Global Markets React to Easing Inflation Pressure and Geopolitical Tensions

This followed a U.S. core inflation report that indicated a continued easing of price pressures.

On Friday, global markets experienced mixed results, while benchmark bond yields remained stable.

This followed a U.S. core inflation report that indicated a continued easing of price pressures.

According to the report, the U.S. core personal consumption expenditure, which is the Federal Reserve’s preferred inflation gauge, decreased from 3.9% in August to 3.7% in September.

Jeffrey Roach, Chief Economist for LPL Financial in Charlotte, noted that “core inflation continues to lose speed,” and this report is unlikely to change the Fed’s belief that inflation will slow down in the coming months due to decreased demand.

In the stock market, the Dow Jones Industrial Average fell by 0.14% to 32,737, the S&P 500 gained 0.31% to 4,150, and the Nasdaq Composite added approximately 1% to reach 12,722.

Amazon’s shares surged by 6.5% after beating sales estimates, while Intel Corp shares extended gains, rising by about 10%.

MSCI’s global equity index rose by 0.3%, following the news that the U.S. economy had its fastest growth rate in nearly two years during the third quarter.

The European Central Bank also maintained steady interest rates.

In contrast, Europe’s Stoxx 600 share index was 0.14% lower, and MSCI’s Asia-Pacific index closed 1.2% higher after hitting an 11-month low the previous day.

The 10-year U.S. Treasury yield remained relatively stable at 4.849%, although it had briefly touched 5% earlier in the week.

However, bond markets remained cautious ahead of the Federal Reserve’s upcoming interest rate meeting and amid rising oil prices due to geopolitical tensions.

Bank of America strategists noted that despite strong U.S. economic growth in the third quarter, a slowdown by year-end made a “soft landing more likely than no landing.”

They emphasized that markets should not take disinflation for granted.

The Federal Reserve is expected to maintain its funds rate in the range of 5.25%-5.5% in the upcoming meeting, though Chair Jay Powell has indicated that a strong economy and tight job market might justify further rate hikes.

The European Central Bank also kept its deposit rate at a record high of 4%, with President Christine Lagarde suggesting the possibility of further monetary tightening.

Oil prices rose by approximately 1% per barrel due to fears of escalating conflict in the Middle East that could disrupt oil supplies.

Reports of U.S. military strikes on Iranian targets in Syria fueled these concerns, with U.S. crude reaching $84.02 per barrel and Brent at $88.63, up 0.8% on the day.

In currency markets, the euro remained steady at 1.058 per dollar, down almost 14% in the past three months.

The dollar index, which measures the dollar’s strength against other currencies, has risen by almost 5% in the same period and was on track for a weekly gain despite a slight decline on the day.

The yen hit a new one-year low of 150.77 per dollar, putting it close to the three-decade low of 151.94 touched in October last year.

The Bank of Japan has recently intervened heavily in its bond market to control yields, and it may face pressure to shift away from this policy at its upcoming meeting, potentially strengthening the yen and encouraging domestic investors to sell overseas assets.