As global markets prepare for a week dominated by the U.S. presidential election and impending interest rate decisions, Monday’s trading activity is likely to reflect position adjustments. Investors are digesting the latest polling data, news, earnings reports, and economic indicators.
The previous Friday’s trading session hinted at a volatile start to the week. Bond yields surged to multi-month highs, influenced by election uncertainty and fiscal concerns, despite a brief drop following disappointing U.S. employment data. This led to a strengthening of the dollar.
However, U.S. stock markets remained buoyant, largely unfazed by political or deficit anxieties. Strong earnings reports and a renewed belief that the Federal Reserve will announce interest rate cuts on Thursday—and likely again the following month—propelled stocks higher.
The question now is whether this “risk-on” sentiment can persist in the face of an imminent U.S. election, rising bond yields not only in the U.S. but globally, and increased market nervousness. The ‘MOVE’ index, which measures implied volatility in U.S. Treasuries, has reached its highest point in over a year, while British gilt yields are also at a yearly high. Traders, referred to as “bond vigilantes,” experienced rapid shifts in sentiment following the U.S. payrolls data but have since regained control.
Asian traders on Monday must navigate the choice between the optimism surrounding strong U.S. earnings and the expectation of rate cuts, or adopting a more cautious stance given the context of rising yields, a stronger dollar, and heightened unease ahead of the U.S. election.
Last week proved challenging for Asian markets, with the MSCI Asia/Pacific ex-Japan index declining for the fourth consecutive week. October’s loss of 4.9% marked the worst monthly performance since August of the previous year. After experiencing inflows of $32.2 billion in September, equity funds in Asia excluding Japan faced “heavy redemptions” over the last three weeks. The most recent week alone saw investors withdraw over $4 billion from these funds, extending the longest streak of outflows since the last quarter of the previous year. A significant portion of this trend is attributed to outflows from China-focused funds, as initial enthusiasm for Beijing’s economic support measures has begun to wane.
This week, attention is once again turning to Beijing as the National People’s Congress convenes from November 4-8. Market participants are widely anticipating the approval of additional fiscal stimulus measures. Key Chinese economic indicators, including trade and lending figures, are also set to be released this week. Other notable events include interest rate decisions from Australia and Malaysia, GDP announcements for Indonesia and the Philippines, and earnings reports from major automakers like Toyota and Nissan.
With Japanese markets closed for Culture Day on Monday, liquidity in the yen market is expected to be lower than usual, potentially resulting in choppy trading conditions for the yen, particularly given the upward pressure on long-dated yields globally.
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