Thursday’s trading session saw markets grappling with a complex mix of rising geopolitical tensions and economic concerns. Escalating conflict in the Middle East, alongside a significant surge in oil prices, diminished investor optimism and weighed heavily on major indices. Despite brief support from a few tech stocks, broader market sentiment remained cautious as traders braced for the impact of ongoing uncertainty ahead of the much-anticipated US payroll report. Energy markets also reflected heightened risks, with crude oil prices spiking, while equity markets broadly struggled to gain traction as geopolitical and economic pressures persisted.

Key Takeaways:

  • S&P 500 Declines Further: The S&P 500 shed 0.17%, closing at 5,699.94, as investor sentiment soured amidst growing geopolitical risks and surging oil prices. Almost 80% of the index’s components fell, reflecting broad market weakness as traders brace for further volatility, especially with the upcoming US payroll report. 
  • Dow Jones Drops Nearly 200 Points: The Dow Jones Industrial Average saw a sharp decline of 184.93 points, or 0.44%, to finish the day at 42,011.59. Tensions in the Middle East, alongside rising energy costs, have unsettled investors, causing a pullback across various sectors. Thursday’s losses mark another day of a difficult week, as the Dow has now dropped 0.7% week-to-date, reversing some of the gains from a strong third quarter.
  • Nasdaq Lifted by Nvidia Surge: The Nasdaq Composite edged lower by just 0.04% to 17,918.48, performing better than its counterparts, helped in large part by Nvidia’s more than 3% rise. The tech-heavy index was boosted by renewed enthusiasm around AI-driven chips, as Nvidia’s CEO confirmed “insane” demand for the company’s new Blackwell AI processors. 
  • European Markets Hit by Middle East Escalation: European stocks continued their slide, with the Stoxx 600 dropping 1% on Thursday. The FTSE 100 fell 8.34 points, or 0.10%, closing at 8,282.52. France’s CAC 40 led the declines in Europe, losing 113 points (or 1.50%) as the enthusiasm around Chinese stimulus began to fade. Germany’s DAX slipped 0.6%, trading around the 19,000 mark. Auto stocks were particularly hard hit, dropping 2.17% amid reports that the European Union may introduce tariffs of up to 45% on Chinese electric vehicles, a move opposed by European carmakers. Stellantis saw a 4% drop, while Porsche, Volvo, and Renault also suffered significant losses.
  • Asian Markets Face Mixed Results: Markets across Asia saw varied performances on Thursday. Hong Kong’s Hang Seng Index dropped 1.47%, closing at 22,113.51, snapping a six-day winning streak as the stimulus-fuelled rally in Chinese stocks began to lose steam. Mainland Chinese markets were closed, but optimism around further fiscal support from Beijing was tempered by uncertainty around the size and impact of these measures. Japan’s Nikkei 225, however, bucked the trend, surging nearly 2% to 38,552.06. The Topix also gained 1.2%, closing at 2,683.71. 
  • Treasury Yields Rise as Attention Shifts to Jobs Data: US Treasury yields climbed higher on Thursday as investors turned their focus to the upcoming US payroll report. The yield on the 10-year Treasury rose nearly 7 basis points to 3.852%, while the 2-year Treasury yield also increased by 7 basis points, reaching 3.707%. The slight uptick in jobless claims ahead of Friday’s report has raised concerns over the strength of the labour market, prompting caution among investors as they assess the potential impact on future Federal Reserve policy.
  • PMI Data Highlights Economic Challenges in Major Economies: Global PMI data released on Thursday indicated signs of economic slowing across several major economies. In the UK, the Services Purchasing Managers’ Index (PMI) for September fell to 52.4 from 53.7 in August, marking a slowdown in the services sector. The composite PMI, which includes both manufacturing and services, also dropped to 52.6 from 53.8, reflecting a broader cooling of economic activity. Germany’s final services PMI declined to 50.6, a six-month low, down from 51.2 in August, approaching the 50-point threshold that separates growth from contraction. The composite PMI for Germany fell further to 47.5, indicating that the economy is struggling more broadly. France’s services sector slipped into contraction territory, with the services PMI falling to 49.6 in September from 55.0 in August, as the temporary boost from the Paris Olympics faded. Similarly, Canada’s services sector faced challenges, with its PMI falling to 46.4, marking the lowest level in six months, as job cuts and a slowdown in new business continued to weigh on the sector.

FX Today:

  • GBP/USD Sees Significant Pullback, Bears Target Key Support Levels: GBP/USD has come under increasing pressure, trading at 1.3125, following a deeper pullback after hitting a recent high above 1.3400. The Bank of England’s Governor’s comments, suggesting potential rate cuts if inflation continues to ease, contributed to the bearish momentum. The pair has broken below both the 50-day (1.3334) and 100-day (1.3261) SMAs. Should the decline persist, the 200-day SMA at 1.3196 becomes the next key support level, and a close below this level would likely confirm a bearish continuation towards 1.3100. On the upside, a recovery above the 100-day SMA at 1.3261 could indicate a short-term relief for buyers, targeting 1.3300 initially and 1.3334 thereafter. 
  • EUR/USD Fluctuates as Investors Eye Payroll Report: The euro traded near flat against the US dollar, with EUR/USD hovering around 1.1029, down by 0.01%. The pair broke below its 50-day SMA at 1.1122 and is now testing the 100-day SMA at 1.1114, reflecting growing bearish momentum. Any further downside could push the euro towards the psychological 1.1000 level, where it may find support. Traders are closely monitoring Friday’s US nonfarm payrolls report, which could set the tone for the pair’s next move.
  • AUD/USD Under Pressure as Risk Sentiment Weakens: The Australian dollar faced renewed selling pressure, with AUD/USD trading at 0.6843, down 0.09% for the day. The pair is currently testing its 50-day SMA at 0.68805, and a decisive break below this level could signal a deeper correction. The next major support levels are at the 100-day SMA at 0.6816 and the 200-day SMA at 0.6777, with further downside possible if risk sentiment continues to sour. For the pair to regain upward momentum, it would need to break back above the 0.6880 resistance level.
  • Gold Holds Ground Amid Geopolitical Tensions: Gold prices remained stable, closing at $2,657.69, posting a modest gain of 0.04%. The precious metal continues to trade above its 50-day SMA of $2,652.95, as investors seek safe-haven assets amidst rising Middle East tensions. However, resistance looms at $2,659.72, and failure to breach this level could see gold entering a consolidation phase. On the downside, support is expected to emerge around $2,652.95, with a break below this level potentially leading to further declines toward $2,613.32.

Market Movers:

  • EVgo Surges on $1.05 Billion Loan News: Shares of electric vehicle charging company EVgo skyrocketed 61% after the company secured a $1.05 billion conditional loan from the US Department of Energy. The announcement also prompted JPMorgan to upgrade the stock to “overweight,” with analyst Bill Peterson citing EVgo’s strong utilization rate compared to its competitors and its owner-operator model as key drivers of future growth.
  • Hims & Hers Health Drops as Drug Shortage Resolves: Hims & Hers Health saw its shares plunge 9.6% following news from the US Food and Drug Administration that the shortage of Eli Lilly’s popular weight loss drugs Zepbound and Mounjaro has been resolved. 
  • Joby Aviation Falls After Toyota-Driven Surge: Shares of Joby Aviation fell 8%, paring back some of the significant gains made during the previous session. On Wednesday, Joby soared nearly 28% after Toyota announced a $500 million investment in the company to support certification and production of its electric air taxis. 
  • Levi Strauss Drops on Weaker Outlook: Levi Strauss shares tumbled 7.4% after the denim maker lowered its full-year revenue outlook and reported third-quarter revenue that missed expectations. Levi’s revenue came in below forecasts, and the company indicated it is considering selling its underperforming Dockers business as part of a broader restructuring effort.
  • Wolfspeed Slips on Mizuho Downgrade: Semiconductor manufacturer Wolfspeed dropped 5.9% after Mizuho downgraded the stock from “neutral” to “underperform.” The firm cited slowing global electric vehicle sales and increasing competition from China as key factors impacting Wolfspeed’s future growth prospects, driving the stock lower.
  • Palantir Rises on AI Partnership News: Palantir Technologies climbed 4.2%, extending gains from the previous session. The software company recently announced a partnership with Edgescale AI to launch Live Edge, a platform utilising artificial intelligence for industries such as manufacturing and utilities. The announcement has fuelled optimism about Palantir’s role in the rapidly expanding AI-driven software market.
  • Utility Stocks Rise on Google Nuclear Power Plans: Shares of utility providers Vistra and Constellation Energy rose 5.3% and 4.1%, respectively, after Google CEO Sundar Pichai mentioned that the tech giant is considering using electricity from nuclear power plants for its data centres. Investors see both Vistra and Constellation as key beneficiaries of the growing demand for stable energy sources in the tech sector’s future data needs.

As the trading week comes to a close, market sentiment remains fragile, with escalating tensions in the Middle East and surging oil prices continuing to weigh heavily on investor confidence. The Dow and S&P 500 tracked losses, while the Nasdaq found brief support through Nvidia’s rally. Energy stocks were one of the few bright spots, driven by the spike in crude prices. However, the broader market remains cautious ahead of the crucial US payroll report, which could set the tone for the next phase of Federal Reserve policy. Global markets also reflected uncertainty, with European indices under pressure and Asian markets delivering mixed results as geopolitical and economic risks remain front of mind.