Global Market Overview: Sharp Decline in Equities Following US Reversal

Equity Markets

Global equity markets experienced a significant sell-off today after a surprising turnaround in the US market yesterday. Major Asia Pacific indices declined by more than 2%, while Europe’s Stoxx 600 dropped over 1%, witnessing its sixth sell-off day in seven sessions. US equity futures initially recorded deeper losses but have since stabilized during the European morning session, with S&P 500 futures down marginally and Nasdaq futures off roughly 0.25%.

Fixed Income and Bond Yields

Safe-haven demand pushed sovereign bonds higher, including Japanese Government Bonds (JGBs), where long-term maturities rallied for the first time in over two weeks. European bond yields declined modestly by 2-5 basis points. Attention remains on Moody’s imminent review of Italy’s debt rating, with a potential upgrade anticipated. The 10-year US Treasury yield fell by a couple of basis points to approximately 4.06%, marking a monthly low.

Currency Markets

The US dollar showed broad strength today, while the Japanese yen emerged as the strongest among G10 currencies. Heightened intervention risks prompted some limited short covering in yen positions. The New Zealand dollar followed as the second strongest G10 currency, appreciating by about 0.2%, supported by widespread expectations of a Reserve Bank of New Zealand (RBNZ) rate cut next week. In contrast, most emerging market currencies weakened, led notably by the Indian rupee (-0.80%) and South African rand (-0.60%).

Commodities

Gold failed to attract safe-haven buying and dropped to a three-day low just below $1,023, hovering near its 20-day moving average around $1,039 during European trading. January WTI crude oil declined to nearly $57.40, its lowest level in approximately 4.5 weeks.

Currency Focus

US Dollar

The Dollar Index reached the month’s high near 100.35, marking the strongest level since late May. It closed above the 200-day moving average for the second successive session, a feat not seen since early March. Technical momentum indicators are on an upward trajectory following four advances in five sessions. Current consolidation is occurring between 100.00 and 100.25, with the next key technical target near 101.55, the 38.2% retracement level of this year’s decline.

Nominal average hourly earnings rose by 0.2% in September, holding annual wage growth steady at 3.8%. Today’s Bureau of Labor Statistics (BLS) report on real earnings, combined with inflation data, will provide further clarity. Preliminary November PMI readings are expected to soften slightly after a strong October composite PMI of 54.6. Although the final University of Michigan sentiment survey and KC Fed services activity report are scheduled, they are unlikely to move markets significantly. Federal Reserve speakers—including Williams, Barr, Jefferson, and Logan—will provide commentary, with particular attention on any remarks regarding balance sheet policy.

Euro

The euro enters the day on a five-day losing streak, retreating to just above $1.15 yesterday. Support was reinforced by significant option expirations around the $1.15 strike, including €1.6 billion expiring today, alongside another €1.25 billion expiring near $1.1535. The euro has been capped slightly above $1.1550 but dipped toward $1.1510 following a muted PMI report. Breaching the $1.15 level could open the way for declines toward $1.1470-80.

November’s preliminary eurozone manufacturing PMI slipped to 49.7 from 50.0, a contraction territory but improved from 45.2 a year prior. Services PMI inched up to 53.1 from 53.0. The composite PMI eased marginally to 52.4 from 52.5—the highest since May 2023—but marked the first monthly deceleration since that time. Negotiated wages in the eurozone rose a minimal 1.87% in Q3, the slowest increase since Q3 2021, down from just above 4% in Q2.

Chinese Yuan (CNY)

The dollar remained capped near CNH7.12 for the third consecutive session, trading within the range of approximately CNH7.0850 to CNH7.1550 that has prevailed since mid-September. It is holding above Wednesday’s low near CNH7.1085. After increasing the dollar’s reference rate for the third straight session yesterday, the People’s Bank of China (PBOC) eased it back slightly below 7.09 today. This week’s fix marks the first weekly rise in the dollar’s reference rate in eight weeks.

Japanese Yen (JPY)

Despite Tokyo’s verbal intervention to curb the yen’s decline exhibiting limited effectiveness, the explicit threat of substantial intervention has contributed to a near 0.5% appreciation today—the yen’s strongest performance in the G10. The dollar traded down from yesterday’s peak near JPY157.90 to approximately JPY156.50, with JPY156.25 representing the 38.2% retracement of the recent rally that began last Friday near JPY153.60.

Japan has recorded nine weeks of yen depreciation against the US dollar out of the past thirteen. Key data releases from Japan today—including October CPI, trade figures, and November’s preliminary composite PMI—had minimal market impact as participants test the Ministry of Finance’s resolve.

– The October headline CPI rose 3.0% year-over-year, up from 2.9% in September; core CPI (excluding fresh food) also increased to 3.0%. The CPI excluding food and energy slightly edged up to 3.1%.
– October’s trade deficit narrowed slightly to JPY232 billion from JPY237 billion in September, with exports rising 3.6% year-over-year and imports increasing 0.7%. The cumulative January-October trade deficit reduced by approximately JPY3.06 trillion compared to last year.
– The preliminary November composite PMI improved modestly from 51.5 to 52.0, with manufacturing contracting less at 48.8 and services holding steady at 53.1.

Elevated geopolitical risks stemming from Japan-China tensions over Taiwan-related remarks persist, with limited prospects for immediate de-escalation. The Japanese cabinet approved an additional ¥17.7 trillion (approx. $112 billion) of support spending as part of a broader ¥21.3 trillion package. Notably, the 30-year and 40-year Japanese government bond yields declined for the first time in 12 and 14 sessions, respectively.

British Pound (GBP)

Sterling rebounded modestly from a two-week low under $1.3040 to session highs near $1.3125 in the North American session, recovering roughly half the losses incurred since last week’s peak near $1.3215. However, breaking above the $1.3150-60 range will be necessary for a meaningful bullish shift, potentially supported by short covering ahead of next week’s UK budget.

The pound struggled to maintain gains today, encountering selling pressure above $1.31 and retreating back near $1.3050 during European trading. A break below $1.3035 could bring tests of $1.3000 and compromise the halfway point of this year’s rally at $1.2945.

Recent UK data showed a sharper-than-expected 1.1% decline in October retail sales, reversing a revised 0.7% increase for September. Excluding gasoline, retail volumes fell 1.0%, a significant reversal from +0.7%. Unlike other major economies, UK retail sales are volume-based, not price-adjusted. November’s preliminary PMI indicated manufacturing strengthened slightly to 50.2, while services slowed to 50.5. The composite PMI dropped to 50.5 from 52.2, below its Q3 average of 51.7.

Canadian Dollar (CAD)

The US dollar extended its advance against the Canadian dollar, pushing above CAD1.41 following a swift shift in risk sentiment. After dipping slightly below CAD1.40 on Tuesday, the dollar strengthened to CAD1.4065 Wednesday and moved above CAD1.41 yesterday. It remains above CAD1.4080 today, trading near the month’s high of CAD1.4140, a seven-month peak but still short of the yearly midpoint near CAD1.4165.

Canada is expected to report a 0.7% decline in retail sales for September, following a robust 1.0% increase in August. Excluding automotive sales, retail sales likely decreased by around 0.5% last month. The country’s Q3 GDP figures are due next week, with consensus forecasts pointing to 0.5% annualized growth after a 1.6% contraction in Q2, the first since Q3 2023.

Australian Dollar (AUD)

The Australian dollar traded below its 200-day moving average for the first time since late May, touching near $0.6435 yesterday and holding just under $0.6425 today. Immediate support is estimated near $0.6400, aligning with the 38.2% retracement of this year’s rally.

Australia’s preliminary composite PMI rose to 52.6 from 52.1, with the Q3 average at 53.9 outperforming both Q2 (51.0) and Q3 2024 (50.4). Manufacturing regained strength, rising to 51.6 from 49.7 in October, having peaked at 53.0 in August and declined to 47.3 in October 2024. The services PMI inched higher to 52.7 from 52.5 in November, though market reaction was subdued.

Mexican Peso (MXN)

The Mexican peso reversed earlier strength as risk-off sentiment heightened, undermining prior resilience. The dollar dipped marginally to a near three-day low approaching MXN18.30 before rebounding to settle above Wednesday’s high of roughly MXN18.3715. The greenback reached a peak near MXN18.4920 on Tuesday and neared MXN18.48 today.

The 50% retracement level of this month’s losses lies near MXN18.5120, while a consolidation zone has developed between MXN18.25 and MXN18.30 over the past fortnight.

Mexico will update Q3 GDP data today. Initial estimates indicated a 0.3% quarter-over-quarter contraction and a 0.2% year-over-year decline. The September IGAE economic activity index is expected to show marginal contraction (-0.1%) following solid growth (+0.57%) in August. Upcoming November CPI numbers and the central bank’s inflation report will be critical in setting expectations for the December monetary policy decision.

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**Disclaimer:** This report is for informational purposes only and does not constitute financial advice or recommendations.