Stocks experienced an upward trend on Monday, with Treasury yields remaining lower following a week of disappointing U.S. labor data. This data has effectively confirmed expectations for an interest rate cut from the Federal Reserve this month. Investors are gearing up for a week filled with significant political events, critical economic data releases, and central bank activities.
The political landscape is shifting dramatically, starting with Japan, where the resignation of Prime Minister Shigeru Ishiba has led to a decline in the yen and longer-dated bonds, while stocks have risen. Traders are speculating that increased political uncertainty may deter the Bank of Japan from raising interest rates in the near future. Market attention is now focused on Ishiba's potential successor, with Liberal Democratic Party veteran Sanae Takaichi emerging as a possible advocate for looser fiscal and monetary policies.
In France, political uncertainty looms large as incumbent Prime Minister Francois Bayrou faces a confidence vote on Monday, which he is anticipated to lose. The scenario raises questions about whether President Emmanuel Macron will appoint a new prime minister or call for fresh parliamentary elections, thereby leaving both French and broader European assets in a precarious position. Investors are particularly alert to upcoming French debt rating reviews that could further influence market conditions.
The ramifications of political developments are not confined to developed markets. In Argentina, President Javier Milei's ruling party faced a significant election defeat in Buenos Aires province, leading to a selloff in the country’s already strained markets. Meanwhile, in Indonesia, the stock market declined, and the currency surged following the removal of the well-regarded finance minister, Sri Mulyani Indrawati.
The political uncertainty in both France and Japan has contributed to keeping the U.S. dollar in check. Despite last Friday's soft jobs report, which has led markets to fully price in a 25 basis point rate cut from the Fed later this month, the dollar's performance is partially influenced by the volatility surrounding the yen and euro. Paul Mackel, global head of FX research at HSBC, noted that the recent economic data raises questions about whether U.S. employment conditions are shifting from cooling to deteriorating, suggesting that the Fed might need to consider cutting rates more aggressively.
On Friday, the dollar reached a six-week low against a basket of currencies. As of Monday, it showed marked declines against the Swiss franc and Antipodean currencies, while the euro was slightly up by 0.1% at $1.1731, and the dollar gained 0.3% against the yen, trading at 147.
Following a sharp drop on Friday, U.S. Treasury yields remained steady, with the benchmark 10-year yield slightly softer at 4.07% and the rate-sensitive two-year yield at 3.49%. The release of U.S. Consumer Price Index (CPI) data on Wednesday will be a crucial indicator ahead of the Fed's upcoming meeting, with a hotter-than-expected reading potentially tempering expectations for a significant rate cut.
In the commodities market, gold prices continued to soar, reaching an all-time high of $3,622 per ounce. The precious metal has seen a remarkable increase of 37% this year, following a 27% rise in 2024. Meanwhile, oil prices also climbed as the OPEC+ group agreed to slow down output increases starting in October, anticipating weaker global demand. Both Brent crude and U.S. West Texas Intermediate crude rose over 2% each.
The intricate web of political events and economic data continues to shape market dynamics across the globe, and investors are advised to stay vigilant in the face of these developments.
