Global markets experienced a rough patch last week, with global equities falling over 2% due to geopolitical tensions and signs of a slowing economy. The Israel-Hamas conflict and the release of two US hostages by Hamas were among the key geopolitical events that triggered a risk-off sentiment in the market. This sentiment was further exacerbated by economic data releases suggesting a slowdown in the euro area, UK, and US economies.
The S&P 500 Index recorded its largest weekly decline in a month, with growth stocks underperforming. Long-term bond yields spiked to 16-year highs, while the yield differential between German and Italian 10-year debt rose above 200 basis points. The risk-off sentiment also led to a drop in oil and gold prices, with the 10-year U.S. Treasury yield nearing 5%, and USD/JPY briefly breaching the 150 mark.
The negative sentiment from Europe and the US also affected Asian markets. In currency markets, EUR/USD ended last week just below the 1.06 mark, while poor risk sentiment caused fluctuations in EUR/SEK and EUR/NOK breaking 11.70 for the first time since July. iTraxx Main and iTraxx Crossover widened, indicating concern in credit markets, and secondary bond trading experienced lower-than-normal activity levels.
Despite September's slowdown, Japan's inflation rate remains above the Bank of Japan's (BoJ) 2% target. The BoJ is expected to raise inflation forecasts at its meeting at the end of October and adjust Yield Curve Control measures. Rengo's planned 5% wage increase demand during the 2024 "shunto" spring wage negotiations highlights wage growth in Japan.
In other economic news, the Central Bank of Turkey may hike its policy rate by 500 basis points to 35% at its meeting on Thursday. The European Central Bank (ECB) bank lending survey is due before Thursday's ECB meeting, where rates are expected to remain unchanged. Other key economic data releases this week include US Q3 GDP data and the University of Michigan survey.
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