The risk complex remains slightly positive early Tuesday, as a dovish Federal Reserve (Fed) bias persists, while China’s data for September shows an improvement in activity, despite the headline official manufacturing PMI remaining in contraction. Positive sentiment is also supported by hopes of peace between Israel and Gaza, with the U.S. playing a mediating role. However, risks such as President Donald Trump’s new tariffs, the looming U.S. government shutdown, and the potential delay of Friday’s key U.S. jobs report could challenge the dovish Fed outlook and contribute to a more cautious market mood.
President Donald Trump has signed a proclamation imposing new tariffs on lumber imports from the European Union (EU) and Japan, with rates capped at 15%. These tariffs will take effect on October 14.
The White House has introduced a peace plan for Israel and Gaza, which it hopes both sides will adopt. This proposal includes suspending Israeli operations in Gaza and preventing the annexation of Gaza, alongside provisions for safe passage and amnesty aimed at neutralizing Hamas. However, the success of the plan remains uncertain, especially as it is unclear whether Hamas will be willing to negotiate. Israeli Prime Minister Benjamin Netanyahu has apologized to Qatar’s Prime Minister for the bombing of Qatari targets.
President Trump’s plan to initiate a government shutdown, which forms part of efforts to permanently fire federal workers, is moving forward. The White House has instructed federal agencies to prepare plans for mass layoffs. If the shutdown occurs, Friday’s Nonfarm Payrolls (NFP) report could be delayed. Senate Minority Leader Chuck Schumer has stated that it is up to the Republicans whether they allow the shutdown, with Trump pulling the strings.
Regarding economic data, U.S. August pending home sales increased by 4.0%, far exceeding the expected 0.2%. The Dallas Federal Reserve’s September manufacturing index dropped to -8.7, worse than the previous reading of -1.8. Federal Reserve officials, such as Musalem, emphasized the importance of combating inflation, regardless of its source. Federal Reserve President John Williams noted that monetary policy remains restrictive and that it will take time to achieve the 2% inflation target. Federal Reserve Governor Michelle Bowman said inflation is still too high and the trend is moving in the wrong direction, though the impact of tariffs on inflation has been less than expected.
The Asian Development Bank (ADB) has reduced its 2025 growth forecast for developing Asia to 4.8% from 4.9%, primarily due to the effects of steep U.S. tariffs. The ADB also warned that momentum is likely to slow further next year. India was hit hardest by this downgrade, with its 2025 fiscal year growth forecast cut to 6.5% from 6.7%.
China’s official September PMIs, released by the National Bureau of Statistics (NBS), showed manufacturing at 49.8, slightly better than the expected 49.5 but still in contraction. Non-manufacturing PMI came in at 50.0, below the expected 50.3. The composite PMI improved slightly to 50.6, up from the prior 50.5. In contrast, the private survey’s manufacturing PMI for September showed a stronger-than-expected result of 51.2, compared to the forecast of 50.3 and the prior reading of 50.5, marking the fastest growth since March 2024. The services PMI also exceeded expectations, coming in at 52.9, though it was down from the previous month’s 53.0. The composite PMI for the private survey rose to 52.5 from 51.9.
The Bank of Japan’s (BoJ) September summary highlighted mounting pressure from hawkish policymakers to normalize monetary policy, but concerns over inflation dynamics and global trade risks have kept dovish members cautious. As a result, there is skepticism that immediate tightening is on the horizon. Japan’s August retail sales fell by 1.1% year-on-year, far worse than the expected +1.0%, and showed a monthly decline of 1.1%. Industrial production also disappointed, with a preliminary 1.2% decline month-on-month, worse than the expected -0.8%. The year-on-year decline for industrial production was 1.3%, compared to the previous -0.4%. These figures suggest that the BoJ may remain cautious in its policy stance.
In the United Kingdom (UK), Bank of England (BoE) Deputy Governor Ben Ramsden stated that loosening in the labor market would help anchor inflation expectations. UK inflation remains high, with shop prices rising 1.4% in September, the fastest rate since February 2024, driven by persistent food inflation of 4.2%. Meanwhile, non-food price deflation is fading, signaling potential challenges for the BoE in achieving its inflation target.
The Reserve Bank of Australia (RBA) kept its cash rate unchanged at 3.60% in its September monetary policy decision, citing stable labor market conditions and signs of recovery in private demand. The RBA indicated that it would continue to monitor the data and adjust its outlook accordingly. Australian building permits fell by 6.0% month-on-month in August, worse than the expected -5.5%.
New Zealand's business confidence for September remained steady at 49.6, slightly down from 49.7 in August.
The U.S. Dollar Index (DXY) remains under pressure, having declined for the third consecutive day, while gold continues to hit new record highs. The AUDUSD has reached a weekly high, rising for the third straight day, despite lacking strong upside momentum. The EURUSD and the GBPUSD also rose for three days, while the USDJPY dropped for the third consecutive day. The USDCAD struggled after snapping a five-day winning streak. Crude oil prices are recovering after falling the most in over three months, while cryptocurrencies are edging higher after their late Monday rise. Equities in the Asia-Pacific region traded mixed, with Wall Street closing on a positive note. Treasury bond yields are under pressure, as German and UK bond yields slumped, while other global yields moved higher.
EURUSD and GBPUSD both rise for the third consecutive day, while USDJPY marks a third day of losses amid a broadly weaker U.S. Dollar. The mixed economic data from the EU and stronger UK retail prices, along with hawkish remarks from the Bank of England’s (BoE) Ben Ramsden, are supporting the rise in both currencies. Meanwhile, the Bank of Japan’s (BoJ) latest Summary of Opinions failed to provide any clear direction for JPY traders, as policymakers remain divided on monetary policy.
The RBA's decision to stay on hold, combined with upbeat China PMIs, cautious market optimism, and a softer U.S. Dollar, helped propel AUD/USD to a week’s high, marking its third consecutive day of gains. Australia’s trade deal with the U.S. supports the AUD/USD bulls, while the latest U.S. tariffs on lumber and mixed RBA policy signals add uncertainty. There are also broader concerns about potential tensions between the U.S. and China, even though several trade frameworks are being actively discussed.
NZDUSD also extends its gains for the third consecutive day, following the rise in AUDUSD, although the momentum in the Kiwi is relatively weaker. Mixed New Zealand Activity Outlook and stable Business Confidence data, along with Trump’s latest tariffs, played a role in supporting the currency.
Meanwhile, USDCAD declines for the second day in a row, despite weaker Crude Oil prices (a key export for Canada) and a broadly softer U.S. Dollar. The drop could be tied to ongoing U.S.-Canada trade talks and mixed updates surrounding Canada-China trade negotiations.
The market’s uncertainty joins the U.S. Dollar’s weakness to underpin the Gold’s four-day winning streak, hitting record highs each day. The precious metal’s rally is also backed by the institutional demand from China and the mixed performance of other assets.
Elsewhere, fears of OPEC+ supply increase, Iraq’s first oil exports to Kurdistan after 2.5 years, and concerns that the Hamas-Israel war will soon be over, drove the WTI crude oil the most since late June. The black gold remains pressured early Tuesday, despite lacking downside momentum, failing to cheer the softer USD.
Bitcoin (BTC) and Ethereum (ETH) have remained sidelined after a two-day winning streak, initially supported by the softer U.S. Dollar. However, both cryptocurrencies are now lacking upside momentum due to cautious market conditions. Equities are also trading sideways, struggling to replicate Wall Street’s gains amid mixed sentiment.
Looking ahead, key events like German inflation, U.S. Consumer Confidence, and JOLTS Job Openings will be in focus, with market participants looking for clear direction. At the same time, concerns about the U.S. government shutdown, the Ukraine-Russia war, Trump tariffs, and uncertainty ahead of Friday’s U.S. jobs report could also move the markets. Further U.S. Dollar weakness can't be ruled out, potentially supporting Gold and equities, while cryptocurrencies may struggle to gain traction.
May the trading luck be with you!
