Markets React to Shifting U.S. Rate Hike Expectations

Last week, global markets continued to adjust to shifting expectations around U.S. interest rates, which kept U.S. equities under pressure. Gold prices dropped over 3%, hitting their lowest levels since August, while stronger-than-expected U.S. GDP growth helped maintain elevated long-term bond yields.

In Japan, the Bank of Japan's September monetary policy meeting revealed differing opinions on the pace of future rate hikes. Tokyo's core consumer price index rose 2.7% year-over-year, surpassing forecasts of 2.4%, reinforcing expectations of additional rate increases. Meanwhile, the U.S. employment report for September fell short of expectations, with nonfarm payrolls increasing by just 29,000 against a forecast of 90,000. This weakened data led traders to scale back expectations of another Fed rate hike in October, though the dollar recovered from initial losses.

U.S. stocks remained under pressure as higher interest rate expectations and elevated WTI crude oil prices weighed on sentiment. The Dow held near 51,000 but continues its downtrend. In Japan, the Nikkei 225 surged, driven by AI- and semiconductor-related shares, and is now close to resistance at 70,000.

The USD/JPY pair found support amid the interest rate gap between the U.S. and Japan, with the 158 level remaining crucial. Gold broke below key support early in the week but found short-term support, which could lead to a rebound. Crude oil prices dipped after the G7 announced plans to release 100 million barrels of reserves to ease supply pressures. Bitcoin climbed as reduced rate hike expectations boosted speculative demand, with traders eyeing a move back to $100,000 by year-end.