Market Report.
💼 The U.S. jobs report for September further strained the market. The statistics were far better than anticipated, despite the fact that the data was so delayed that the state of the economy today might alter significantly from that of two months ago. Expectations of a rate cut were further tempered by this.
👷 In September, 119,000 new employment were created in the United States. Compared to the Dow Jones consensus estimate of 50,000, it is significantly higher. The unemployment rate reached its highest point in nearly four years in August, rising from 4.3% to 4.4%.
📊 In economics, we often say that unemployment of 4% to 6% of the working population is still considered “residual unemployment” compatible with a healthy economy, or NAIRU (Non-Accelerating Inflation Rate of Unemployment.
🤖 A new prophet adds to the bubble warnings in the AI. According to Ray Dalio, the founder of Bridgewater Associates, there is currently a bubble forming in artificial intelligence (AI) spending and investment. However, Dalio advises investors not to sell their positions just because of the bubble, as there may not be an immediate “popping” of the bubble.
💬 While Dalio sees the AI market as being in “bubble territory”, he says there would need to be a specific catalyst to actually “prick” the bubble, which is unlikely to be tighter monetary policy from the Federal Reserve.
💾 Nvidia’s strong performance provides a positive signal for the AI chip market, but does not necessarily resolve broader concerns about an AI bubble driven by excessive debt-fueled investment in data center infrastructure. The concern about an AI bubble is more about companies taking on debt to build data centers, rather than an issue for Nvidia itself. Nvidia’s chips are in high demand from major tech companies.
📈 In other words, Nvidia’s earnings signal strong AI infrastructure spending, but don’t necessarily reflect the broader industry’s stability.
⚠️ But beyond these two issues with bearish potential, AI and the Fed, we have new ones on the horizon.
🌐 The Financial Stability Board (FSB), the G20’s financial risk watchdog, has highlighted the following areas that warrant close monitoring: The growing role of non-bank financial intermediaries, including private credit markets, will be a main focal point of the FSB’s work next year, the “urgency” of improving cross-border payments and developing “robust frameworks” for stablecoins.
💱 Policymakers outside the U.S. are concerned about the widespread adoption of dollar-backed stablecoins, as it could “dollarize” their economies and impact monetary policy. The FSB noted the failure of major economies to implement global banking standards, including Basel III.
🕰️ However, both the European Commission and Britain have delayed implementation of Basel 3.1 until 2027, as they wait for clarity from the U.S. which has pushed back against the plans. In response to this pressure, the Basel Committee is considering softening one aspect of its crypto exposure requirements to reflect the “dramatic” rise in stablecoins since the rules were agreed three years ago.
💵 According to the non-partisan Congressional Budget Office (CBO): President Trump’s tariff increases on imports will reduce U.S. deficits by $3 trillion if maintained through 2035. This is a revision from the CBO’s previous estimate of $4 trillion in deficit reduction.
📉 The real catalyst of stock market crashes, US employment data and the change in stance at the Fed.
📊 The CBO estimates that the tariffs will reduce primary deficits by $2.5 trillion over 11 years, and lower government borrowing costs by around $500 billion. However, some federal courts have ruled that the Trump administration overstepped its authority in imposing the tariffs, as the U.S. Constitution grants Congress powers over trade policy. The Supreme Court is reviewing these decisions.
🇬🇧 Rachel Reeves, UK Chancellor of the Exchequer, faces a major test in balancing fiscal discipline, political promises, and economic realities in the upcoming budget, against a backdrop of political uncertainty and eroding market confidence.
🗳️ Reeves had initially planned to raise income taxes, but had to backtrack on this after a plot emerged to oust Prime Minister Keir Starmer. This U-turn has unsettled bond markets. Reeves now faces a “trilemma” – trying to satisfy bond investors, keep her party’s manifesto promises, and address the cost-of-living crisis, all while finding around £30 billion in savings.
🏛️ Reeves’ first budget in 2024 was seen as business-unfriendly, and the government’s economic management has contributed to Labour’s declining poll numbers. However, Reeves is expected to try to address inflation by controlling government-influenced prices, while sticking to fiscal rules and pursuing a longer-term growth strategy.
💴 Japan is preparing for another intervention like the one we saw in 2024, because the yen is reaching levels close to those of 2024. Readers, take note.
⚠️ The Japanese Finance Minister Satsuki Katayama has issued a strong warning against the recent sharp declines in the yen, indicating that currency intervention is a possibility: Katayama said Japan is “alarmed by recent one-sided, sharp moves in the currency market” and that it is important for exchange rates to move in a stable manner reflecting fundamentals. He stated that Japan will take “appropriate action as needed against excess volatility and disorderly market moves” in the yen, based on the September agreement between Japan and the U.S.
💬 When directly asked if this could include currency intervention, Katayama confirmed that it is “written in the September statement, so it’s obviously so.” The weak yen has been problematic for Japan, pushing up import prices and household living costs. The yen has fallen around 6% since the new Prime Minister took office.
💹 Japan may be prepared to intervene if the dollar rises near 160 yen, seeing that as the line-in-the-sand for authorities to step in and stabilize the currency.
📈 Meanwhile, Japan’s core consumer prices rose 3.0% in October from a year earlier, exceeding the central bank’s 2% inflation target. This core CPI figure, which excludes volatile fresh food but includes fuel costs, matched market forecasts and accelerated from a 2.9% rise in September.
🏦 The BOJ exited its decade-long stimulus program last year and raised rates to 0.5% in January, but Governor Kazuo Ueda has stressed the need for caution in further hikes. However, two BOJ board members have dissented from the bank’s recent decisions to keep rates steady, proposing instead to raise borrowing costs to 0.75%.
🔥 This signals increased focus within the BOJ on the inflationary risks, despite Ueda’s concerns about the impact on the economy.
🕊️ The United States is pushing for a Russia-Ukraine peace deal, which could increase global oil supply if implemented. This is weighing on oil prices.
💲 The uncertainty around the Federal Reserve’s future rate cuts is curbing investors’ risk appetite and depressing oil prices. The stronger U.S. dollar is making the dollar-denominated commodity more expensive for holders of other currencies, putting downward pressure on oil.
⛽ While U.S. sanctions on Russian oil producers Rosneft and Lukoil are set to take effect on Friday, yet we do not know how effective these measures will be in reducing Russian oil supply.
Geopolitics.
✈️ According to Israeli Channel 11, Israeli fighter jets are operating near Turkey’s border in northern Syria as part of an operational mission focused on filming and intelligence gathering. The report indicates that the Israeli Air Force is conducting reconnaissance flights in the area, though the specific objectives and duration of the operation have not been disclosed.
🛩️ According to Reuters, citing U.S. defense officials, the F-35 fighter jets the United States plans to sell to Saudi Arabia will be less advanced than those operated by Israel. This distinction aligns with a long-standing U.S. law ensuring Israel’s qualitative military edge in the Middle East, meaning Washington must maintain Israel’s superior defense capabilities when approving arms sales in the region.
Market View.
📊 On Monday, we opened our report warning that recent bullish rebounds could face resistance if employment data disappointed the markets — and that is precisely what has happened. The details are explained in our news section.
📉 Nasdaq futures have fallen by more than 4% since yesterday, currently trading at 24,072 points. S&P 500 futures have followed a similar pattern and are now trading below 6,555 points.
💵 The DXY dollar index has edged slightly lower to around 100.10 from yesterday’s 100.30, forming a double top. This has allowed for some recovery in EUR/USD, though the pair remains below 1.1550.
📉 In Europe, Wall Street’s declines have also spread across markets. DAX 40 futures have dropped to around 23,000 points, where they are attempting to stabilise. Meanwhile, EuroStoxx 50 futures have fallen below 5,500 points, currently trading at 5,490.
🛢️ Crude oil has also weakened, with Brent falling below $62.30 per barrel in spot trading.
🥇 Gold futures have cooled off slightly but remain above $4,025 per ounce.
💻 Bitcoin continues its downward trend, dropping below $85,000 and hitting lows near $82,035 in recent hours.
