Markets have had a cautious start to the week, with equities drifting lower as a selloff in government bonds weighed on risk appetite. U.S. Treasury yields spiked on Tuesday as investors increasingly priced in a higher-for-longer interest rate environment, with the move reverberating across global fixed income markets and pushing sovereign bond yields higher in other major economies.
This week, Brazil’s presidential election has remained in focus, with incumbent President Lula da Silva and Senator Bolsonaro locked in a closely contested race ahead of the 4th of October first-round vote. Recent polling suggests neither candidate is likely to secure the outright majority required to avoid a runoff, increasing the likelihood of a second-round contest on 25 October. While domestic issues such as the economy and public services have dominated the campaign, the result could also have important implications for Brazil’s international positioning. Lula has championed stronger ties with China and Europe alongside a multilateral approach to foreign policy, whereas Bolsonaro has advocated closer alignment with the U.S., highlighting the differing geopolitical paths available to Latin America’s largest economy.
Over in China, markets closed higher on Tuesday, as investors welcomed signals from the country’s cabinet that further policy support could be introduced to bolster economic momentum. At a State Council meeting chaired by Premier Li Qiang, policymakers called for faster issuance and use of government bonds, the acceleration of major infrastructure projects and measures to support investment and consumption. The government also signalled that further measures could be introduced to stabilise the property market and support employment and household incomes.
The latter is particularly relevant as investors look to consumer spending during China’s Golden Week, which begins on 1 October. The holiday period typically drives a surge in travel and retail activity, making it a closely watched barometer of consumer confidence, particularly amid signs of weaker spending trends in China.
India is also facing a potentially tighter oil market, with refiners anticipating less Russian crude being available to them over October and November. China’s increased appetite for Russian barrels is adding to the pressure, particularly as Indian buyers have historically benefited from the sizeable discounts available on Russian crude since 2022. With that advantage becoming harder to secure, Indian refiners may need to turn to alternative suppliers, potentially at a higher cost. For markets, this could offer some upward pressure on crude prices, while adding to India’s import bill and illustrating how competition from China is increasingly influencing the availability and pricing of energy supplies.
U.S. labour market data showed some signs of cooling in August, with job openings falling to 7.079 million from 7.335 million in July and coming in below expectations. However, hiring and overall separations remained broadly steady, pointing towards a gradual easing in labour demand rather than a more significant deterioration in employment conditions. Despite the softer jobs data, the U.S. dollar and treasury yields moved higher following the report.
Finally, UK GDP was revised higher this morning, providing a modest boost to FTSE 100 futures at the open. The economy is now estimated to have expanded by 0.5% in the second quarter, up from the previous estimate of 0.4%, offering a slightly more encouraging picture of growth momentum.
Still to come this week we have U.S. PCE inflation, the Eurozone’s unemployment rate and Japan’s job data.
Nicola Tune, Portfolio Specialist