Passersby walk past an electric monitor displaying the Japanese yen exchange rate against the U.S. dollar outside a brokerage in Tokyo, Japan October 4, 2023. REUTERS/Issei Kato/File photo

The MSCI Global Share Index Hits Lowest Since March

S&P futures are edging higher ahead of a slew of tech results. Meanwhile, the U.S. GDP data expected this week is likely to highlight economic outperformance. The world’s share prices have reached a seven-month low, influenced by the escalating conflict in the Middle East and the anticipation of prolonged high interest rates. This uncertainty coincides with a week full of mega-cap earnings reports and crucial data releases.

The recent surge in bond yields has put pressure on bonds as well, as U.S. 10-year Treasury yields remain around 5.0%. Consequently, borrowing costs are rising worldwide, putting equity valuations to the test.

Over the weekend, Washington issued a warning about the significant risk to U.S. interests in the Middle East amidst escalating tensions between Israel and Gaza and clashes near the Israeli-Lebanese border.

This week, the European Central Bank and the Bank of Canada are holding policy meetings. Although no interest rate hikes are expected, market players will pay close attention to any indication of future moves.

The recent increase in bond yields has effectively tightened monetary conditions without any intervention from central banks, allowing the Federal Reserve to signal that it will maintain its current stance at the upcoming policy meeting. In fact, futures markets indicate a 70% chance that the Fed is done tightening for this cycle and might even consider rate cuts from May next year.

The rise in the 10-year Treasury yield towards the 5% mark has had a negative impact on equity valuations, leading to a downturn in major indices last week. Additionally, the VIX “fear index” for U.S. stock market volatility hit its highest level since March.

The MSCI All-World index has fallen by 0.1%, reaching its lowest level since late March when the global banking sector turmoil subsided. Similarly, the STOXX 600 in Europe remains flat, hovering around its seven-month lows from last week.

The Asia-Pacific shares outside Japan have slipped by 0.5%, marking its lowest level in almost a year.

The U.S. 10-year note yield is on track to record its biggest six-month gain since mid-1994, having risen by 152 basis points since April. It currently stands at 4.969%.

Several mega-cap companies, including Microsoft, Alphabet, Amazon, and Meta Platforms, are all scheduled to release their earnings this week. IBM and Intel will also be reporting their earnings.

Profitability is likely to be supported by strong consumer demand, with U.S. GDP figures expected to show a robust annualized growth rate of 4.2% in the third quarter. Nominal annualized growth could even reach as high as 7%.

JPMorgan’s chief economist, Bruce Kasman, highlights the rise in corporate profits due to the surge in productivity and modest growth in hours worked last quarter. He emphasized the resilience of the U.S. private sector and the benefits it shares with corporate and household incomes.

The dollar has been buoyed by U.S. outperformance, although concerns about Japanese intervention have caused it to plateau around 150.00 yen. The dollar is currently trading at 149.93 yen, just below the recent peak of 150.16 yen.

In Japan, yields are also rising on speculation that the Bank of Japan may announce a further adjustment to its yield curve control policy at its upcoming policy meeting on October 31.

The euro has slightly weakened against the dollar, trading at $1.0577, while the Swiss franc remains steady at 0.8928 per dollar. The Swiss franc has benefited from safe-haven flows in recent weeks.

The European Central Bank is expected to keep interest rates unchanged at 4% in their meeting this week. Investors will be keen to obtain any insights from ECB President Christine Lagarde on how the recent rise in global bond yields could impact the eurozone monetary policy outlook.

Gold, which experienced a surge due to safe-haven inflows, has eased by 0.3% to $1,975 per ounce.

Oil prices have retreated as there are no immediate threats of supply disruptions from the Middle East. Brent crude has fallen by 1% to $91.28 a barrel, while U.S. crude has decreased by 1.2% to $87.04 a barrel.

Reporting by Wayne Cole; Editing by Shri Navaratnam, Simon Cameron-Moore, and Susan Fenton

Our Standards: The Thomson Reuters Trust Principles.

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