United States
U.S. markets experienced a volatile session overnight, ending on a mixed note. The S&P 500 fell 0.2%, while the Nasdaq slipped 0.8%. In contrast, the Dow Jones gained 0.4%. The primary catalyst for the market’s uncertainty was President Trump’s latest remarks regarding trade relations with China. Trump hinted at potentially halting the trade of cooking oil with China, sparking concerns about further escalation in U.S.-China tensions. His comments, coupled with news of China’s sanctioning of U.S. units of a South Korean shipping giant, added to worries about a prolonged trade war between the two largest economies in the world.
Earlier in the session, markets had seen some upside after Federal Reserve Chairman Jerome Powell’s remarks in Philadelphia. Powell expressed concerns over the risks to the U.S. labour market, reinforcing expectations that the Federal Reserve is likely to cut rates in its upcoming meeting later this month. Powell also indicated that the Fed may cease shrinking its balance sheet soon to maintain liquidity in the markets. Despite these dovish signals, Trump’s comments pulled the market lower, as investors reassessed the outlook amid the renewed trade tensions.
The resurgence of trade concerns overshadowed positive economic data and Powell’s reassurances, underscoring the fragile balance in the market between expectations of a rate cut and fears over global economic stability. As market participants continue to monitor U.S.-China relations, it’s clear that any further escalation could have a significant impact on global equities, particularly in the U.S.
Europe
European equities were under pressure on Tuesday, with the Stoxx 600 index falling by 0.4%. The primary driver of this decline was once again the escalating tensions between the U.S. and China, which weighed heavily on commodity stocks. A key development that contributed to the downturn was Michelin’s profit warning, which spooked investors and led to a 2.5% drop in the automotive sector, its lowest level in six months. Michelin’s warning, which cited weaker-than-expected performance in North America, compounded the negative sentiment, with Stellantis and Mercedes-Benz also seeing declines.
The automotive sector’s losses were further compounded by a series of bearish headlines surrounding Stellantis, which led to its stock falling by 4.6%. Investors were also cautious about other industrial sectors, with companies like Siemens seeing their stock prices fall after a valuation-driven downgrade. The broader industrial sector declined by 0.9%, while the chemical sector also struggled, with BASF and Brenntag both seeing significant drops.
However, not all sectors were negatively impacted. Telecom stocks were lifted by a strong performance from Ericsson, which surged 18% following a positive earnings report. The company reported a significant jump in profitability, driven in part by the sale of its call-routing business. As a result, Ericsson led the telecom sector higher, providing some relief amidst broader market declines. In contrast, the energy sector faced pressure as oil prices continued to slide, with rising tensions between the U.S. and China weighing on demand expectations. The energy index fell by 1.0%, led by declines in Shell, BP, and Siemens Energy.
Australia
Australia’s S&P/ASX 200 futures were pointing to a positive open, up 0.8% to 8,994 points, despite the mixed signals from global markets. Investors in Australia seem to be more optimistic as they digest a range of factors, including developments in the local banking sector and commodities. The Australian Prudential Regulation Authority (APRA) recently lifted a $500 million capital penalty on Westpac, a significant development for the bank after it had undergone a multi-year risk transformation program. This news provides a boost to Westpac’s share price, while also signalling positive changes in the Australian financial sector.
Locally, the market will also be closely watching updates from major commodity producers such as Rio Tinto and BHP. Rio Tinto reported solid third-quarter results, particularly in its bauxite division, which saw strong performance. Analysts are also looking for updates from BHP, particularly regarding its potential to reopen mines in the U.S. copper belt, a move that could provide a boost to copper production and prices.
Woodside Energy remains another key stock in focus. The company, along with other top LNG producers, has expressed confidence that the market will be able to absorb the expected surge in supply. With demand for liquefied natural gas (LNG) projected to remain steady, Woodside’s prospects could continue to look promising in the coming quarters. The broader energy sector’s performance is being influenced by global oil prices, which have been on the decline, exacerbated by trade tensions between China and the U.S. that have dampened investor sentiment.
Despite the global volatility, the Australian market’s exposure to commodities, particularly metals and energy, could offer resilience in the short term. Investors will continue to watch how key players in the resource sector manage production and market conditions in the face of trade and geopolitical uncertainties.
Commodities and currencies
Commodity markets took a hit overnight, with oil prices hitting a five-month low. Brent crude futures dropped 1.9% to $62.13 per barrel, as concerns about a glut in the market combined with rising tensions between the U.S. and China. The International Energy Agency (IEA) also raised its forecast for a record surplus in oil supplies, further dampening investor sentiment. Oil producers remain under pressure as the global market grapples with trade uncertainties, which are expected to weigh on demand.
In the metals markets, industrial metals like copper also saw declines, as fears of a slowdown in Chinese demand—exacerbated by the trade tensions—put downward pressure on prices. Copper fell alongside other metals as the demand outlook darkened, with the global economic slowdown continuing to affect market sentiment.
Meanwhile, gold prices saw a slight rise of 0.8%, trading at $4,141.19 per ounce. The precious metal continues to be a safe-haven asset of choice amid the rising volatility in global markets. Investors seeking refuge from the uncertainty surrounding trade disputes and economic slowdowns are turning to gold, which is benefiting from the risk-off sentiment.
In the currency markets, the Australian dollar weakened by 0.5% to US$0.6484, reflecting the broader risk-off mood in global markets. The currency is under pressure, particularly in light of the ongoing trade tensions and weaker commodity prices, which weigh on Australia’s export-driven economy. The U.S. dollar index, on the other hand, gained slightly, while other major currencies, including the euro, posted modest gains.
Economic Calendar
AU:
- Westpac Leading Index MoM Sep 10:30
US:
- MBA Mortgage Applications Oct 22:00
- Empire Manufacturing Oct 23:30
This article was written by James Woods, Rivkin Securities Pty Ltd. Enquiries can be made via [email protected] or by phoning +612 8302 3632.
