By Mike Dolan
LONDON (Reuters) -What matters in U.S. and global markets today
By Mike Dolan, Editor-At-Large, Finance and Markets
Usually alternatives, stocks and gold are rising together as investors seek to ride an inflationary expansion by taking on AI-driven corporate risk with gold added to portfolios as a hedge against loosening monetary and fiscal policy worldwide.
Monday’s brief stumble on Wall Street looks to have been just that and both U.S. futures and European stocks rallied on Wednesday, with the STOXX600 and FTSE100 hitting new records. French markets staged a recovery amid some sign of progress in the government’s impasse there and gold surged again after topping $4,000 per ounce for the first time on Tuesday.
If rising stocks and gold seemed like an odd couple, they were also joined by the peculiar sight this year of a rising dollar. The dollar DXY index hit a near two-month high as Japan’s yen plunged again close to 153 per dollar on this week’s leadership change in Tokyo, dropping to its weakest since February.
With no sign of movement on re-opening government in Washington, the focus remains on Federal Reserve signals – with minutes from last month’s rate-cutting meeting and a long list of speakers on Wednesday’s diary. On Tuesday, new Fed board member Stephen Miran, who favors big rate cuts due to his view on a much lower neutral rate than consensus thinking, said that calm bond markets supported his take.
Futures are still pricing in a 95% chance of another quarter-point rate cut later this month, with the longer the government shutdown lasts the longer the drag on the economy at the margin. And, adding some trepidation about runaway stocks, the Bank of England warned on Wednesday about the risk of a sharp reversal if investor moods soured on doubts about AI or Fed independence.
* In keeping with easy policy settings around the world, the Reserve Bank of New Zealand surprised with a 50‑basis‑point rate cut and signaled more easing may follow, knocking the New Zealand dollar down nearly 1% and dragging the Aussie lower in sympathy. Markets had priced only a slim chance of a half‑point move and policymakers framed the step as getting “ahead of the curve” to arrest a frail economy.
* Despite the bounce in French stocks and bonds, the euro sagged to a one‑month low. But caretaker French Prime Minister Sebastien Lecornu struck a cautiously optimistic tone on Wednesday, saying a deal could potentially be reached on the country’s budget by year-end, making the possibility of a snap election less likely.
* Spot bullion burst above $4,000 per ounce for the first time, now up more than 50% year‑to‑date as investors hedge policy and growth uncertainty. Beyond its role as an inflation hedge and geopolitical safety play, the rally has been underpinned by central‑bank accumulation, renewed ETF inflows and this year’s softer dollar, with some strategists casting gold as insurance against an AI-fuelled bubble and debt‑inflation endgame.
In today’s column, I take a look at new projections that show Europe’s ageing bill will rise far less than in the U.S. or China over the coming decades.
Today’s Market Minute
* A race by crypto companies to sell tokens pegged to stocks is raising alarm bells among traditional financial firms and regulatory experts who warn that the fast-growing novel products pose risks to investors and market stability.
* U.S. lawmakers are calling for broader bans on chipmaking equipment to China after a bipartisan investigation found that Chinese chipmakers had purchased $38 billion of sophisticated gear last year.
* In better news for Britain’s embattled finance minister Rachel Reeves, the UK statistics office said government borrowing in the previous and current fiscal years was a combined 3 billion pounds ($4 billion), lower than previously reported after a value added tax receipt data error was found. There were also rising hopes that tweaks to self-imposed fiscal rules will prevent excessive tax rises in next month’s budget.
* The Federal Reserve says its interest rate cuts are aimed at softening the impact of a looming labor market rupture. Unfortunately, writes ROI markets columnist Jamie McGeever, cheaper money is unlikely to achieve that goal, but what it almost certainly will do is fuel the “everything” rally in financial assets.
* Russia’s heavy bombardment of Ukraine’s natural gas infrastructure ahead of winter is set to have a knock-on impact on Europe’s energy market as Ukraine draws more fuel from its western neighbours. Read the latest from ROI energy columnist Ron Bousso.
Chart of the day
With investors racing to gold as an inflation hedge and the Federal Reserve resuming interest rate cuts, the New York Fed’s monthly household survey found that public inflation expectations were rising again last month, with their view of inflation a year from now rising to 3.4% from August’s 3.2% and the three-year-stuck at 3%. September’s five-year-ahead expected inflation reading also stood at 3% from the prior month’s 2.9%. All measures are far above the Fed’s inflation target of 2% – as are actual core inflation rates – raising questions as to just why the central bank is cutting rates again.
Today’s events to watch
* Federal Open Market Committee issues minutes from September meeting
* Dallas Federal Reserve President Lorie Logan, Chicago Fed President Austan Goolsbee, St. Louis Fed chief Alberto Musalem, Minneapolis Fed boss Neel Kashkari and Fed Board Governor Michael Barr all speak; European Central Bank President Christine Lagarde; Bank of England chief economist Huw Pill speaks
* International Monetary Fund managing director Kristalina Georgieva previews next week’s IMF-World Bank annual meetings
* U.S. Treasury sells $39 billion of 10-year notes
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Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.
(By Mike Dolan; Editing by Sharon Singleton)
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