Fed Powell’s Cautious Tone, Trade Tensions Keep Risk Appetite in Check

GLOBAL MOOD: Cautiously Risk-off
Drivers: US–China trade thaw, US Government Shutdown, US monetary policy ambiguity

Markets are treading cautiously as investors balance resilient US economic signals with lingering global growth concerns. Risk sentiment has improved slightly following Jerome Powell’s measured comments, which reinforced expectations of gradual policy easing rather than aggressive rate cuts. However, the ongoing US government shutdown has clouded the data outlook, heightening uncertainty around upcoming economic releases.

TODAY’S WATCHLIST
 - RBI MPC Meeting Minutes
 - Axis Bank, L&T Finance Earnings

THE BIG STORY
Federal Reserve Chair Jerome Powell signalled a cautious, data-dependent approach to future rate cuts, acknowledging the mixed signals in the US economy as it navigates sluggish hiring, steady spending, and lingering inflation pressures. Speaking at the National Association for Business Economics conference in Philadelphia, Powell said the labour market remains subdued, with low job creation and limited layoffs, but noted that broader economic activity has proved stronger than expected, complicating the policy outlook.

Powell described the current moment as a “tension” between resilient consumer spending and weakening employment data, highlighting the Fed’s meeting-by-meeting stance on further policy easing. He also warned that the ongoing government shutdown, now preventing the release of key economic indicators, could soon begin to hinder the Fed’s analysis ahead of its October 28–29 meeting.

Data Spotlight
The IMF’s latest World Economic Outlook projects global growth to slow to 3.2% in 2025 and 3.1% in 2026, down from 3.3% in 2024, as the world economy grapples with the effects of rising protectionism and economic fragmentation. The Fund noted that while growth remains below pre-policy-shift levels, the 2025 forecast is 0.4 percentage points higher than its April estimate, reflecting a moderation in tariff escalations and better-than-expected resilience in advanced economies.

By country, US growth is projected at 2.0% in 2025 and 2.1% in 2026, while China’s economy is expected to slow to 4.8% and 4.2%, respectively, amid structural challenges and weaker exports. The Euro Area is forecast to grow 1.2% next year, the UK by 1.3%, and Japan by 1.1%.

Takeaway: Global growth remains fragile, with divergent regional trends; the US showing resilience, while China and Europe face slower recoveries. Persistent tariff risks and uncertainty continue to cloud the medium-term outlook.

WHAT HAPPENED OVERNIGHT

• US Stocks ended mixed as bank earnings offset tech weakness; trade tensions weigh
  • The S&P 500 ended slightly lower, while the Dow Jones held modest gains as strong bank earnings helped offset renewed US–China trade concerns.
  • JPMorgan Chase, Goldman Sachs, Citigroup, and Wells Fargo all reported solid results, with Wells Fargo and Citi leading financials higher.
  • Nasdaq underperformed, dragged down by technology stocks, with Nvidia leading declines.

• US Treasury yields fall as Powell signals rate cuts amid US–China trade tensions
  • The 10-year US Treasury yield fell to 4.03%, nearing April lows, as investors priced in higher odds of a Fed rate cut following Chair Jerome Powell’s dovish remarks.
  • Powell’s comments reinforced expectations that the Fed will act soon to cushion a cooling economy, easing discount-rate pressures on longer-dated bonds.
  • Yields also declined as renewed US–China trade tensions weighed on risk appetite, after Beijing imposed sanctions on US-linked South Korean shipbuilder Hanwha Ocean.

• US Dollar slips as safe-haven demand lifts yen and franc; Fed rate cut bets firm
  • The dollar index weakened on Tuesday as safe-haven currencies like the Swiss franc and Japanese yen gained ground amid heightened trade tensions and investor caution.
  • The dollar index fell 0.26% to 99.04, while the euro strengthened 0.31% to $1.1604.
  • The ongoing US government shutdown continues to delay key economic data releases, leaving markets focused on Fed policy signals and geopolitical risks.

• Crude oil prices fall to five-month lows on trade tensions and IEA supply warning
  • Brent crude oil prices slipped on Tuesday to their lowest levels in five months, pressured by renewed US–China trade tensions and a bearish IEA report.
  • The International Energy Agency raised concerns about a potential supply glut, citing stronger non-OPEC output and softer global demand growth.
  • Brent crude futures fell 1.5% to $62.39 per barrel, while US WTI dropped 1.3% to $58.70 per barrel. 

Day’s Ledger

Economic Data

• IMF/World Bank Annual Meetings         
• China Sep Inflation Rate
• China Sep PPI
• India Sep Unemployment Data
• India Monetary Policy Meeting Minutes           
• India M3 Money Supply
• India Sep Trade data
• India Passenger Vehicles Sales

Corporate Actions

• Jul-Sep Earnings: Axis Bank, Indian Railway Finance Corporation, HDFC Life Insurance Company, HDFC Asset Management Company, L&T Finance, Oberoi Realty, Tata Communications, KEI Industries, Mangalore Refinery and Petrochemicals, Angel One, Network 18 Media & Investments
• Panorama Studios to consider bonus share issue
• Welspun Enterprises to consider fund raising

Policy Events

• Fed Waller Speech
• Fed Collins Speech 
• RBA Hunter Speech
• ECB Guindos Speech
• ECB Buch Speech
• BoE Ramsden Speech
• Fed Bostic Speech
• Fed Miran Speech

Tickers to Watch

• GOODLUCK INDIA to invest ₹5 billion to scale up artillery shell casing output
• TECH MAHINDRA Q2 results: Net profit slips 4.44% to ₹1,194.5 crore
• GODREJ CONSUMER margins to recover in H2FY26 after GST transition
• INFOSYS wins £1.2 billion NHS deal to modernise UK workforce system
• OLA ELECTRIC likely to foray into India's $30 billion energy storage market
• ICICI LOMBARD GENERAL INSURANCE's Q2 net profit up 18% at ₹819 crore
• PRESTIGE GROUP eyes ₹2,000 cr revenue from new housing project in Mumbai
• LT Foods to acquire Hungary's Global Green Europe for €25 million deal

 Must Read

• India’s Growth Outlook Stays Resilient as IMF Flags Fragile Global Recovery
• Trade Tensions Weigh on IMF’s Outlook for Global Economy
• India needs tariff stability in edible oil imports, says research paper
• Wholesale inflation eases to 0.13% in September on benign food prices
• Insurance regulator seeks more measures to check fraud, improve security
• U.K. Economy Faces Rising Risk Of a ‘Hard Landing,’ Says BOE’s Taylor
• German Financial Sentiment Improves Despite Uncertainty
• ECB Is in Good Place With Disinflation Over, Makhlouf Says
• Goldman Sachs CFO Says No Direct Exposure to Recent Blowups
• Lagarde Says She Can't Declare an End to ECB Rate Cuts

See you tomorrow with another edition of The Morning Edge.

 Have a great trading day.

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