Global Markets Poised for Gains as Yen Weakness Boosts Japanese Equities

The global financial markets are set to open the fourth quarter on a positive note, with European stocks expected to rise following a weaker yen that has boosted Japanese equities. The Nikkei 225 index advanced 2% on Tuesday, a day after the benchmark slumped almost 5% in the wake of the ruling party's leadership race. Meanwhile, a gauge of Asian equities also gained, while US futures pointed to a weaker open. China and Hong Kong are closed for holidays.

Resilient Global Risk Assets Amid Shifting Narratives

Yen Weakness Fuels Japanese Equity Gains

The yen's decline against the dollar on Tuesday came after Federal Reserve Chair Jerome Powell's comments that the central bank will lower interest rates "over time," while reaffirming the overall strength of the US economy. This development has provided a boost to Japanese equities, with shares of trading houses extending gains after Berkshire Hathaway Inc. hired banks for a potential yen bond offering. In other political news, Shigeru Ishiba was essentially confirmed as the new prime minister, a move that had earlier wrong-footed investors who were betting on more monetary stimulus from his rival.

Resilient Macro Backdrop Supports Global Risk Assets

Despite concerns about a slowing US economy, strategist David Chao of Invesco Asset Management believes that global risk assets will continue to perform well heading into the end of the year. He cites the more resilient-than-expected macro backdrop and growth as the driving factors behind this positive outlook. The narrative has shifted from questions about a slowing US economy to the size and velocity of the Federal Reserve's rate cuts for the remainder of the year.

Asian Equities Outperform US and European Peers

In the third quarter, Asian shares beat their US and European counterparts for the first time since 2022. This has made Asian assets a focal point for global investors, who are preparing for lower US interest rates and a presidential election that is likely to further shake up financial markets. China's markets, which are on a week-long holiday, saw the MSCI China Index outperform an emerging-market gauge that excludes the nation's equities by almost 22 percentage points in September, the biggest margin of outperformance since June 1999.

Resilient Australian Retail Sales and Iron Ore Prices

In Australia, retail sales rose more than expected in August, as tax cuts and warmer weather encouraged households to spend more. This has led to the Australian dollar outperforming its major peers on the data. However, shares of Australian iron ore miners fell as the metal edged lower, after rising to the highest since early July on Monday.

Elevated Volatility but Strong Finish Expected in Q4

The US stock market has secured its fourth consecutive quarter of advances, the longest such winning stretch since 2021. The tech-heavy Nasdaq 100 has also notched a similar run. Emily Bowersock Hill of Bowersock Capital Partners expects the fourth quarter to be quite similar to the third quarter, with elevated volatility but a strong finish, as earnings remain strong, interest rates move lower, and consumers continue to spend.

Potential Disruption from Longshoremen's Association Strike

In other news, the International Longshoremen's Association has shut down all ports from Maine to Texas, according to a statement from its Facebook page. The affected ports have the combined capacity to handle as much as half of all US trade volumes, and the strike will halt container cargo and auto shipments, potentially causing significant disruption to the global supply chain.

Geopolitical Tensions and Commodity Prices

In the commodities market, oil prices have climbed slightly as investors assess the risks of a wider conflict in the Middle East, following Israel's announcement of "targeted ground raids" in Lebanon. This geopolitical development, coupled with the potential impact of the Longshoremen's Association strike, could have far-reaching consequences for the global economy and financial markets.