Broader concerns about China’s economic stability resurfaced, with the Shenzhen index falling 8.7%, its worst day since 1997, and the Shanghai Composite Index dropping 6.6%. The drop in Chinese stocks also affected major U.S.-listed ETFs, with the iShares China Large Cap ETF down 2.3%.
Focus on economic data and Fed minutes
Investors were waiting for the release of the minutes of the US Federal Reserve’s September meeting, scheduled for 6pm Japan time. These minutes and future inflation data will provide further insight into the Fed’s policy outlook. Market participants will be keen to see whether last week’s strong labor market data strengthens the case for another rate hike. Oil prices have fallen recently, increasing optimism that inflation expectations are easing and the Fed is nearing the end of its tightening cycle.
Market outlook: cautious tone ahead of earnings season
The overall market trend remains slightly upward, but volatility is likely to continue as traders digest upcoming economic data and corporate earnings. October has historically been a volatile month, and more volatility is expected with earnings season set to begin on Friday with reports from major banks.
Near-term risks include increased volatility due to geopolitical factors and renewed concerns about high equity valuations. However, continued positive economic data could support stocks, especially in sectors with strong earnings growth potential.
Considering these factors, a cautious but slightly bullish outlook may be warranted, with tech and financial sectors likely to gain if earnings results meet expectations.
