Making sense of the forces driving global markets

By Jamie McGeever, Reuters Open Interest Markets Columnist 

U.S. stocks were mixed on Tuesday, with the global momentum that had lifted Japanese and several other indices to new highs fizzling out, as investors digested a sharp fall in gold prices and the U.S. government shutdown entering its third week.

More on that below. In my column today, I look at the Trump administration's purchases of Argentine pesos, which appears to be the U.S. government's first ever unilateral and direct FX market intervention to support an emerging market currency. Why Argentina, and will it work?

I’d love to hear from you, so please reach out to me with comments at jamie.mcgeever@thomsonreuters.com. You can also follow me at @ReutersJamie and @reutersjamie.bsky.social. 

Data refreshes every time you open this email. For more U.S. market news, click here. Please send any feedback to morningbid@thomsonreuters.com.

* US-China tensions

Buoyant stocks suggest investors are confident U.S.-China trade tensions will ease, as both sides cool the rhetoric, step away from the brink, and strike a mutually face-saving deal that ensures trade between the world's two largest economies keeps flowing.

That may reflect over-confidence, or complacency. The mood at the IMF/World Bank meetings in Washington last week was far less upbeat, with the recent escalation around rare earths and 100% tariffs marking a new and worrying phase. Markets are priced for significant de-escalation, and if that doesn't materialize, volatility could pick up.

* Gold finally at a tipping point?

Gold fell 6% on Tuesday, its largest decline since August 2020 and second biggest since 2013. After such a steep ascent - its year-to-date gain last week was almost 70% - the inevitable question now is: correction, or crash?

Some kind of correction was surely inevitable. Tuesday's slide takes gold back to where it was only a week ago, which is unlikely to fluster the gold bugs. But deeper reversals have to start somewhere, and if the base for the surge is weakening - central bank buying, debasement fears, asset reallocation, 'FOMO' buying - there could be more downside to come.

* Japan's new-look government

Japan has a new-look government, headed by hardline conservative Sanae Takaichi, the country's first female prime minister, and with Satsuki Katayama as the country's first female finance minister. 

Investors will be focused on how closely the government and Bank of Japan work together, how much fiscal stimulus is coming down the pike, and whether the BOJ sticks to its gradual policy tightening path. The initial verdict, at least, seems clear - looser policy, higher stocks and a weaker yen.

The Trump administration has engaged in what appears to be the U.S. government's first ever unilateral foreign exchange intervention to support an emerging market currency – and the country in question is Argentina, a poster child for economic volatility. 

The Treasury on Thursday October 9 sold an unspecified amount of U.S. dollars for Argentine pesos, followed up with a second round of peso-buying intervention on Wednesday October 15, and a third the following day. All three rounds are part of the U.S. administration's broader package of measures to support Argentina's beleaguered economy and battered financial markets. 

The U.S. has a long history of offering emerging economies financial support, most notably Mexico in the mid-1990s, but almost always via credit lines, loans or currency swap lines. It is the nature of Washington's financial support to Buenos Aires that sets this episode apart. 

Since the Bretton Woods era of fixed exchange rates ended over 50 years ago, the Treasury has, to the best of our knowledge, never officially waded into the global FX market to unilaterally spend taxpayer dollars on foreign currency, least of all one as volatile as Argentina's peso.