Shaw and Partners

US stocks had made a positive start to the week, thanks to ongoing optimism around artificial intelligence, particularly on news around a deal between OpenAI and AMD. However, as the week went on a more cautious tone crept in, with some investors taking profits ahead of the third quarter earnings season. In addition, with the government shutdown entering its second week that meant a lack of economic data to guide sentiment. The sell-off steepened on Friday as trade tensions reignited. President Trump questioned whether his meeting with President Jinping should go ahead, in response to Beijing’s announcement of rare earth export controls. After the Friday close, Trump said he would impose an additional 100% tariff on imports from China from 01 November.

In response, the S&P 500 and Nasdaq Composite experienced their biggest single-day percentage drops since April on Friday, down 2.7% and 3.6% respectively. Although they had both closed at record highs on Wednesday, Friday’s drop put them in negative territory for the week, with the S&P 500 losing 2.4% and the Nasdaq down 2.5%. Meanwhile the Dow Jones Industrial Average fell 2.7% and small caps fared even worse. US Treasury yields moved lower amid the ongoing government shutdown as well as the rising trade tensions.

European equities saw a similar pattern in which indices had been scaling record highs, before pulling back on some profit-taking, as well as the darkening trade picture and political uncertainty. For the week, the pan-European STOXX 600 declined 1.1%. Regional indices also dipped, with France’s CAC 40 dropping 2%. France’s political woes continued with prime minister Sebastien Lecornu resigning at the start of the week, pushing up government bond yields. Bonds somewhat stabilised as the week went on, awaiting news of the new prime minister, only for Lecornu to be reappointed.

Hong Kong’s Hang Seng dropped 3.1%, whereas the Shanghai Composite gained 0.4% in a holiday-shortened trading week. This was despite preliminary data pointing to a slowdown in activity during the eight-day Golden Week holiday. The standout gainer of the week was Japan’s Nikkei 225 which surged 5.1%. Investors reacted to Sanae Takaichi winning the Liberal Democratic Party’s leadership election. There were expectations that Takaichi would push for fiscal stimulus, prompting a weaker yen and higher government bond yields.

Gold continued its ascent, fuelled by central bank purchases as well as investors seeking out the 'safe haven' at a time of political and economic uncertainty. Gold topped $4,000 per ounce for the first time and gained 3.3% for the week. It did see a modest pullback on news that Israel and Hamas had agreed to the first phase of a ceasefire deal, paving the way to a potential end of two years of war.

Weekly macro highlights

German exports and imports fall in August

German exports fell by 0.5% month-on-month (MoM) in August, according to data released by the Federal Statistics Office (Destatis), missing expectations for a 0.3% MoM increase. Imports also declined, down 1.3% from the previous month. On a year-on-year (YoY) basis, exports were down 0.7%, while imports rose by 3.5%. Exports to EU countries dropped by 2.5% MoM, with imports from the EU also decreasing by 0.7% MoM. The US remained the largest destination for German exports, outside of the EU, in August. However, after five consecutive months of decline, exports to the US fell by 2.5% MoM, reaching their lowest level since November 2021 and marking a 20.1% decrease compared to August 2024. In contrast, exports to China rose by 5.4% MoM. China also remained Germany’s biggest source of imports, although imports from China declined by 4.5% MoM compared to July. Meanwhile, imports to the United Kingdom fell by 4.6% MoM during the same period.

New Zealand cuts rates in October

The Reserve Bank of New Zealand cut its official cash rate by 50 basis points (bps) to 2.5% at its October meeting, a larger-than-expected move compared to the widely anticipated 25bps cut. This brings borrowing costs to their lowest level since 2022. The Monetary Policy Committee reached consensus on the cut and remains open to further reductions as required for inflation to settle sustainably near the 2% target midpoint over the medium term. Inflation is at the top of the 1-3% target band, with third quarter headline inflation estimated at 3%, but it is projected to ease back to 2% by mid-2026. Economic activity remained weak through mid-2025, reflecting domestic supply constraints and the impact of global policy uncertainty. Household consumption is recovering, supported by lower interest rates, while elevated commodity prices continue to benefit the primary sector. House prices are flat, and both residential and business investment remain subdued.

Brazil inflation rises marginally in September

Brazil’s headline inflation increased marginally to 5.17% year-on-year (YoY) in September, compared to 5.13% YoY in August, according to the national statistics agency IBGE. This reading came in below forecasts for a 5.22% annual increase. On a month-on-month basis, inflation rose 0.48% in September, reversing a 0.11% decline in August. The food and beverage component, the largest in the inflation basket, dropped 0.26% for the month, marking its fourth consecutive monthly decline. Housing costs saw a notable acceleration, rising 6.24% YoY in September, from 5.03% YoY the previous month. Brazil’s benchmark interest rate remained unchanged at 15% in September, with the central bank expected to maintain this level through the end of 2025 to help steer inflation towards the target range of 3% +/-1.5%. The Banco Central do Brasil projects inflation to ease to 4.8% by end-2025 and 3.6% in 2026, though risks remain elevated.