Making sense of the forces driving global markets |
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Politics and AI powered huge moves across world markets on Monday, namely the collapse of the French government and surprise emergence of a likely new leader in Japan, and a multi-billion dollar chip-supply deal between AMD and OpenAI. More on that below. In my column today I ask the question: who needs U.S. economic data when you have the stock market? It may sound flippant, but the ties between Wall Street, household wealth and consumption have rarely been stronger. I'd love to hear from you, so please reach out to me with comments at jamie.mcgeever@thomsonreuters.com. You can also follow me at @ReutersJamie and @reutersjamie.bsky.social. |
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- STOCKS: Japan's Nikkei leaps 4.75% to new peak above 48000. Europe, UK, Nasdaq, Russell 2000, MSCI World hit new records too, fresh closing high for S&P 500.
- SHARES/SECTORS: AMD shares +24%, Philadelphia semiconductor index hits new high. Real estate the biggest U.S. sector decliner.
- FX: Japan's yen sinks nearly 2% to 150/$, bitcoin at record high above $125,000.
- BONDS: French yields spike, and Japanese yields surge to historic peaks - the 30-year yield a record 3.29%. U.S. Treasury yields up, biggest rise in two weeks at the longer end.
- COMMODITIES: Gold hits new record high of $3,970/oz, homes in on $4,000. Precious metal surge as much as 5%, oil rises almost 1% after OPEC+ ups production less than expected.
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* Is France really 'uninvestable'? France's government collapsed on Monday within hours of being appointed after Prime Minister Sebastien Lecornu unexpectedly handed in his resignation to President Emmanuel Macron, making it the shortest-lived government in modern French history. |
The French market reaction was predictable enough - stocks and bonds fell - but the big picture for the euro zone's second largest economy is more of a worry. French bonds are now increasingly seen as riskier than Italy's, and BCA Research has gone as far to say French bonds are "uninvestable". * Japan jolts global markets Japan's ruling Liberal Democratic Party, which has governed Japan for almost all of the postwar era, has picked hardline conservative Sanae Takaichi as its leader, putting her on course to become the country's first female prime minister. The most relevant aspect for markets the likely effect of Takaichi's policy stance on government spending and the Bank of Japan - she is seen as a fiscal dove and has previously criticized the BOJ's rate hikes. The impact of Japanese policy and asset prices on global markets is always fascinating. Even more so now. * AI's increasingly entangled web Another day, another mega deal in the rarified air of Big Tech's artificial intelligence, and as night follows day, new record highs for the U.S. tech sector, semiconductor index and wider Nasdaq. It's getting hard to keep up. As AJ Bell's Danni Hewson notes - Nvidia and Microsoft have stakes in OpenAI; OpenAI has a deal that could see it take a stake in AMD; Nvidia is taking a stake in Intel, which could become a manufacturing partner for AMD. "It all looks a bit odd, and it would be fascinating to hear what antitrust regulators have to say," Hewson writes. |
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Who needs US economic data when you have Wall Street? |
The U.S. government shutdown is delaying key economic data releases, thickening the fog of uncertainty for policymakers and businesses, but they needn't worry. They still have access to one of the best economic indicators: the stock market. That may sound flippant, but the connection between U.S. equity prices, consumer spending and economic growth is strengthening. By some measures, it has never been stronger. This helps explain one of economists' big 'misses' this year: stubbornly resilient U.S. consumption. They seem to have underestimated the powerful, positive feedback loop of gravity-defying strength on Wall Street and consumer spending, the so-called wealth effect. U.S. households have rarely been richer and have never had so much of their wealth in the stock market. The epic rally in equities is therefore making a lot of Americans feel a lot richer, increasing their propensity to spend. This is particularly true of the wealthiest households, who account for an outsized share of consumer spending. The Federal Reserve's national financial account figures for the second quarter, the latest available, are revealing on this measure. |
Total household net wealth rose by $7.09 trillion, the third-largest increase on record, with rising equity prices contributing an eye-popping $5.51 trillion to gains in household wealth during the period. This reflects the fact that equities' share of total household assets has risen to a record 31%, or more than 45% of households' financial assets, another record. Considering the sheer size of these figures, it's reasonable to assume that the 'wealth effect' is one major reason why Americans are continuing to spend. |
What could move markets tomorrow? |
- Australia consumer confidence (October)
- Japan household spending (August)
- Germany industrial production (August)
- ECB President Christine Lagarde speaks
- Canada PMI (September)
- U.S. Treasury auctions $58 billion of three-year notes
- U.S. Federal Reserve officials scheduled to speak include Atlanta Fed President Raphael Bostic, Minneapolis Fed President Neel Kashkari, and Governors Michelle Bowman and Stephen Miran
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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. |
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