October kicked off with a banner day for many stock markets around the world. The Dow gained over 100 points and cleared 22,500 while the S&P 500 cleared 2,525 with both indices reaching new all-time highs. The FTSE, meanwhile, gained nearly 1.0% on the back of a falling pound and the Dax added another 0.5%. Spain’s IBEX was the leading decliner falling 1.2% in the wake of Catalonia voting 90% in favour of dependence despite heavy handed interference from the federal government.
Gains for US markets were pretty broad based with Disney, 3M, IBM, UnitedHealth and Goldman Sachs each adding over 10 points to the Dow. On the other hand, the NASDAQ failed to break out as each of its big FAANG stocks (Facebook, Amazon.com, Apple, Netflix, Google) spend much of the day in the red. Casino stocks also took it on the chin today after the tragic mass shooting in Las Vegas with MGM falling 5.0%.
US gains appear to have been driven by a positive response to US manufacturing PMI reports which came in above expectations and/or up from last month, indicating a strong and accelerating US economy despite last month’s hurricane disruptions. The US Dollar also rallied on the news, with a big spike in prices paid putting more inflation pressure on the Fed to keep raising interest rates.
The rising greenback put a big headwind in front of other currencies. Gold lost 0.4% while the Euro lost 0.6% and GBP fell nearly 0.9%. CAD suffered a technical breakdown today although it only lost 0.35% despite energy commodities taking a beating. WTI fell 2.4% while gasoline lost 2.3% and natural gas plunged 3.7%.
Looking ahead, China remains closed for holidays. The Yen remains soft which could keep a tailwind behind the Nikkei. Australia stocks which started the week strong could struggle in the face of falling gold and oil prices.
The RBA is meeting today but is unlikely to announce any interest rate changes. The statement could talk about general economic uncertainty but overall is likely to remain neutral. Since peaking in early September, AUD is down over three cents, and the RBNZ has stopped threatening to intervene in NZD. Based on this, Governor Lowe may not aggressively talk down the Dollar but may recognize the recent drop and indicate a lower currency helps export driven economies.
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