Market Commentary: Tuesday 1st October

Welcome to October, and the Asian equity rally continues. China's markets are closed for a week-long holiday, and South Korea is observing Armed Forces Day, making it difficult to gauge the overall market sentiment. However, in Australia, retail sales rose more than expected in August, driven by tax cuts and warmer weather, encouraging households to spend more. AUD/USD consolidates above 0.6900.

In other markets, Bitcoin remained steady at $63,775.36, while Ether rose 1.1% to $2,643.21. The yield on 10-year US Treasuries was unchanged at 3.78%, and Australia’s 10-year yield advanced three basis points to 4.00%. Despite Israel starting “targeted ground raids” in Lebanon, West Texas Intermediate crude only rose 0.2% to $68.29 a barrel, while spot gold gained 0.2% to $2,639.35 an ounce.

The yen is worth highlighting due to increased volatility. Ishiba is set to be appointed Japan’s new prime minister and has already indicated plans for an early general election on October 27, just days before the US elections on November 5. Ishiba, a former defence minister, supports strengthening relations with South Korea and increasing Japan’s military spending. Despite political changes, central bank policy will remain the primary driver of USD/JPY. US economic data will be monitored for signs of a possible 50 bps rate cut before year-end, while Japanese data will be assessed against the expectation of a BoJ interest rate hike around the turn of the year. This policy divergence could cap USD/JPY rallies.

Looking ahead, there are several notable speeches today, including those from Atlanta Fed President Raphael Bostic, Fed Governor Lisa Cook, Richmond Fed President Thomas Barkin, and Boston Fed President Susan Collins. ECB policymakers speaking include Olli Rehn, Luis de Guindos, Isabel Schnabel, and Joachim Nagel. From the BoE, chief economist Huw Pill is scheduled to speak.

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