Source: Wall Street See
Authors: Du Yu, Zhang Yaqi

The final value of the U.S. Markit Manufacturing PMI for September slightly increased to 47.3 from expectations and the initial value. The ISM Manufacturing Index for September remained consistent with the previous value but lower than expected at 47.2, both still in contraction, with the price paid index hitting a nine-month low. U.S. JOLTS job vacancies in August rebounded beyond expectations to 8.04 million people, reaching a three-month high, but recruitment activity weakened, aligning with the trend of a slowing labor market.

The Eurozone inflation rate in September fell below the target of 2% for the first time since mid-2021, reaching 1.8%, reinforcing the European Central Bank's reasons for an interest rate cut in October. The final value of the Eurozone Manufacturing PMI for September increased slightly but remained deeply in contraction. ECB policymakers and the Governor of the Bank of Finland stated that easing inflationary pressures and deteriorating European economic conditions support a rate cut this month, leading to a decline in the euro and Eurozone bond yields.

The escalation of geopolitical conflicts in the Middle East: according to Xinhua News Agency, Iran launched multiple missiles at Israel, with an Israeli military spokesperson stating that they will continue to launch strong attacks in the Middle East. International oil prices quickly rebounded and surged by over 5%. Safe-haven assets like gold and the Japanese yen rose, with spot gold rising over 1% to briefly surpass $2,670 and the yen briefly crossing 143. Subsequently, major asset classes rose to highs and then fell back, leading the yen to reverse its gains.

The market is also watching the strike by dockworkers on the east coast of the United States and along the Gulf Coast of Mexico, which may cause hundreds of millions of dollars in losses to the U.S. economy, resulting in billions of dollars in trade disruptions. Some analysts say this may create difficulties for the Fed's interest rate decisions. The market's bet on a significant 50-basis-point rate cut in November is still hovering at 37%. Fed Director Cook stated that artificial intelligence has a long-term restraining effect on inflation.

October 1, Tuesday, was the first trading day of October and the fourth quarter. The Dow and S&P 500 drifted away from their highs, with the NASDAQ dropping by over 2% midday. Nvidia fell nearly 4%, and the "fear index" VIX rose to a three-week high. However, China concept stocks rose against the market by over 5%, hitting new highs for Meta and defense stocks:

• US stock indices fell across the board. The S&P 500 index fell by 53.76 points, a decrease of 0.93% to 5708.72 points. The Dow Jones, closely related to the economic cycle, fell by 173.18 points, a decrease of 0.41% to 42156.97 points. The Nasdaq, dominated by technology stocks, fell by 278.81 points, a decrease of 1.53% to 17910.36 points. The Nasdaq 100 fell by 1.43%. The Nasdaq Technology Market Capitalization Weighted Index (NDXTMC), which measures the performance of Nasdaq 100 technology industry component stocks, fell by 1.90%. The Russell 2000 small-cap stock index, more sensitive to the economic cycle, fell by 1.48%. The VIX fear index rose by over 15% to 19.26.

• Most US stock industry ETFs closed lower, but the energy industry ETF followed the rise in oil prices by over 2%, while the utility ETF rose by nearly 1%. On the other hand, regional bank ETFs fell by over 3%, banking ETFs and semiconductor ETFs also saw losses close to 3%, technology industry ETFs and global technology stocks ETFs fell by at least 2%, global aerospace industry ETFs fell by over 1%, internet stock index ETFs, biotechnology index ETFs, financial industry ETFs, and medical industry ETFs all fell by at least 0.5%.

• Most of the 11 sectors of the S&P 500 index fell. The energy sector rose by 2.23% due to the upward trend in oil prices, while the utility sector rose by 0.81%; the information technology/technology sector fell sharply by 2.66%, the real estate sector fell by 0.66%, and the financial sector fell by 0.55%.

• In terms of research and investment strategies, Bank of America believes that the US non-farm payroll data for September released on Friday will determine the market direction. If it exceeds expectations, it will strengthen the argument for an economic soft landing, potentially driving the stock market to set more new highs. This is because the soft data in July and August have set a low threshold for triggering a rebound.

• Only Google and Meta among the seven tech giants rose. Apple fell by 2.91%, Google Class A rose by 0.69%, 'Metaverse' company Meta rose by 0.70% to a new high, Microsoft fell by 2.23%, Tesla fell by 1.38%, Nvidia fell by 3.66%, and Amazon fell by 0.64%.

• On the news front, Citigroup lowered its sales expectations for the iPhone from September to December. Apple is preparing to launch a new iPhone SE, expected to be released in early 2025. The new iPhone SE will replicate the features of the iPhone 14, with a more modern design. Apple is also preparing to launch an upgraded version of the iPad Air and a keyboard product. Tesla is expected to record its first quarter of sales growth this year, as China increases electric vehicle subsidies to boost demand.

• Chip stocks generally fell. The Philadelphia Semiconductor Index fell by 3.6% before closing down 2.9%, while the industry ETF SOXX fell by 2.8%; Nvidia's two-times long ETF fell by 7.4%. Intel fell by 3.3%, Taiwan Semiconductor ADR fell by 0.9%, Broadcom fell by 2.9%, Arm Holdings fell by 4.9%, Micron Technology fell by 3.3%, Applied Materials fell by 2.4%, ASML ADR fell by 1.3%, KLA Corp fell by 2.7%, AMD fell by 2.6%, and Qualcomm fell by 2.5%.

• AI concept stocks fell across the board. Dell Technologies fell by 4.5%, Super Micro Computer fell by 2.6%. Serve Robotics rose by 0.5%, CrowdStrike fell by 1.9%, BullFrog AI fell by 18.5%, SoundHound AI, an AI voice company held by Nvidia, fell by 2.2%, BigBear.ai fell by 5.8%, C3.ai fell by 6.7%, Snowflake fell by 4%, Oracle fell by 1.9%, and Palantir fell by about 2%.

• Chinese concept stocks surged against the market. The Nasdaq Golden Dragon China Index rose by 5.48%, the China Technology Index ETF (CQQQ) rose by 4.8%, the China Internet Index ETF (KWEB) rose by 6%, the FTSE China 3x Bull ETF (YINN) surged over 12%, and the FTSE China 3x Bear ETF (YANG) fell by over 12%. The FTSE A50 Index futures continued to rise, up over 2%.

• Among popular Chinese concept stocks, Alibaba surged over 6%, Nio and Xpeng Motors surged over 5%, Bilibili surged over 14%, Pinduoduo surged 8%, Li Auto surged over 11%, and JD.com surged over 7%. Previous data showed that both Xpeng Motors and Li Auto hit record high monthly deliveries in September, while Nio reached a new high in third-quarter deliveries.

• Other key stocks: 1) Boeing reversed its decline, surging over 1%. The company is reportedly considering raising at least $10 billion by issuing new shares to replenish cash reserves lost due to factory worker strikes. 2) CVS Health fell by over 2%, with sources indicating that the company is working with consultants to strategically evaluate its business, potentially including a spinoff. 3) Traditional automotive giant Stellantis fell for the second consecutive day, with its US stocks dropping over 2%. Previously, due to weak demand, the production pause of the electric version of the Fiat 500 was extended to next month, causing a 12.5% drop in the stock on Monday, the largest single-day decline since mid-March 2020. 4) US defense stocks rose, Lockheed Martin and Raytheon Technologies reached all-time highs, the S&P Aerospace & Defense Index hit a new high, while cruise and airline stocks fell. 5) Nike's quarterly revenue missed expectations, prompting a retraction of the annual performance guidance, causing a quick 4% post-market rise followed by a sharp 6% decline.

Tensions in the Middle East caused European stocks to reverse from intraday highs and fall by 0.5%. The banking sector led the decline with a 2.2% drop, Renault in France continued to fall by over 3%, being the worst performer among national stock indices with only UK stocks rising, while the Italian stock index fell by 1%.

• The pan-European STOXX 600 index closed down 0.38% at 520.88 points. The Eurozone STOXX 50 index fell by 0.93% to 4954.15 points. The FTSE All-World 300 index fell by 0.36% to 2061.79 points.

• The German DAX 30 index closed down 0.64% at 19217.55 points. The French CAC 40 index closed down 0.81% at 7574.07 points. The Italian FTSE MIB index closed down 1.01% at 33781.00 points. The UK FTSE 100 index closed up 0.46% at 8274.94 points.

Investors are concerned about escalating tensions in the Middle East, coupled with significant increases in inflation and economic data, which have raised the likelihood of an ECB rate cut in October. Both US and European bond prices rose, leading to lower yields, with long-term bond yields falling more deeply, including a 11-basis-point drop in 10-year US Treasury yields.

• US Bonds: At the close, the yield on the 10-year US benchmark Treasury note dropped by 4.18 basis points to 3.7391%, hitting a one-week low. During the day, it fell by 11 basis points and briefly dipped below 3.70%. The yield on the 2-year US Treasury note fell by 2.86 basis points to 3.6125%, dropping by 8 basis points during the day and briefly falling below 3.60%.

• Eurozone: The 10-year German bond yield fell by 8.7 basis points at the close, reaching 2.036%, the lowest since January. The 2-year German bond yield dropped by 4.8 basis points, falling below 2% for the first time since 2022. The 30-year German bond yield fell by nearly 10 basis points. The 10-year French bond yield once dropped by over 13 basis points to 2.792%, the lowest since March. The 10-year UK gilt yield fell by 6.3 basis points to 3.941%. The 2-year UK gilt yield dropped by 2.8 basis points to 3.955%.

Powell's hawkish remarks significantly cooled expectations for a rate cut, causing the US Dollar Index to rise above 101 to a near three-week high. The Pound dropped by 1%, while the current expectations of a rate cut by the ECB led to the Euro falling for three consecutive days. Tensions in the Middle East briefly pushed the Yen higher, crossing 143, with the offshore Renminbi dropping nearly 290 points and briefly falling below 7.03, erasing most gains since last Wednesday.

• US Dollar: The DXY US Dollar Index rose by 0.6% to 101.39, the highest since September 12, after three consecutive months of decline and a cumulative decline of nearly 1% in September.

• Non-US currencies: The Australian and New Zealand Dollars retreated from over a year's high. The Euro against the US Dollar fell by nearly 90 points or 0.8%, dropping below 1.11 to a near three-week low. The British Pound against the US Dollar fell by over 130 points or 1%, breaking below 1.33 to a two-week low.

• Japanese Yen: The Japanese Yen against the US Dollar briefly rose above 143 before the US stock market midday, reversed its drop during the day to rise by 0.4%, then fell back to trade at 143.66. In the European stock market session, it fell over 90 points or 0.6%, briefly dipping below 144.

• Japan's new Prime Minister Fumio Kishida tried to change perceptions of his 'hawkish' image, stating that he hopes the Bank of Japan will maintain its accommodative policy. Minutes from the September BOJ meeting showed discussions on the cautious need for recent rate hikes, but with little impact on the market.

• Offshore Renminbi (CNH): The offshore Renminbi against the US Dollar continued to decline, dropping nearly 290 points and briefly falling below 7.03, erasing most gains since last Wednesday. It dropped 226 points at the close, trading within the range of 7.0012-7.0354 Yuan during the session.

• Cryptocurrencies: The largest cryptocurrency, Bitcoin, dropped by over 2% and approached $0.062 million, declining for three consecutive days to a two-week low since September 19. The second-largest Ethereum dropped by over 3% and fell below $2500, also hitting near two-week lows. At the New York close, the CME Bitcoin futures BTC front-month contract was at $61965.00, down 4.35% from Monday's New York close. The CME Ethereum futures DCR front-month contract was at $2496.00, down 5.81% from Monday.

The tension in the Middle East has pushed international oil prices up by about 2.5% to their highest level in a week, with intraday gains exceeding 5% at one point before narrowing by the end of trading. European natural gas prices briefly rose by 1.8% and hovered near four-week highs:

• US oil: WTI November futures closed up $1.66, up 2.4% at $69.83 a barrel. At midday, US stocks rose 3.77 US dollars or 5.5% and approached 72 US dollars, while before the turnaround, during European stock trading, they had fallen 2.7% to $66.34.

• Brent oil: Brent December futures closed up $1.86, up 2.6% at $73.56 a barrel. At midday, US stocks rose 3.75 US dollars or 5.2%, briefly exceeding $75, and before rebounding, during European stock trading, they had fallen 2.5% and dropped below $70.

• Deutsche Bank cuts its 2025 Brent oil price forecast by 18% to $66 a barrel, saying OPEC+'s plans would equate to an actual production increase of about 1.5 million barrels per day next year.

• Natural gas: NYMEX US November natural gas futures fell 0.92% to $2.8960 per million British thermal units. European benchmark TTF Dutch natural gas futures briefly rose by 1.8%, with the end-of-day gains narrowing to 0.7%, still hovering near four-week highs.

The escalating tensions in the Middle East, coupled with expectations of further interest rate cuts in the US, combined with additional factors such as rising US bond yields, all support gold prices. Spot gold surged over 1% to briefly top $2670, after hitting a historical high of $2685.42 last Thursday. Powell's hawkish remarks last Monday led to the largest single-day drop in over four weeks:

• Gold: COMEX December gold futures rose 1.07% to $2684.80 an ounce by the end of trading. Spot gold reached the highest in midday US stocks, rising over $38 or 1.5% to $2673, recouping losses from last Friday, and by the end of trading, it was up about 1% at $2660.

• Silver: COMEX December silver futures rose 0.92% to $31.715 an ounce at the end of trading. Spot silver briefly rose over 2% to $31.85, with end-of-day gains significantly narrowing to 0.7%, trading at $31.36.

• London industrial metals mostly rose by more than 1%: LME copper futures closed up $150 or 1.5% at $9,979 per ton. LME aluminum futures closed up $36 or 1.4% at $2,648 per ton. LME zinc futures closed up $56 or 1.8% at $3,146 per ton. LME lead futures closed up $12 or 0.6% at $2,108 per ton. LME nickel futures closed up $197 or 1.1% at $17,711 per ton. LME tin futures closed up $421 or 1.3% at $33,879 per ton. LME cobalt futures remained flat at $24,300 per ton.

Editor/Jeffy