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Global markets opened the week on uneven footing as U.S. futures retreated following a rate-driven rally, while Europe grappled with airline-sector losses after a cyberattack. Asian equities diverged, the dollar strengthened on Fed and trade signals, and commodities sent mixed messages: oil rose on supply concerns, while gold surged to fresh records.
Investors now face a week defined by US inflation data and looming fiscal risks, with the broader macro backdrop demanding a careful balancing of opportunity and caution.
U.S. Futures Slip Ahead of Inflation Test
U.S. equity futures were lower in early European trade, with the S&P 500 and Dow Jones Industrial Average both down 0.3%, as investors paused after weeks of rate-fueled gains. The focus now shifts to the August PCE inflation report, due Friday.
Consensus expects headline PCE to rise 2.7% YoY (up from July’s 2.6%), while core PCE is seen steady at 2.9%.
These numbers will be critical for shaping expectations around the Federal Reserve’s next move. A softer-than-expected print would reinforce speculation of rate cuts, supporting risk assets, while upside surprises could reignite policy tightening fears.
Europe Hit by Airline Stocks and Political Overhang
European equities opened weaker, with Germany’s DAX down 0.6%, France’s CAC 40 off 0.5%, and the FTSE 100 slipping 0.1%. Airline shares bore the brunt after cyberattacks disrupted airports in London, Berlin, and Brussels. IAG fell 1.6%, Lufthansa 1.5%, and Air France-KLM 0.9%.
At the same time, sovereign bond markets remain stable: Italy’s 10-year BTP yield held at 3.56% after Fitch upgraded the country’s credit rating to BBB+, citing fiscal prudence. This upgrade provides some relief for European credit spreads but does little to offset broader growth concerns.
Asian Markets Diverge on Tech and Currency Moves
Asia offered a more mixed picture. South Korea’s Kospi rose 0.7% to another record high and Japan’s Nikkei gained 1.0%, led by electronics stocks. In contrast, India’s Sensex fell 0.3%, pressured by tech weakness, while Hong Kong’s Hang Seng dropped 0.8%, dragged down by Chinese internet giants.
The underlying theme remains uneven momentum: Japan benefits from a weaker yen and global chip demand, while China and India contend with sector-specific headwinds and capital outflow risks.
Dollar Gains as Yields Hold Steady
The DXY index edged up 0.1% to 97.73, supported by Fed policy signals and optimism around U.S.-China trade dialogue following President Trump’s call with Xi Jinping. Meanwhile, Treasury yields were little changed: 2-year at 3.58%, 10-year at 4.14%, 30-year at 4.76%.
The dollar’s resilience underscores global demand for safety as U.S. political risks mount. Investors are also weighing the potential impact of a partial government shutdown on October 1, which could dent growth while raising near-term volatility across bonds and FX.
Commodities: Oil Tightens, Gold Surges
Oil prices edged higher as Ukraine’s strikes on Russian refineries raised supply concerns. Brent crude rose 0.6% to $67.10/bbl, WTI gained 0.5% to $63.15/bbl. While the attacks create upside risk to supply, markets are also sensitive to shifting U.S. sanctions policy, which has eased fears of immediate disruptions for Russian oil buyers.
Gold broke to fresh records, trading 0.8% higher at $3,713/oz, as markets bet the Fed will eventually ease policy despite U.S. resilience. The combination of geopolitical risk, fiscal uncertainty, and the prospect of lower real yields continues to underpin demand.
Bitcoin Slips on Macro Uncertainty
Cryptocurrencies were not spared. Bitcoin fell to $112,309, a two-week low, as traders reduced risk exposure ahead of the U.S. fiscal deadline. The standoff in Congress has left investors wary of potential liquidity stress in digital assets.
Investor Outlook: Balancing Opportunity and Risk
Markets are at an inflection point. On one hand, resilient economic data, stable yields, and selective strength in Asian equities suggest room for cautious optimism. On the other, looming U.S. fiscal risks, persistent inflation uncertainty, and geopolitical flashpoints (Ukraine, US-China trade, Middle East energy) reinforce the case for defensive positioning.
Bullish scenario: Softer PCE data, progress on U.S. funding, and easing geopolitical tensions could spark renewed risk appetite, lifting equities and supporting cyclical sectors like technology and energy.
Bearish scenario: A government shutdown, sticky inflation, or escalation in Ukraine could drive investors into safe havens, pushing gold higher while weighing on equities, crypto, and high-yield debt.
Actionable takeaway: Investors should monitor Friday’s PCE release and the U.S. fiscal negotiations as near-term catalysts. Hedging equity exposure with gold and Treasurys, while keeping an eye on oil supply risks, may offer the most balanced approach in the current environment.