A Look at the Day Ahead in U.S. and Global Markets

By Mike Dolan

World markets offered a chaotic view on Tuesday, with crude oil prices sharply decreasing and growing disappointment about a lack of substantial economic stimulus from China, leading to a nearly 10% drop in Hong Kong stocks.

Mainland Chinese markets reopened after a week of holidays, with the CSI300 index rising approximately 6%, but the Hang Seng, having remained active earlier in the week, faced losses.

Chinese authorities expressed full confidence in achieving a 5% GDP growth target for the year, but no stronger fiscal measures were introduced to supplement the monetary easing announced two weeks prior, disappointing investors in search of additional support.

Escalating trade tensions between Europe and China emerged after the EU backed tariffs on Chinese electric vehicle imports last week. This situation further complicates the outlook for both regions, compounded by uncertainties surrounding the U.S. election.

The European spirits and luxury goods sectors suffered due to China imposing temporary anti-dumping measures on brandy imports from the EU, impacting famous brands like Hennessy and Remy Martin.

Additionally, China is considering raising tariffs on imported large-displacement fuel vehicles, adding to European market declines, with the STOXX index down nearly 1% early on Tuesday, despite U.S. futures recovering from a pullback.

Oil prices fell sharply again, with U.S. crude retreating to $75 per barrel, contributing to close to a 9% annual loss, as recent gains were linked to potential demand boosts from China rather than supply concerns from Iran.

In the background, Hurricane Milton has intensified into a Category 5 storm approaching Florida, causing oil and gas platforms in the Gulf of Mexico to cease operations.

Despite a slight uptick in U.S. stock futures, market sentiment this week has been characterized by a rise in implied volatility, with the VIX index reaching its highest point in a month, influenced by upcoming events like the November 3 election and the third-quarter earnings season.

Treasury market volatility has surged, with the MOVE index at its highest since January, driven by the implications of a robust U.S. employment report and altered projections for Federal Reserve rate cuts.

The yield curve flipped back to positive after its first inversion in nearly a month, while the dollar eased slightly yet retained last week's significant gains—the largest weekly rise in two years.

Federal Reserve officials have indicated readiness to ease further to support the robust labor market, heightening anticipation for Thursday's inflation report. Fed Governor Adriana Kugler acknowledged a cooling labor market yet emphasized the need to avoid unnecessary pain for workers.

New York Fed President John Williams supported existing Fed projections as the best case for ongoing economic growth and a return of inflation to 2%.

Key Developments to Watch:

• U.S. August international trade balance
• Canada August trade balance
• Speeches from Federal Reserve officials
• European Union finance ministers' ECOFIN meeting
• U.S. corporate earnings from PepsiCo
• U.S. Treasury auctions $72 billion of 3-year notes

(By Mike Dolan, editing by Ed Osmond; [email protected])