The CAC 40 in France, Germany’s DAX, and London’s FTSE 100 all experienced a positive start on Tuesday morning, following a robust performance in the US stock market. The surge was primarily driven by gains in major technology companies, which helped counterbalance a decline in the oil and gas sector.
In Asia, the trend was similarly optimistic as most markets recorded gains. Japan’s Nikkei 225 index rose by 0.8%, closing at 38,903.68. Australia’s S&P/ASX 200 increased by 0.3%, finishing at 8,249.20. South Korea’s Kospi added 0.2%, ending the day at 2,617.80. The Hang Seng Index in Hong Kong edged up 0.2% to 20,648.51, although the Shanghai Composite saw a decline of 1.1%, closing at 3,286.41.
Japan’s government reported a slight improvement in unemployment, which stood at 2.4% last month, marking a 0.1 percentage point decrease and indicating the second consecutive month of recovery. The persistent weakness of the yen continues to provide support for Japanese stocks. In the currency markets, the US dollar slipped to 153.06 Japanese yen, down from 153.23 yen. The euro was priced at $1.0813, a slight decrease from $1.0817.
On Wall Street, the S&P 500 rose by 0.3%, rebounding from its first losing week in seven. The index remains close to its all-time high reached earlier this month. The Dow Jones Industrial Average increased by 0.6%, while the Nasdaq composite gained 0.3%, now just 0.4% shy of its all-time peak set in July.
Strong performances from several Big Tech companies, including Apple and Meta Platforms, were instrumental in driving this rally. Five members of the “Magnificent Seven,” a group of high-profile tech stocks, are scheduled to report their earnings this week. These stocks have been pivotal to Wall Street’s success over the years, and their movements can significantly influence the S&P 500.
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After a summer slump fueled by concerns over rising stock prices relative to profits, tech giants like Alphabet, Meta Platforms, Microsoft, Apple, and Amazon are under pressure to demonstrate substantial growth in their upcoming earnings reports. Conversely, stocks in the oil and gas sector faced headwinds due to declining oil prices, with Exxon Mobil dropping 0.5% and ConocoPhillips losing 1.2%.
In energy trading across Asia on Tuesday, benchmark US crude oil fell by 18 cents to $67.20 per barrel, while Brent crude, the international benchmark, declined by 16 cents to $71.26. Notably, on Monday, US crude prices plummeted by 6.1%, and Brent crude also fell by 6.1%. This marked the first trading session following Israel’s military strikes on Iranian military targets over the weekend, which raised concerns about potential escalations in the region.
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While the conflict in the Middle East raises humanitarian concerns, financial markets are apprehensive that escalating tensions could disrupt crude oil supply from Iran, a major oil producer. These fears had previously driven Brent crude prices to nearly $81 per barrel in early October, despite indications of ample oil supply worldwide. Prices have since retreated below $72.
As the US presidential election approaches in one week, financial markets are grappling with the typical volatility associated with election periods. Historically, markets tend to experience fluctuations leading up to an election, only to stabilize afterward, regardless of the outcome. This trend impacts both stock and bond markets.
In the bond market, Treasury yields are on the rise, adding to the significant gains observed this month. The yield on the 10-year Treasury note increased to 4.28%, up from 4.24% at the close on Friday. This is considerably higher than the approximately 3.70% yield at the beginning of October.
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Yields have climbed as a series of reports indicate that the US economy remains more resilient than anticipated. This is encouraging for Wall Street, raising hopes that the economy can navigate through the most challenging inflationary period in generations without succumbing to a painful recession. However, this dynamic is also prompting traders to revise their expectations regarding the Federal Reserve’s interest rate cuts, as the central bank is now more focused on sustaining economic growth alongside lowering inflation.
As a result, the upcoming US jobs report, scheduled for release on Friday, is poised to be a critical event for the market, potentially overshadowing the earnings reports from Big Tech. Investors are keenly awaiting further evidence of solid job growth to maintain optimism about the economy’s trajectory.
In summary, the S&P 500 climbed by 15.40 points to finish at 5,823.52, while the Dow Jones added 273.17 points, closing at 42,387.57. The Nasdaq composite rose by 48.58 points, ending the day at 18,567.19.
