Our financial markets are in much worse shape than even a few short weeks ago. Expectations of US Federal Reserve rate cuts and a wary risk sentiment are dominating trading. XAUUSD daily chart On Tuesday, gold’s value against the U.S. dollar (XAU/USD) received support from expectations of Fed rate cuts. At the same time, weak buying interest in the dollar helped to support gold’s advance. For example, investors are all ears as to the possible adjustment of the monetary policy. This uncertainty and fear is making them reconsider their bets and run to safe-haven assets, like gold.
In equity markets, the Nasdaq Composite index stood out by outperforming other major indices, rising by 0.87% to close at 17,449.89. This time, the increase is a testament to the tech sector’s resilience in the face of broader market uncertainties. The Dow Jones Industrial Average ended the day lower, dropping 11.80 points to close at 41,989.96. At this point, investors are nervous. They’re waiting to see more economic data as well as potential fiscal policy changes, which has resulted in a slight decrease.
The economic indicators that came out Tuesday furthered that mixed picture. The ISM manufacturing print fell below 50 for the first time since the pandemic, likely indicating the start of trouble in the manufacturing sector. September’s Job Openings and Labor Turnover Survey (JOLTS) report was a disappointment. This unexpected outcome has raised further worries over the robustness of the labor market. As a result of these circumstances, Treasuries were flooded with interest, as fumbling investors ran towards the safety of government bonds in the wake of growing uncertainty.
These quickly released reports on economic growth and inflation pushed the rate-cut expectations slightly higher. The 2-year Treasury yield fell back as traders scaled back expectations for Federal Reserve policy easing. It is evident that traders are betting that the Fed will assume a more dovish stance. This change might be required to have a profound effect on future interest rate trends and market direction.
Alongside these economic signals, risk sentiment is quite jittery. Market participants are especially sensitive today with the notable exception being the imminent unveiling of President Trump’s trade policy. This announcement, if done right, has the potential to reverse detrimental increases in market volatility and drops in investor confidence. Some analysts suggest that the next market movements may not wait for fundamental economic indicators to catch up, indicating a potentially swift reaction to news regarding tariffs and trade relations.
In March, Trump announced tariffs on cars and auto parts – the curtain raiser on his trade war. Analysts are referring to this moment as “Act I” of a far grander plan. The criteria around these tariffs are still unclear and wide-ranging, creating investor doubt about future impacts across sectors. Increased market volatility might be expected in the days ahead. Traders have all been playing with a level of caution as they see what happens on all these developments.
At the same time, the Japanese Yen is finding support on the back of the risk averse tone gripping global markets. Bank of Japan Governor Kazuo Ueda’s hints have stoked this optimism. Investors are more concerned about stability than ever in these tumultuous times.