However, as the week went on a more cautious tone crept in, with some investors taking profits ahead of the third quarter earnings season. In addition, with the government shutdown entering its second week that meant a lack of economic data to guide sentiment. The sell-off steepened on Friday as trade tensions reignited. President Trump questioned whether his meeting with President Jinping should go ahead, in response to Beijing’s announcement of rare earth export controls. After the Friday close, Trump said he would impose an additional 100% tariff on imports from China from 01 November.
In response, the S&P 500 and Nasdaq Composite experienced their biggest single-day percentage drops since April on Friday, down 2.7% and 3.6% respectively. Although they had both closed at record highs on Wednesday, Friday’s drop put them in negative territory for the week, with the S&P 500 losing 2.4% and the Nasdaq down 2.5%. Meanwhile the Dow Jones Industrial Average fell 2.7% and small caps fared even worse. US Treasury yields moved lower amid the ongoing government shutdown as well as the rising trade tensions.
European equities saw a similar pattern in which indices had been scaling record highs, before pulling back on some profit-taking, as well as the darkening trade picture and political uncertainty. For the week, the pan-European STOXX 600 declined 1.1%. Regional indices also dipped, with France’s CAC 40 dropping 2%. France’s political woes continued with prime minister Sebastien Lecornu resigning at the start of the week, pushing up government bond yields. Bonds somewhat stabilised as the week went on, awaiting news of the new prime minister, only for Lecornu to be reappointed.
Hong Kong’s Hang Seng dropped 3.1%, whereas the Shanghai Composite gained 0.4% in a holiday-shortened trading week. This was despite preliminary data pointing to a slowdown in activity during the eight-day Golden Week holiday. The standout gainer of the week was Japan’s Nikkei 225 which surged 5.1%. Investors reacted to Sanae Takaichi winning the Liberal Democratic Party’s leadership election. There were expectations that Takaichi would push for fiscal stimulus, prompting a weaker yen and higher government bond yields.
Gold continued its ascent, fuelled by central bank purchases as well as investors seeking out the 'safe haven' at a time of political and economic uncertainty. Gold topped $4,000 per ounce for the first time and gained 3.3% for the week. It did see a modest pullback on news that Israel and Hamas had agreed to the first phase of a ceasefire deal, paving the way to a potential end of two years of war.