Global markets on negative trend due to uncertainties over US presidential race, Fed’s roadmap

By Murat Aslan

ISTANBUL (AA) - Global markets followed a negative trend last week due to the uncertainties about the upcoming US presidential elections on Nov. 5, as well as the future policy decisions to be made by the Fed until the end of the year.

A possibility of a soft landing in the US economy remains in the spotlight, though the Fed’s unclear roadmap in its fight against inflationary pressures fuels uncertainties.

US macroeconomic data and positive signals from the balance sheets of large companies point to strong economic activity, though the possibility that inflation may die down slower than expected is still on the table.

A recent survey showed that both the Democratic and the Republican candidates for the elections will receive very close votes in critical states, which gave further rise to uncertainties, while the risk appetite in the markets diminishing day by day.

On Wednesday, the US Dollar Index rose 4.5% on from late September’s level of 100.9 to 104.6, its highest since July 30, due to a stronger demand induced by uncertainties.

Meanwhile, the US 10-Year Futures bond carried its upward trend to the third consecutive trading day and reached a three-month peak of 4.26% amid selling pressure.

Estimates in the money markets show that the Fed is certain to cut its policy rate by 25 basis points in November, though the forecasts of an additional rate cut in December fell to 65% -- the previous week a cut in December was certain.

The Fed’s Beige Book released on Wednesday stated that the overall economic activity was “little changed in nearly all Districts since early September,” while inflation continued to “moderate with selling prices reportedly increasing at a slight or modest pace in most Districts.”

Analysts say that political uncertainties, inflation concerns, and the possibility of a slower-than-expected rate cut by the Fed made estimates difficult in the money markets, as investors opted for a wait-and-see approach at least until the elections are over.

As the balance sheet calendar continues, the US-based electric vehicle maker Tesla announced that it saw its revenues boost 8% and profits 17% year-on-year in the third quarter of the year.

Meanwhile, the ounce price of gold fell by 1.2% and completed Wednesday at $2,715. It is currently trading at $2,727 on Thursday, up by 0.5% compared to its previous close.

The barrel price of Brent crude oil climbed by 0.6% on Thursday, currently trading at $75.4.

The Dow Jones fell by 0.96%, the S&P 500 0.92%, and the Nasdaq index 1.6% on the New York Stock Exchange on Wednesday, while US futures started Thursday on a mixed course.

Meanwhile, the Bank of Canada cut its policy interest rate by 50 basis points to 3.75%.

As for Europe, while a negative course came to the fore in the stock markets, macroeconomic data to be announced on Thursday is on the focus of investors, as recession concerns still remain strong.

European Central Bank (ECB) President Christine Lagarde said on Wednesday that the bank will continue to take data-driven approaches when making decisions despite the signals of slowing economic activity across the region tightening the bank’s policy space.

Selling pressure was effective in the European bond markets, as Germany’s 10-Year bond yield rose to 2.339% on Wednesday, its highest since Sept. 3.

Estimates in the money markets say that while the ECB is certain to cut its interest rates by 25 basis points at the December meeting, a 50 basis point cut is also on the table.

European index futures saw declines across the board on Wednesday, as the DAX 40 fell by 0.23%, the CAC 40 0.50%, the FTSE MIB 30 0.1%, and the FTSE 100 0.58%.

In Asia, a negative course came to the fore on Thursday except for Japan, as concerns over the Chinese economy remained despite the steps taken, and Japanese economic data puzzled investors.

Japan’s manufacturing, services, and composite Purchasing Managers’ Index fell to 49, 49.3, and 49.4, respectively, pointing to a contraction in economic activity, while machinery orders fell by 6.4%.

Near the close, the Japanese Nikkei 225 index rose by 0.2%, while the Kospi index fell by 0.6%, the Shanghai Composite Index 1%, and the Hang Seng index 1.5%.

As for Türkiye, the BIST 100 followed a selective course on Wednesday, losing 1.4% compared to its previous close, and completing the day at 8,714.69 points.

The US dollar/Turkish lira exchange rate closed Wednesday at 34.2844, up 0.1%, and it is trading at 34.2770 on Thursday.

* Writing by Emir Yildirim.