Shares gain, dollar eases as Fed cut bets reclaim spotlight

Global equities rebounded following dovish remarks from Federal Reserve Chair Jerome Powell, who indicated potential rate cuts and an end to balance sheet reduction, alongside positive bank earnings and an upward revision to the IMF's 2025 growth forecast. This sentiment drove a weaker dollar, lifted European stocks—notably LVMH's 12% surge—and Asian markets, while French bonds rallied after political stability improved. Despite these gains, market sentiment remains fragile due to escalating U.S.-China trade tensions and persistent deflationary pressures in China, even as gold reached a new record high amid geopolitical uncertainties and rate cut expectations.

Analysis

Global equities experienced a notable rebound, driven primarily by U.S. Federal Reserve Chair Jerome Powell's dovish remarks, which signaled potential for further rate cuts and an impending halt to balance sheet reduction, with 48 basis points of cuts priced in by December. This sentiment, coupled with solid U.S. banking earnings and an upward revision of the IMF's 2025 global growth forecast, propelled European stocks, with the Euro Stoxx 50 gaining 0.7% and LVMH shares surging 12% on upbeat earnings.

The dovish outlook led to a 0.3% depreciation of the U.S. dollar against a basket of peers, while Asian markets also saw gains, with MSCI's Asia-Pacific index ex-Japan rising 2.1%. French bonds rallied, pushing 10-year yields to 3.37%, their lowest since August 15, following the suspension of pension reform, which alleviated political gridlock.

Despite the broad market recovery, sentiment remains fragile due to escalating U.S.-China trade tensions, including new 100% duties and discussions of terminating trade ties, alongside persistent deflationary pressures in China where both consumer and producer prices fell in September. Concurrently, spot gold reached a record high above $4,200 an ounce, reflecting ongoing geopolitical and economic uncertainties, even as oil prices saw slight declines.

Key Decisions for Investors

• Monitor Federal Reserve communications for concrete signals on rate cuts and balance sheet adjustments, as these remain primary market drivers.
• Evaluate opportunities in European luxury and French sovereign debt, given positive corporate earnings and reduced political risk, respectively.
• Assess portfolio exposure to U.S.-China trade tensions and Chinese deflation, considering safe-haven assets like gold as a hedge against persistent market fragility.