than three times above the 2% target, doesn't decrease as expected. Market indicators and many economists are increasingly betting that UK interest rates may have already peaked. This shift in sentiment led to a depreciation of the pound against the dollar. Investors now anticipate minimal further tightening in the coming months.
The decision to halt rate hikes brings relief to households and businesses grappling with rising borrowing costs since the end of 2021. Concerns about the economic outlook played a role in the decision, with data showing a contraction in output, rising unemployment, and declining job vacancies.
The Bank of England has revised its GDP growth forecast downward, and inflation is expected to drop below 2% in the medium term. Higher rates have had a significant impact on homeowners, with a £15 billion repayment burden expected. Some MPC members have cautioned against overtightening, with several voting to maintain rates.
In addition to the rate decision, the Bank of England has accelerated its quantitative tightening efforts to reduce its balance sheet, providing room for potential future financial stability interventions. Over the next 12 months, it plans to reduce its gilt portfolio by £100 billion to £658 billion, adding to last year's unwinding of £80 billion.

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Federal Reserve Announces Extended Period of High Interest Rates Amidst Inflation Concerns
The Federal Reserve kept its benchmark interest rate steady, indicating that rates are likely to remain high for an extended period after one more increase later this year. The Federal Open Market Committee, responsible for the US central bank's policy decisions, released a statement after their meeting, stating that they will determine the need for additional policy tightening. Fed Chair Jerome Powell emphasized their willingness to raise rates further until they are confident that inflation is moving towards their 2% target sustainably. The federal funds rate remained in the range of 5.25% to 5.5%, with 12 of 19 officials favoring another rate hike in 2023 to control inflation.
Powell stated their commitment to a restrictive monetary policy to achieve the 2% inflation goal. Fed officials now project a reduction in the federal funds rate to 5.1% by the end of 2024, reflecting renewed economic strength. This rate is expected to fall further to 3.9% by the end of 2025 and 2.9% by the end of 2026. Following the Fed's decision.
The Fed's strategy has shifted to a slower pace of interest rate increases, allowing incoming data to determine the peak interest rate level as inflation moves towards the 2% target. Inflation, excluding food and energy, increased by 4.2% in the 12 months through July. Officials project inflation to fall below 3% next year and return to 2% by 2026. Economic growth is expected to slow to 1.5% in 2024, following an upward revision to 2.1% in 2023.
The projection of higher interest rates for a longer period is influenced by a more optimistic view of unemployment, with the jobless rate expected to reach 4.1% in 2024, compared to the June projection of 4.5%. Powell clarified that a "soft landing" for the US economy is not the Fed's primary expectation, but it remains their primary goal to contain inflation.

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Bank of England Halts Aggressive Interest-Rate Hike Cycle Amid Recession Concerns

The Bank of England has paused its aggressive interest-rate hike cycle, due to growing concerns about an impending recession outweighing worry about inflation. After 14 consecutive rate hikes since December 2021 when rates were at 0.1%, the central bank decided to maintain the key rate at 5.25%. The Monetary Policy Committee was split, with five members voting to keep rates steady and four advocating for an increase to 5.5%. Governor Andrew Bailey, holding the deciding vote, opted to maintain the rate.
Although the Bank of England signaled a temporary pause, it emphasized readiness to respond if inflation, currently more than three times above the 2% target, doesn't decrease as expected. Market indicators and many economists are increasingly betting that UK interest rates may have already peaked. This shift in sentiment led to a depreciation of the pound against the dollar. Investors now anticipate minimal further tightening in the coming months.
The decision to halt rate hikes brings relief to households and businesses grappling with rising borrowing costs since the end of 2021. Concerns about the economic outlook played a role in the decision, with data showing a contraction in output, rising unemployment, and declining job vacancies.
The Bank of England has revised its GDP growth forecast downward, and inflation is expected to drop below 2% in the medium term. Higher rates have had a significant impact on homeowners, with a £15 billion repayment burden expected. Some MPC members have cautioned against overtightening, with several voting to maintain rates.
In addition to the rate decision, the Bank of England has accelerated its quantitative tightening efforts to reduce its balance sheet, providing room for potential future financial stability interventions. Over the next 12 months, it plans to reduce its gilt portfolio by £100 billion to £658 billion, adding to last year's unwinding of £80 billion.

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zForex

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Market Insights: Asia-Pacific Mixed, Inflation Updates, and US Government Funding Agreement
The Asia-Pacific markets displayed mixed performance as investors evaluated China's industrial data and Australia's August inflation figures, which were set to be released on Wednesday. In Australia, the weighted inflation rate for August registered a 5.2% year-on-year increase, aligning with economists' expectations polled by Reuters, while the headline inflation stood at 5.5%.

In China, industrial profits saw a year-on-year decline of 11.7% as of August, marking a more moderate contraction compared to the 15.5% drop observed during the first seven months of the year. Meanwhile, concerns in the Chinese property market persisted, exemplified by a third consecutive day of losses for a gauge of Chinese property developers. Cifi Holdings Group Co. shares tumbled after a six-month trading halt, and China Evergrande Group's founder and chairman, Hui Ka Yan, faced police control measures. Country Garden Holdings Co Ltd also confronted impending interest payment deadlines, all against the backdrop of an upcoming holiday that would suspend mainland markets for six trading days.

Turning to Japan, minutes from its monetary policy meeting in July revealed a division within the central bank board regarding the timing of when the Bank of Japan should initiate interest rate hikes. This debate stemmed from inflation consistently exceeding the BOJ's 2% target for 15 consecutive months.

Shifting focus to Europe, Wednesday's market opening was anticipated to be mixed as investors continued to assess factors such as inflation, interest rates, and the global economic outlook.

In the United States, Democratic and Republican leaders reached an agreement on Tuesday to fund the government and provide $6 billion in assistance to Ukraine, effectively averting a potential shutdown on October 1st. However, the plan still faced challenges in the House due to ongoing gridlock.
 

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Global Markets Grapple with Inflation Worries as Oil Prices Surge and Bonds Face Pressure

Asia shares slumped, but US equity futures and Treasuries stabilized as oil prices surged, heightening concerns about inflation. The US benchmark oil price reached $95 a barrel, the highest in over a year, due to falling stockpiles, contributing to worries about persistent inflation. This pushed the 10-year Treasury yield near 4.6%, its highest since 2007. US and European equity futures showed marginal gains, while Asian stocks struggled, with Japan, New Zealand, and Hong Kong falling over 1%. A global equities index faced its tenth consecutive loss, matching a 12-year record. September proved challenging for global stocks and bonds, with the 10-year Treasury yield rising significantly, and US corporate bonds dipping into negative territory for 2023.

Seasonally adjusted retail sales in Australia climbed 0.2% in August compared to the prior month. It was slower than the 0.3% expected by economists polled by Reuters.

In China, mainland shares declined, and Chinese developers continued to face losses, including Evergrande Group. The Bloomberg dollar index fell slightly after a six-day rally, while the yen strengthened but remained near 150 per dollar. Japan's 20-year yield reached its highest since 2014, and Australian and New Zealand rates also increased. Minneapolis Federal Reserve President Neel Kashkari noted potential economic slowdowns due to a US government shutdown and an autoworker strike, suggesting less aggressive monetary policy.

Market observers anticipated key data releases, including US GDP and initial jobless claims, along with the personal consumption expenditures price. A large options position held by a JPMorgan Chase & Co. equity fund raised concerns of potential market dislocations.
 

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Global Market Insights: Inflation Trends, Summit Talks, and Economic Data

Asia-Pacific markets mostly gained on the week's last trading day, led by Hong Kong's Hang Seng index. Inflation in Tokyo showed a year-low increase at 2.8% for September, down from August's 2.9%, marking its lowest since September 2022, and serving as a key indicator for nationwide inflation trends. The Wall Street Journal reported discussions between China's Vice Premier He Lifeng and Foreign Minister Wang Yi regarding potential visits to the US, in preparation for a potential summit between Xi Jinping and Joe Biden.

European markets started positively on Friday, breaking a five-day losing streak from the previous session. Unexpectedly, French price growth slowed, while investors awaited euro zone inflation data following Germany's preliminary figures indicating a greater-than-expected slowdown in inflation. Germany also saw a surprising decline in retail sales for August due to persistently high inflation.

In the US, the Commerce Department's final estimate reported a 2.1% annualized increase in real gross domestic product for the second quarter, aligning with the previous reading but falling short of Dow Jones' estimate of 2.2%. Later in the day, the US personal consumption expenditures price index would be closely watched, potentially influencing whether the Federal Reserve raises rates from their 22-year highs.
 

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Global Economic Update: Asia-Pacific Stocks Dip, China's Manufacturing Rebounds, and European Markets Rally

Asia-Pacific stocks faced a decline in their values, even in the wake of a notable recovery in China's manufacturing sector, which managed to push its way back into expansion territory. Meanwhile, during its September meeting, the Bank of Japan's policymakers conducted a thorough evaluation of various conditions that must be met before considering the possibility of ending the central bank's ultra-loose monetary policy.
The sentiment among major Japanese manufacturers in the third quarter demonstrated a significant improvement, with the closely watched Central Bank Tankan survey reporting a score of 9, up from 5 in the previous three months.
China, on the other hand, saw its factory activity expand in September, marking the first expansion since April. Official data over the weekend revealed that China's Purchasing Managers' Index (PMI) climbed to 50.2, surpassing Reuters' expectations of 50.0, which is a positive sign for the world's second-largest economy.
In Europe, markets opened on a positive note on Monday, buoyed by indications that the recent pace of consumer price increases might be slowing down. Eurozone inflation for the month of September tumbled to 4.3%, its lowest level since October 2021, according to flash data. Notably, the European Central Bank had raised interest rates to a record level the previous month; however, economists and investors now anticipate that these rates may have reached their peak.
Shifting focus to the United Kingdom, house prices held steady in September when compared to the prior month, according to data from lender Nationwide. However, it's important to note that they were down by 5.3% year-on-year, highlighting the ongoing challenges in the British property market.
 

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Global Economic Snapshot: Market Trends, Inflation, and Fed's Policy Stance

Overnight in the Asia-Pacific markets, Hong Kong stocks led losses by falling approximately 3%, with the Hang Seng index trading 3.12% lower after the National Day holiday. This decline was driven by the real estate and energy sectors. Meanwhile, the Reserve Bank of Australia held interest rates steady at 4.1%, aligning with Reuters' expectations. The bank's governor, Michele Bullock, mentioned that although inflation in Australia has peaked, it remains high and is expected to stay that way. She highlighted that while goods inflation has eased, many service prices are still rising, along with fuel prices.
European markets are set to open flat to lower following concerning economic data from the region. European stock markets closed lower on Monday, as manufacturing output showed signs of decline, with new orders dropping significantly. In the UK, shop prices in September increased by 6.2% annually, a decrease from August's 6.9%, marking the lowest rate in a year. Food price inflation also cooled to 9.9%, with a slight monthly decline, the first in over two years.
Weakness in bond markets followed a Treasury slump on Monday due to hawkish Fed messaging, overshadowing optimism about avoiding a US government shutdown. Yields on five- to 30-year Treasuries rose by about 10 basis points, and the 10-year note reached its highest point since 2007. Fed Governor Michelle Bowman expressed willingness to support a federal funds rate increase if inflation progress stalls. Fed Vice Chair for Supervision Michael Barr suggested that rates are approaching a sufficiently restrictive level. Fed Chair Jerome Powell, during a visit to York, Pennsylvania, reiterated the need for a restrictive policy for some time, as did the influential New York Fed Chief John Williams on Friday. Cleveland Fed leader Loretta Mester also indicated that the Fed's work is likely not complete.
 

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U.S. Manufacturing Shows Signs of Recovery Amidst Challenges: Institute for Supply Management (ISM) reported for September

The Institute for Supply Management (ISM) reported that U.S. manufacturing showed signs of recovery in September, with increased production and employment. This positive trend was the third consecutive month of improvement, boosting expectations for stronger economic growth in the third quarter. The Commerce Department's data also indicated solid construction spending in August, fueled by housing and factory construction.
The ISM's manufacturing Purchasing Managers' Index (PMI) rose to 49.0 in September, the highest since November 2022, up from 47.6 in August. However, it's noteworthy that this marked the 11th consecutive month with a PMI below 50, indicating a contraction in manufacturing. This extended stretch of contraction is the longest since the 2007-2009 Great Recession.
Economists had anticipated a more modest increase, with the index edging up to 47.7. The PMI surpassing 48.7, which is considered a threshold for economic expansion, added to optimism. Third-quarter growth estimates ranged as high as a 4.9% annualized rate, compared to the 2.1% growth rate in the April-June quarter.
The ISM survey revealed that five manufacturing sectors reported growth in September, including textile mills and primary metals, while 11 industries, including computer and electronic products and machinery, reported contraction.
Despite the mixed responses from survey participants, some noted stable conditions while others expressed concerns about factors like the Panama Canal drought and supply chain disruptions. Nevertheless, the overall resilience of the economy has led to hope that a recession may be avoided in the near future.
In addition to the PMI, other economic indicators, such as orders for durable goods and business spending on equipment, indicated strength in the manufacturing sector. New orders in the ISM survey improved, leading to increased factory production.
Factory employment also rebounded after a slump in July, with the employment gauge rising to 51.2 in September. However, challenges like attrition and hiring freezes persisted.
In terms of prices, the survey revealed that manufacturers paid lower prices for inputs, with the prices-paid measure dropping from 48.4 in August to 43.8 in September. While this suggests goods disinflation, it's worth noting that auto workers' strikes and rising energy prices could potentially impact prices in the future.
Construction spending continued to show strength, with a 0.5% increase in August, driven by spending on housing and factory construction. However, high mortgage rates posed a potential threat to this momentum.
 

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Market Volatility and Central Bank Actions Amid Rising Bond Yields

On Wednesday, Asia-Pacific markets experienced widespread weakness, with Korean and Japanese stocks both declining by over 2% following a 16-year high in the U.S. 10-year Treasury yield. The Japanese yen strengthened against the U.S. dollar, briefly reaching 150 overnight. When asked about potential intervention to support the yen, Japan's Finance Minister Shunichi Suzuki declined to comment but mentioned Japan's readiness to respond to significant currency movements.
Meanwhile, the Reserve Bank of New Zealand decided to keep its key interest rate at 5.5%. Despite stronger-than-expected GDP growth in the June quarter, the bank noted a subdued growth outlook for the country. New Zealand's GDP rose by 3.2% compared to the same period last year.
In the US, job openings increased to 9.61 million in August, up from less than 9 million the previous month, according to the Bureau of Labor Statistics. This report led swaps traders to raise their bets on the Federal Reserve raising rates in December to over a 50% probability.
Atlanta Fed President Raphael Bostic, who is not voting this year, emphasized the need to keep rates elevated for an extended period. He projected a single rate cut in 2024, likely towards the end of the year. These comments followed a series of hawkish statements from other Federal Reserve policymakers.
The global bond selloff persisted, with investors adapting to a new era of higher-for-longer interest rates. Yields continued to rise, with the 10-year Treasury yield reaching a fresh 16-year peak, and the benchmark 10-year Japanese government bond yield remained at a 10-year high. These developments contributed to a risk-averse and unsettled European session, as indicated by futures pointing to a lower market opening.
 

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Global Financial Markets Respond to Jobs Data and Oil Price Drop

European equity futures followed the upward trend seen in Asian markets, as both stocks and bonds experienced gains on Wall Street. This provided some relief to financial markets that had recently endured a series of harsh losses. The rally in stocks and bonds came after weaker-than-expected jobs data led to a decrease in U.S. Treasury yields from their 16-year highs.
In September, U.S. companies added the fewest jobs since the beginning of 2021, as reported by a survey conducted by the ADP Research Institute in collaboration with the Stanford Digital Economy Lab. Another report from the Institute for Supply Management indicated a slight contraction in the services sector last month, marking the lowest level of the year. Forecasts for Friday's nonfarm payroll figures suggest a slowdown in hiring for September.
Additionally, there was a significant 5% drop in crude oil prices, which is noteworthy as it represents the largest drop in over a year, pushing oil prices below their levels from a year ago. This decline in oil prices has removed the inflationary pressures associated with oil. This shift in the macroeconomic outlook and concerns about reduced fuel demand gained prominence following a meeting of the OPEC+ panel, consisting of the Organization of the Petroleum Exporting Countries and its allies led by Russia.
During the OPEC+ ministerial panel meeting, no changes were made to the group's oil output policy. Saudi Arabia announced its commitment to maintaining a voluntary cut of 1 million barrels per day (bpd) until the end of 2023, while Russia pledged to continue a 300,000 bpd voluntary export curb until the end of December.
 

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Market Insights: Asian Stocks Rise, European Markets Follow, and US Payrolls Report Looms

Asian stocks received support from gains in Hong Kong, where the Hang Seng Index surged by up to 2.3%. This surge was driven by optimism regarding southbound flows and Golden Week consumption trends, which are expected to benefit Chinese shares when mainland markets reopen. The main contributors to this rally were e-commerce and other consumer-related companies, along with financial stocks.
Meanwhile, European stocks edged higher, following the positive momentum in Asian markets. This uptick came as traders prepared for the release of the US payrolls report, which is anticipated to reveal a slowdown in hiring by employers last month. This potential slowdown could alleviate some of the pressure on the Federal Reserve to raise interest rates once again.
According to a Bloomberg survey, the nonfarm payrolls report is expected to indicate that US employers added 170,000 workers in the previous month, a decrease from the 187,000 added in August. Earlier in the week, job data presented a mixed picture: job openings exceeded expectations, but a measure of private employment from ADP fell short of forecasts.
San Francisco Fed President Mary Daly, who is not a voting member of the Fed's rate-setting committee this year, suggested that the central bank might maintain its current interest rates if both inflation and the job market show signs of cooling.
 

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Surprising Job Growth in September Raises Questions for the Federal Reserve
The payrolls report delivered a positive surprise, as employers added 336,000 jobs in September, marking the highest figure since January and nearly double the median estimate. Furthermore, revisions to prior months' data added an extra 119,000 jobs for July and August.
The unemployment rate remained at 3.8% due to a surge of previously unemployed individuals re-entering the job market. The participation rate also held steady at 62.8%, and average weekly hours remained unchanged. Wages increased by 0.2% from the previous month, but the annual wage growth slowed to 4.2%.
The surge in job gains was primarily attributed to the hospitality-leisure and education-healthcare sectors, aligning with a trend observed over the past year as these industries rebounded from the pandemic's impact, driven by increasing demand for services. Restaurant and bar employment has now returned to pre-pandemic levels.
Regarding the Federal Reserve's perspective, while the headline job numbers and wage growth are strong, some concerns arise from the household survey. Average hours worked have remained flat and are below last year's levels, and the participation rate hasn't changed significantly. This suggests that employers may not be drawing more workers from the sidelines. Consequently, there's uncertainty about how the Fed will interpret this report in terms of future interest rate hikes.
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Powell's Inflation Challenges, Monetary Policy, and Economic Outlook: A 2023 Analysis

Federal Reserve Chairman Powell faces a complex set of challenges in his efforts to control inflation and steer the US economy toward stability. Inflation levels have undergone a significant shift, with the Core PCE gauge falling below 4.0a% for the first time in over two years, sending positive signals to the market. However, Chairman Powell and the Federal Reserve confront multifaceted inflation challenges.
The recent surge in oil prices has sparked concerns, affecting consumers through higher energy bills and exacerbating inflationary pressures. Furthermore, the labor market's strength, characterized by exceptionally low unemployment levels, has resulted in more significant, sustainable wage hikes. This, in turn, has contributed to inflation, especially in sectors grappling with labor shortages.
The Federal Reserve's decision-making relies heavily on data, and a rate cut is contemplated if certain conditions align. This includes an unemployment rate slightly above 4%, ideally around 4.5%, coupled with slowing wage growth and a core PCE inflation rate below 3%. The potential timeframe for rate cuts appears to be the end of the second quarter of 2024, as historical data suggests that maintaining high rates for an extended period poses risks to the economy.
Chairman Powell and the Federal Reserve find themselves navigating an economy characterized by high inflation levels and a strong labor market. Raising interest rates beyond the 5% threshold is seen as necessary to mitigate inflationary pressures. However, the challenge lies in accurately projecting economic developments and determining the optimal time to commence rate cuts in 2024 to avoid triggering a severe recession.
The long-standing 2% inflation target is under scrutiny, as it may no longer suit current economic dynamics. In the short term, this target appears overly restrictive, especially given recent inflation rates exceeding 8% before declining. Some argue that a 3% inflation target could offer a more balanced approach, alleviating economic pressure without risking a recession.
Shifting bond yields have raised concerns about a potential economic slowdown or recession. Mounting US debt, coupled with a substantial government budget deficit, has led to an oversupply of bonds in the market, contributing to uncertainty in the bond market.
The US stock market displays a notable pattern of reversal, driven by factors such as elevated interest rates, the Federal Reserve's signaling of an extended stance on rate maintenance, and the potential for a year-end rate increase. These elements are creating uncertainty around high-risk assets and affecting investor sentiment.
Yields are benefiting from these circumstances, strengthening the US dollar. Economic data from various developed countries, excluding the US, suggest a potential slowdown in activity. Anticipation is growing that the US may also experience economic deceleration. Consequently, third-quarter earnings may not suffice to drive a stock market rebound, with macroeconomic developments taking center stage.
As Chairman Powell grapples with inflation control and monetary policy, the US economy stands at a pivotal juncture in 2023. Accurate forecasting and timely policy adjustments will be crucial to steer the nation away from recessionary risks. Reevaluating inflation targets and monitoring bond market signals are integral to shaping a resilient and stable economic future.
 

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Middle East Geopolitical Turmoil Sparks Market Uncertainty and Oil Price Surge

European markets opened on a downturn on Monday, as investors evaluated the repercussions of recent Middle East geopolitical turmoil. This turmoil stemmed from a substantial attack by the Palestinian militant group Hamas on Israel over the weekend, resulting in hundreds of casualties. Consequently, oil prices surged by 4% overnight, while U.S. stock futures dipped early Monday. This escalation of violence introduced additional geopolitical risk to already fragile markets grappling with inflation and rising interest rates.
The Israeli-Palestinian conflict took a significant turn on Saturday when Hamas launched an unexpected invasion, catching Israel off guard. This sudden escalation in geopolitical tensions may lead to an immediate surge in oil prices, according to some experts. Additionally, it could contribute to further market volatility, which has been a cause for concern due to persistent inflation and elevated interest rates.
Despite the regional instability, analysts anticipate that its impact on financial markets will be short-lived. Notably, major stock indices in the Middle East, especially Israel's TA-35 stock index, experienced declines, with the latter witnessing its most substantial loss in over three years. However, it rebounded by 0.5% on Monday following a sharp 6.5% drop in the previous session.
Meanwhile, Metro Bank's shares saw a remarkable 20% increase as the UK lender secured a £925 million ($1.1 billion) financing package. This move involved Colombian financier Jaime Gilinski obtaining a controlling interest in the bank, offering much-needed relief to the institution after a tumultuous week.
In terms of upcoming events for the week, investors will closely monitor releases related to China's money supply and new yuan loans, speeches by central bank officials, and economic data releases from various countries.
 

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The Palestinian-Israeli War Had a Significant Impact on Global Financial Markets, Causing Them to Experience Turbulence And Uncertainty

Yesterday, the macroeconomic calendar in the market remained calm. However, the statements made by Federal Reserve (Fed) authorities Logan, Barr, and Jefferson were carefully monitored. Fed official Logan's comments on the rising bond yields attracted significant attention. Logan pointed out that the increasing U.S. bond yields might facilitate the process of tightening monetary policy, potentially eliminating the need for additional interest rate hikes by the Fed. Furthermore, Logan emphasized the current high levels of inflation, underscoring the influence of a robust labor market on inflation dynamics. He suggested that to reach the Fed's 2% inflation target, it is compulsory to maintain a course of tightening policies.

On the other hand, on Saturday, Hamas forces launched a surprise attack from the Gaza Strip into southern Israel, resulting in over 700 Israeli casualties, predominantly civilians. Around 260 people attending a music festival near Gaza's northern border were killed by Hamas militants. In retaliation, approximately 400 Palestinians lost their lives in Israeli counterattacks. Israel reclaimed control of areas previously held by Hamas and recaptured numerous territories. A protracted military operation in Gaza, potentially lasting for months, is anticipated.

Following the rise in tension in the Middle East, oil prices rose by up to 5%, and gained some of last week's losses. With the war risk returning to the markets, the barrel price of WTI crude oil exceeded 86 dollars. The price of Brent crude oil increased by 4% and found buyers at $88.30. It is worth reminding that Brent and WTI lost value last week due to the slowdown in global growth and the expectation of higher interest rates. Additionally, the yellow metal (gold), reacting with an increase to the possible war news, regained last week's losses and closed Monday at 1961 levels per ounce.

Today, in the U.S., the NFIB small business optimism data will be followed. It should be remembered that the August data was at 91.3 with a monthly decrease of 0.6 points.
 

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Markets Upbeat with Global Risk Appetite Recovery

Asian stock markets experienced an increase today, mirroring the positive trend in Wall Street. This was driven by a more dovish communication from Federal Reserve officials, which strengthened expectations that the central bank has finished raising interest rates. A softer U.S. dollar and lower Treasury yields also contributed to the positive sentiment.
In addition, there were growing expectations of further interest rate hikes following the previous Federal Reserve meeting. As a result, the yield on the 10-year US Treasury bond reached 4.88% last week, testing its highest level in 16 years. Subsequently, due to both the need for a haven prompted by the tensions in the Middle East and a more dovish stance from the Fed, it dropped by around 20 basis points to 4.63% yesterday. This morning, it has maintained a steady, flat trend.
In the economic calendar, today, we will be monitoring speeches by FOMC members. In the United States, we will also be keeping an eye on the PPI (Producer Price Index) and crude oil inventory data. The Federal Open Market Committee meeting minutes will be released.
 

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Global Markets React to Economic Developments and Central Bank Policies

In the final hour of trading, Hong Kong stocks surged by nearly 2%, leading a broader rally in the Asia-Pacific region. This was driven by China's sovereign wealth fund purchasing shares of the country's largest banks, which boosted investor confidence. European stock markets also opened on a positive note, building on the strong global momentum seen earlier this week.
The focus has been on whether the US Federal Reserve is considering an end to interest rate hikes, especially after a series of dovish comments from officials. Despite the producer price index coming in hotter than expected, attention is now turning to the release of the consumer price index later today. Wednesday's publication of Fed minutes revealed that officials agreed last month to maintain a restrictive policy for some time while acknowledging the need to balance the risks of overtightening against the goal of curbing inflation.
European Central Bank officials have also emphasized that interest rates may have reached their peak. Bank of Portugal Governor Mario Centeno stated, "Unless unforeseen shocks occur, we believe our decision in September marks the end of rate adjustments." The ECB is set to release minutes from the September policy meeting today.
In other news, data released on Thursday morning indicated that the UK economy grew by 0.2% month-on-month in August, in line with economists' expectations. This follows the International Monetary Fund's projection of the weakest economic growth for the UK among all groups of 7 nations, with a forecast of 0.5% growth this year, compared to 0.7% in the Eurozone and 2.1% in the US.
 

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Global Markets React to Inflation Data: Hong Kong Stocks Plummet, Europe and U.S. Grapple with Rising Prices

Hong Kong stocks plunged by over 2%, leading losses across the broader Asia-Pacific markets, as investors processed China's inflation and trade data for September.
In September, China's consumer price index remained flat, falling short of the 0.2% increase anticipated by analysts surveyed by Reuters. Additionally, China reported a 2.5% drop in its producer price index, slightly exceeding Reuters' estimated decline of 2.4%.
On a separate note, European stock markets opened lower on Friday, with market sentiment wavering due to fresh U.S. inflation data. In France, consumer price inflation in September stood at 4.9% year-on-year and 5.7% on an EU-harmonized basis, mirroring the previous month's figures. Meanwhile, Spanish annual inflation continued to rise for the third consecutive month, increasing from 2.6% in August to 3.5% in September.
In the United States, the consumer price index, a closely monitored inflation gauge, rose by 0.4% in the month and 3.7% from a year ago, according to a Labor Department report on Thursday. These figures exceeded the respective Dow Jones estimates of 0.3% and 3.6%. The primary driver behind the inflation increase was housing costs. This data has intensified concerns and cast doubt on persistent inflation and its implications for the upcoming Federal Reserve (Fed) meeting and decisions.