Glad to have you with us — here’s today’s market cheat sheet.

Banks kicked off Q3 earnings season with a bang, propelling BlackRock to record highs, although initial hesitation gave way to bullish sentiment. Wells Fargo also posted particularly strong numbers, suggesting a healthy deal environment overall. As financials demonstrate their resilience, is this a sign of broader market strength to come, or a sector-specific surge? Will the other sectors follow suit?

In today's financial recap:

  • Banks Surge on Earnings: BlackRock Breaks Records

  • India Ditches Russian Oil: Trump’s Sanctions Squeeze Global Energy Flows

  • UK Economy Shows Signs of Life: GDP Edges Up

  • BoJ Board Member Signals Interest Rate Rise

Banks Surge on Earnings: BlackRock Breaks Records, Sector Rallies

The TradeWatch: Banks launched Q3 earnings season strong — stocks jumped after initial hesitations, with BlackRock hitting all-time highs and Wells Fargo climbing 7%, indicating healthy deal flow and ETF activity despite market uncertainties.

Unpacked:

  • BlackRock, the world’s largest asset manager, surged 3.4%, hitting a new all-time high and signaling a two-month base with a conservative target of $1,256/share.

  • JPMorgan initially dropped as much as 4% but recovered to close with a smaller loss, holding key support near $300, suggesting a potential bullish reversal if it breaks above $310.

  • Wells Fargo led the pack with a 7.2% gain, approaching multi-month resistance at $85, with a breakout potentially targeting $94.

Bottom line: Financials demonstrate resilience, offering diverse opportunities for investors willing to venture beyond broad-market trends. The sector’s absolute trends remain robust, highlighting the importance of selective stock-picking in this high-beta landscape.

India Ditches Russian Oil: Trump’s Sanctions Squeeze Global Energy Flows

The TradeWatch: US President Trump claims India will halt Russian oil imports, pressuring China/Japan next, as UK sanctions Lukoil/Rosneft—potentially tightening supply, lifting WTI toward $60+, and boosting CAD while weighing on INR.

Unpacked:

  • Trump’s claim that India will stop buying Russian oil aims to tighten financial pressure on the Kremlin amidst the war in Ukraine.

  • The potential halt of Russian oil imports by India, combined with UK sanctions on firms like Lukoil and Rosneft, could tighten global oil supply and impact Crude Oil prices.

  • The USD/CAD pair’s movements are influenced by factors like US-China trade tensions, Fed rate cut expectations, and Akhtar Faruqui’s analysis of the Canadian Dollar.

Bottom line: The ripple effects of geopolitical tensions and sanctions in the energy market are creating volatility and shifting currency values, requiring investors to closely monitor developments and adjust hedging strategies accordingly. These changes could lead to a significant reshaping of global energy flows and trade relationships.

UK Economy Shows Signs of Life: GDP Edges Up, Manufacturing Surges

The TradeWatch: UK GDP saw a 0.1% MoM increase, aligning with projections, while industrial production climbed 0.4% and manufacturing jumped 0.7%, surpassing expectations and hinting at a possible stabilization. This may slightly alleviate pressure for the Bank of England to cut interest rates.

Unpacked:

  • UK’s August GDP grew by 0.1%, matching expectations after July’s contraction, alongside a steady Index of Services, signaling potential economic stabilization with the full report released by the Office for National Statistics (ONS).

  • Industrial production saw a 0.4% monthly increase, outpacing the projected 0.2%, while manufacturing production achieved a 0.7% rise, beating estimates and indicating a recovering manufacturing sector.

  • Despite these positive figures, caution remains as the government prepares to unveil the Autumn Budget next month and Sagar Dua notes of speculation rising over potential interest rate cuts by the Bank of England (BoE) due to a softening job market.

Bottom line: The slight GDP growth and manufacturing improvements could offer temporary respite, though the upcoming Autumn Budget and persistent speculation around BoE rate cuts suggest continued economic uncertainty. Investors should closely monitor GBP pairs and broader European macro trends for potential opportunities and risks.

BoJ Board Member Signals Interest Rate Rise

The TradeWatch: Bank of Japan board member Naoki Tamura has suggested the central bank should consider raising interest rates closer to the neutral level of around 1%, citing stronger growth prospects and persistent inflation pressures. This hints at a policy divergence from the US Federal Reserve’s expected rate cuts, with important implications for global markets.

Unpacked:

  • Hawkish shift: Tamura emphasized that Japan’s current rate is too low given robust domestic growth and rising inflation risks.

  • Economic outlook: He pointed to accelerating Japanese growth and resilient overseas economies as key supporting factors for policy normalization.

  • Global impact: If BoJ moves before or as the Fed cuts, the Yen could strengthen due to narrowing yield differentials, potentially shifting global capital flows.

Bottom line: A more hawkish BoJ could reshape Asia-Pacific market dynamics as rate differentials with the US decline. Investors should watch for ongoing policy signals and volatility in the USD/JPY pair.

The Shortlist

  • AUD/JPY slumped below 98.00 as Australian Unemployment Rate climbs to four-year high of 4.5%, signaling a loosening labor market and fueling expectations for RBA interest rate cuts.

  • AUD/USD corrects on the day, following a flare-up in US-China tensions and a weaker-than-expected labor market report, which increases pressure for the RBA to cut rates.

  • BoJ’s Tamura believes the central bank should lift rates closer towards neutral to avoid being forced to hike rates sharply in the future, suggesting a potential policy shift amid rising inflation risks.

Cheers,

— Michael & the TradeWatch.io editorial team