Global Market Insights: Technology and Inflation Drive Trends

Global Market Overview

This week, global markets experienced notable gains as apprehensions regarding a broader conflict in the Middle East began to diminish, coinciding with the emergence of potential ceasefire discussions. A prominent driver of this rally was the technology sector, particularly the semiconductor industry, which saw a surge in investor enthusiasm due to robust demand for artificial intelligence (AI) chips. Despite this upbeat sentiment, the CBOE Volatility Index (VIX), which measures market volatility, remained above 20, reflecting ongoing investor caution regarding the evolving situation in the Middle East.

However, optimism was slightly muted following the release of unexpected inflation data in the United States on Thursday, which led to recalibrated expectations regarding the Federal Reserve’s rate-cutting trajectory. Consequently, some markets in Europe and the US retraced their earlier gains as the week drew to a close.

Europe

Major European indices delivered mixed outcomes this week. The Euro Stoxx 600 saw an increase of 0.48%, Germany’s DAX advanced by 0.47%, while France’s CAC 40 remained relatively stable, showing little change over the past five trading days. Conversely, the British FTSE 100 experienced a decline of 0.52%, primarily driven by a significant downturn in mining stocks.

Sectors that were expected to benefit from China’s stimulus measures, such as mining and luxury goods, underperformed, whereas financial and technology shares benefitted, following the trends set by Wall Street. Mining stocks, in particular, faced substantial declines, with Rio Tinto plummeting by 4.63%, Glencore decreasing by 2.38%, and Anglo American dropping 6.51% for the week.

Luxury brands also struggled, with LVMH and Hermès both experiencing losses of over 1%, while Kering and Richemont fell by 0.68% and 0.79%, respectively. The defence sector saw a retreat as tensions in the Middle East eased, with BASF SE down 0.21%, Rheinmetall AG dropping 6.78%, and BAE Systems losing 3.28% throughout the week.

On a more positive note, major technology stocks showed resilience, supported by encouraging news from AI chipmakers like Nvidia and Super Micro Computer, which reported strong demand for AI-related products. Shares of ASML, Europe’s largest technology firm, increased by 1.14%, while SAP experienced a gain of 3.32% over the week. The energy sector also thrived, buoyed by rising oil prices, with Shell up 1.91%, BP gaining 0.21%, and TotalEnergies increasing by 1.98% this week.

Meanwhile, the euro depreciated against both the US dollar and the British pound, as speculation grew regarding the European Central Bank (ECB) accelerating its rate cuts. Recent economic data showed a downturn, particularly in the manufacturing sector, while the eurozone’s annual consumer price index (CPI) significantly cooled to 1.8% in September, falling below the ECB’s target of 2%.

Wall Street

US stock markets are poised to close the week on a high note, driven by strong performances in the technology sector. Despite the consumer price index (CPI) for September coming in higher than anticipated, which tempered hopes for swift Federal Reserve rate cuts, resilient economic indicators and reduced geopolitical tensions helped bolster market optimism.

Over the past five trading days, the Dow Jones Industrial Average increased by 0.24%, the S&P 500 rose by 0.50%, and the Nasdaq Composite gained 0.81%. At the sector level, four out of eleven sectors posted weekly gains, with technology at the forefront, climbing 2.21%. Consumer discretionary, financials, and industrials also saw positive movement, while interest rate-sensitive sectors like utilities and real estate fell by 2.78% and 1.1%, respectively, as expectations for aggressive rate cuts by the Fed diminished.

AI stocks regained their momentum due to promising demand outlooks, with Nvidia shares surging nearly 10% and Broadcom rising by 8% over the last five trading days. Additionally, Super Micro Computer’s shares soared by 12% this week, fueled by strong GPU shipment data driven by AI demand.

On the economic front, the US headline CPI increased by 2.4% year-on-year in September, surpassing the expected 2.3%, although it showed a slight decrease from August’s figure of 2.5%. Core CPI rose by 0.3% month-on-month, again exceeding expectations of 0.2%. Currently, markets are pricing in a quarter-percentage-point rate cut in the upcoming Federal Reserve meetings instead of the previously projected 0.5%.

Asia-Pacific

Following the Federal Reserve’s lead, the Reserve Bank of New Zealand (RBNZ) also implemented a substantial 0.5% rate cut this week, leading to a sharp decline in the New Zealand dollar and providing a boost to local stock markets, with the NZ50 gaining 1.5% this week.

Conversely, Chinese equities lost momentum as investors expressed disappointment with the government’s limited stimulus measures. The Hang Seng Index fell by over 6%, while the China A50 Index decreased by 0.96%. Nevertheless, major Chinese indices remain up between 20% and 30% on a monthly basis.

Outside of China, other Asian benchmark indices saw gains for the week, with Japan’s Nikkei 225 increasing by 2.02%, Australia’s ASX 200 rising by 0.77%, and South Korea’s Kospi climbing 1.66%.

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