The growing probability of Trump’s victory provides support for the US dollar. Oil is under selling pressure

At the end of Friday, the Dow Jones Index (US30) fell by 0.61% (for the week -2.56%). The S&P 500 Index (US500) fell by 0.03% (for the week -0.85%). The NASDAQ Technology Index (US100) closed positive 0.59% on Friday (for the week +0.35%). The yield on 10-year US Treasuries rose to 4.27% on Monday, hitting its highest level in three months, amid growing expectations that the Federal Reserve will take a more cautious approach to further rate cuts and will likely opt for a more moderate 25 basis point cut at upcoming meetings. These views came amid stronger-than-expected US economic data and hawkish statements from Central Bank officials. On the political front, market odds point to Trump retaking the White House in November, boosting the dollar and Treasury bond yields on the back of inflationary policies such as rate hikes and tax cuts.

Equity markets in Europe were steadily declining on Friday. Germany’s DAX (DE40) rose by 0.11% (for the week -0.74%), France’s CAC 40 (FR40) closed down 0.08% (for the week -1.08%), Spain’s IBEX 35 (ES35) fell 0.23% (for the week -0.65%), and the UK’s FTSE 100 (UK100) closed down 0.25% (for the week -1.31%).

Eurozone M3 money supply rose by 3.2% y/y in September, beating expectations of 2.9% y/y and the highest in almost 2 years. ECB 1-year Eurozone inflation expectations for September fell to a 3-year low of 2.4% from +.7% in August, better than expectations of 2.6%. ECB 3-year inflation expectations fell to a 3-year low of 2.1% from 2.3% in August, better than expectations of 2.2%.

WTI crude oil prices fell more than 4% to below $69 per barrel on Monday after Israel’s retaliatory strikes on Iran over the weekend affected only the country’s military infrastructure, easing fears of energy supply disruptions. On the demand side, signs of weak economic activity in top consumer China continued to weigh on sentiment, with data over the weekend pointing to declining industrial profits despite recent government stimulus measures.

Asian markets were mostly down last week. Japan’s Nikkei 225 (JP225) fell by 2.69%, China’s FTSE China A50 (CHA50) added 0.09%, Hong Kong’s Hang Seng (HK50) lost 0.68%, and Australia’s ASX 200 (AU200) was negative 0.88% for the week.

China’s Central Bank (PBoC) is expanding its set of monetary policy tools to control liquidity in the financial system better as it seeks to add more levers to fine-tune the economy. The People’s Bank of China will enter into monthly reverse repurchase agreements with primary dealers for terms of one year or less. The move aims to maintain a reasonable level of liquidity in the banking system and enrich the monetary policy toolkit.

The offshore yuan weakened to 7.14 per dollar under pressure from a strengthening US dollar, driven by signs of resilience in the US economy and growing expectations that Donald Trump could secure a second term as president. As part of his campaign to revive US manufacturing, Trump has promised to impose tariffs of 60% or more on Chinese goods.

The New Zealand dollar slipped to as low as $0.596 on Monday, at its lowest level in nearly three months, amid further US dollar strength. In New Zealand, traders fully priced in the possibility of a 0.5% rate cut by the Reserve Bank of New Zealand (RBNZ) in November, with some also expecting a 75 basis point rate cut, putting further pressure on the kiwi.