ECB Set to Cut Rates Again as Euro Slides Further

The European Central Bank is expected to make a second consecutive rate cut, while the euro has dropped 2.4% this month. Semiconductor markets remain volatile, with TSMC set to report a 42% profit jump for Q3 amid AI demand, following a sharp selloff in the sector earlier this week. US retail sales and Netflix earnings will be key indicators of consumer sentiment in the US economy today.

Equities

The FTSE 100 rose by 1% on Wednesday, reaching its highest level in almost four weeks, following a better-than-expected drop in UK inflation to 1.7% in September, down from 2.2% in August. This data has increased the likelihood of a rate cut from the Bank of England at its upcoming November meeting. The FTSE 250 index also climbed 0.9%, marking its highest close in two weeks.

Among the biggest movers, precious metal miners surged 3.3%, while the real estate sector gained 3%, both benefiting from the inflation report. British wealth manager Quilter saw a 4.7% rise in its stock after reporting higher third-quarter assets under management, while Tate & Lyle soared 8.3% following news that private equity firm Advent International is preparing a takeover offer.

Across the Atlantic, the Dow Jones Industrial Average rose 0.79% to close at a record high of 43,077.70, marking its third record close in four days. This gain was supported by strong performances from banks and small-cap stocks.

Morgan Stanley led the financial sector with a 6.5% increase after reporting record quarterly profits, driven by a sharp rise in investment banking revenue. Regional banks also saw gains, with First Horizon up 4.1% and US Bancorp advancing 4.7% after strong third-quarter results.

In contrast, the tech-heavy Nasdaq saw more modest gains, rising 0.28%, as megacap tech stocks struggled. Apple dipped 0.9%, while Alphabet, Meta Platforms, and Microsoft all posted small declines. Nvidia, however, bucked the trend, rising 3.1% after a sharp drop the previous day.

The S&P 500 gained 0.47%, buoyed by economically sensitive sectors like utilities and transport. Dominion Energy rose 5.1% after signing an agreement with Amazon to develop nuclear technology for powering data centres, while United Airlines surged 12.4%, posting its best one-day performance in six months after better-than-expected fourth-quarter profit guidance.

Forex & Commodities

The US dollar hit an 11-week high on Wednesday, rising 0.3% to 103.59, as markets ruled out a large interest rate cut by the Federal Reserve at its next meeting. Investors are also factoring in a potential election victory for Donald Trump, with his proposed tax cuts and tariffs seen as supportive for the dollar.

The British pound, meanwhile, dropped 0.7% to $1.2982, its lowest level in two months, following weaker-than-expected UK inflation data.

Gold edged closer to record highs, rising 0.2% to $2,679.12 per ounce, as investors sought safety amid the uncertainty surrounding the upcoming US election and expectations of further interest rate cuts by major central banks.

Oil prices remained near two-week lows, with Brent crude settling at $74.22 per barrel and US West Texas Intermediate falling to $70.39 per barrel. Oil markets have been pressured by forecasts of weaker global demand growth in 2024. Concerns over Middle East conflicts disrupting supply have also eased, further weighing on prices.