Euro slips again, stocks shaky ahead of key earnings

French riots test euro’s nerves

The euro started the week on the backfoot, underperforming other major currencies, as France recovers from a weekend of riots and unrest. What started as a protest about poor school conditions has turned into broader demonstrations against the cost-of-living crisis and anger at the political establishment. But the protests spread beyond France, including to Italy, Belgium and Portugal, adding to the nervousness in the markets amid a bond market rout brought on by rising inflation and excessive budget deficits.

The French 10-year yield is up more than seven basis points from Friday’s close, increasing the spread over Germany’s 10-year yield and snapping the euro’s two-day advance. The euro has dropped below $1.12 on Monday, even as the US dollar remains pressured from declining Fed rate hike expectations.

Investors have also scaled back their bets of how many times the European Central Bank will raise rates over the next year over fears that hiking too aggressively could fuel panic over French debt. The ECB will likely keep rates unchanged when it meets next week, while the flash October PMIs due on Friday will be watched for any signs that higher yields and oil prices are hurting business confidence.

Dollar moves to the sidelines, aussie shines

In contrast, US Treasuries continued to demonstrate their ability to still be able to attract safe-haven flows despite worries about US debt not having gone away. The US 10-year yield is trading near one-month lows at 5.07%, while the dollar is marginally higher against the yen.

With a very light US economic agenda this week and no Fed speakers due to the blackout period, the dollar will likely take its cues from oil prices, though any moves will probably be modest as the Fed is almost certain to hold rates next week.

The Australian dollar is leading the gains against the greenback, rising by about 0.4% after being boosted by stronger-than-expected Chinese GDP figures. Economic growth in China accelerated to 4.5% in the third quarter from 4.3% in Q2, which was the slowest since the Covid lockdowns. Retail sales and industrial output for September also beat expectations.

Tech earnings eyed as AI stocks struggle

But the data could only offer support at best to equity markets amid ongoing angst about AI valuations. Even Chinese indices were barely lifted by the GDP figures and state-backed funds likely intervened to prop-up the market.

European indices opened in the red, weighed by hefty losses on Wall Street on Friday. The Nasdaq 100 reversed earlier gains to plummet by 2.5% at the close, extending the week’s losses to 5.5% - the biggest since March 2025.

Chip stocks were the biggest losers, with even Nvidia coming under heavy selling pressure despite CEO Jensen Huang playing down the jitters on Friday.

The Philadelphia Semiconductor index had its longest run of losses since 2008, although the selloff appears to be stabilizing today as both S&P 500 and Nasdaq futures are positive.

The earnings season goes into full gear this week as Netflix reports on Tuesday, followed by Tesla and Meta Platforms on Wednesday. The latter’s earnings look set to attract the most attention after its stock rallied sharply in September on the launch of its Muse AI agent. But any announcement about additional AI investment could undo those gains.

Oil prices ease after strong rally, gold subdued

Aside from earnings, oil prices will also play a key role in driving sentiment, as demonstrated last week when the pullback in government bond yields was overshadowed by a big jump in oil futures.

Crude oil exports from the Gulf are thought to have plunged to just 8.5 million barrels per day last week from over 20 million the prior week, according to analytics firm Kpler, as more tankers came under attack.

The Trump administration has been desperately trying to find ways of easing the supply shortages, particularly for diesel, as soaring prices just ahead of the November midterm elections could cost the Republican party control of both chambers of Congress.

President Trump’s latest move is to waive parts of the latest sanctions against Russia he signed into law only last month. The 60-day waiver is intended to allow time for analysing the impact of those sanctions on the global economy according to Secretary of State Marco Rubio. It follows Trump's deal with Russia’s President Putin to release 300,000 tons of diesel into the global market.

Both WTI and Brent crude futures are trading around 1% lower on Monday after seven straight sessions of gains. The drop is helping gold to edge higher, but with the Fed decision just a little over a week away, the precious metal is likely to stay within its recent sideways range until then.