Financial markets enjoyed a welcome improvement in sentiment this week, supported by easing oil prices, a more conciliatory tone from the White House and a broad rebound in global equities, while developments in inflation, consumer spending and international trade also influenced the broader picture.
A retreat in oil prices provided a welcome boost to financial markets this week, helping US equities record their strongest daily performance since April. Investor sentiment was further supported by a more conciliatory message from President Trump following the midterm election results, as the likelihood of further military action against Iran appeared to diminish, provided a diplomatic agreement can be reached. The improved mood was reinforced by strong gains in US markets, with the Nasdaq and S&P 500 advancing 2.7% and 2.3% respectively as investors returned to technology stocks. The rally spread into Asia, where Seoul’s Kospi jumped 4.4%, while Tokyo’s Nikkei 225 also posted strong gains. Technology shares were among the main beneficiaries of the recovery as risk appetite improved. Nvidia, however, failed to participate in the broader rally, with its shares remaining under pressure amid reports concerning chief executive Jensen Huang’s alleged links to a woman said to have connections with Chinese intelligence.
Japan’s consumer spending weakened in September, falling by 6.8% compared with a year earlier. The decline was considerably steeper than expected, with economists having forecast a contraction of 3.1%. Unusually persistent rainfall may have played a part, with Tokyo recording rain every day during the month for the first time. The poor weather is thought to have kept shoppers away from stores. The figures will be of interest to the Bank of Japan as it considers the timing of its next interest rate move, particularly given the importance of domestic demand to the economic outlook. However, the picture is not entirely negative. Wages have continued to increase for a ninth consecutive month, providing some support for household incomes. While spending declined across most categories, eating out bucked the trend, with expenditure in this area rising by 2.3% over the holiday period.
In the US, headline inflation rose by 0.4% in October, easing slightly from the 0.6% increase recorded in September. Core inflation, which excludes the more unpredictable movements in food and energy prices, held steady at 0.3% on a monthly basis. An annual inflation figure has not been made available due to disruption to data collection caused by the 2025 government shutdown. Looking beneath the headline figure, higher food and energy costs accounted for much of the monthly increase, with food prices climbing by 0.5% and energy costs rising by 0.7%. The latest figures follow employment data that pointed to continued resilience in the US labour market, alongside an acceleration in wage growth. Together, these developments have prompted markets to reassess the outlook for monetary policy, with expectations shifting towards the possibility of a further Federal Reserve rate increase at its next meeting. The change in sentiment weighed on US equity futures just after the news, while the yield on the 10-year US Treasury rose by more than seven basis points.
Canadian authorities have confirmed that temporary tariff exemptions covering selected US imports will remain in place until 30th June 2028. The extension applies to products that are difficult to source within Canada, including specialist equipment and materials required by the mining, oil and gas industries.
Finally, data revealed that China’s trade surplus had exceeded $1 trillion for the second consecutive year. Exports rose by 35.2% year-on-year in October, while imports recorded an even stronger increase of 41.6%.
Still to come this week we have UK and EU GDP and US PPI.
Nicola Tune, Portfolio Specialist