AI trade rebounds, midterms awaited

By Jamie McGeever

ORLANDO, Florida, Nov 3 (Reuters) – A solid rebound in heavyweight tech stocks lifted the S&P 500 and Nasdaq on Tuesday, as investors digested some surprisingly strong US economic data, another day of speculation about possible US-Iran peace talks, and awaited the US midterm election results.

In my column today, I look at how the recent wobble on Wall Street has spurred demand for traditional “safe haven” assets such as Treasuries and the Swiss franc. But not gold. Right now, gold is increasingly correlated with risky assets like stocks. Has it lost its fabled “safe haven” status, or was that always overstated?

Today’s Key Reads

• As Americans vote, Trump says US will stop $4 billion in aid to Israel

• Global financial markets were already fragile. Big AI bets could break them

• Fridge hacks and finance attacks flag AI insecurity: Mike Dolan

• OpenAI employees warned about operational security lapses for years, sources say

• China to raise FX reserve requirement to slow yuan’s rally

• Today’s Key Market Moves STOCKS: South Korea -3.6%, Europe -0.6%, UK -1.1%. Brazil down for sixth day in a row. Nasdaq +0.8%, S&P 500 +0.4%, Dow -0.4%.SECTORS/SHARES: Four sectors on the S&P 500 rise, seven fall. Tech +1.3%, materials -2%. Philadelphia chip index +2.6%. Microsoft, Nvidia, Amazon top three gainers on the Dow, Walmart and Home Depot among biggest decliners. AMD +8% after results.FX: Dollar little changed. Aussie dollar -0.5% after RBA. Mexican peso, Brazilian real biggest decliners, both down ~1%.BONDS: US yields up as much as 7 bps at long end, curve steepens.COMMODITIES/METALS: Oil down ~1% to near four-week lows. Gold -0.5%, still below $4,000/oz.

Today’s Talking Points:

Ratio’d

The People’s Bank of China on Tuesday took steps to slow the appreciation of the Chinese currency against the US dollar, announcing a hefty hike in the foreign exchange reserve requirement ratio. This snapped a 13-day streak of yuan gains in the spot market — the longest run since 1995 — and triggered its steepest one-day fall for five months. China’s currency had risen more than 10% against the greenback since US President Donald Trump unveiled his “Liberation Day” tariffs in April last year.

The yuan’s rise has been no impediment to China’s competitiveness. The trade surplus is on track to top $1 trillion for a second year, and exports are by far the biggest single engine of growth for an economy suffering from chronically weak domestic demand. Looked at through a “real effective exchange rate basis” lens, the picture is slightly different — the yuan is still around 15% weaker than it was in March 2022.

Labor gains

The US labor market conundrum thickens. Figures on Tuesday showed that job openings rose sharply in September while layoffs fell, pointing to a firm labor market even though non-farm payroll gains in the month barely grew. The “JOLTS” data on Tuesday also ran counter to the narrative gaining traction that mounting AI-related job losses show the job market is weakening.

Investors will be hoping October’s private sector ADP employment figures on Wednesday and Friday’s non-farm payroll data offer more clarity. Other economic data on Tuesday were mixed — factory orders in September rose faster than expected, suggesting the economy is purring along rather nicely, but the latest “SLOOS” data show business demand for credit is contracting for the first time in over a year.

Copom in a bind

Brazil’s central bank announces its latest interest rate decision on Wednesday, just 10 days after President Lula’s remarkable reelection victory. Just as remarkable has been the failure of Brazilian markets to rebound from the historic plunge the day after Lula’s shock win. The bank’s rate-setting committee “Copom” had been expected to deliver a sixth consecutive rate cut, but is now expected to keep its Selic rate on hold at 13.75%.

The market selloff has been relentless. The Bovespa stock index has lost 20% and not had a single up day since Lula’s win, the real has lost nearly 10%, and on Tuesday the 10-year government bond yield rose to 15.75%, the highest since the 2015-16 recession. Extremely challenging times for policymakers in Brasilia.

What could move markets tomorrow?

• PMIs from US, euro zone, UK (October)

• Euro zone inflation (October, flash)

• Brazil interest rate decision

• US trade (September)

• Corporate earnings including Toyota, Arm Holdings, McDonald’s, Qualcomm, Uber

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(Reporting by Jamie McGeever; Editing by Nia Williams)