ANALYSIS: Global markets performed strongly last week, and that momentum carried into Monday’s session on the back of ongoing strength in the earnings season, optimism over further Federal Reserve rate cuts, and easing trade frictions ahead of key meetings this week. The three major US indices all hit new record highs. It’s a big week ahead with meetings from the Federal Reserve, Bank of Japan, European Central Bank, and Bank of Canada.
Earnings season is also ramping up, with Apple, Alphabet, Amazon, Microsoft, and Meta Platforms all set to report.
With the US government shutdown ongoing since the start of the month, there has been little new macroeconomic data, but the earnings season so far has underscored the resilience of the US economy.
Ford Motor Company, IBM and Lam Research all rose more than 10%. Lam Research is a US$200 billion company that sits at the forefront of the AI boom, building the machines that manufacture the computer chips powering everything from smartphones to data centres. Customers include TSMC, Micron, and Intel, the latter also reporting strong results last week. Lam delivered a robust quarter, with revenue up 28% year-on-year to US$5.3 billion.
Technology remained in focus on Monday, with Qualcomm announcing a new generation of AI chips set to launch in 2026 and 2027. Each rack will require around 160 kilowatts of power, comparable to Nvidia’s solutions, which currently dominate about 90% of the data-centre market. Investors welcomed the news, sending Qualcomm shares up 11%.
Large parts of the US government may be in shutdown mode, but the Federal Reserve is still very much working. The central bank is widely expected to lower the federal funds rate by 25 basis points to a target range of 3.75%–4.00% at this week’s meeting (Thursday morning NZ time).
With key data releases delayed by the shutdown, the Fed has been flying partially blind, though Chairman Jerome Powell said last week that “the overall outlook for employment and inflation does not appear to have changed much” since the September meeting.
One critical piece of data the Fed did have was Friday’s lower-than-expected inflation reading. The CPI rose 0.3% in September, leaving the annual inflation rate at 3.0%, below the 3.1% expected. The Bureau of Labor Statistics published the data specifically because the Social Security Administration uses it to calculate cost-of-living adjustments for benefit payments.
The softer inflation figure has strengthened expectations for another rate cut this week, as policymakers shift focus toward supporting the labour market. A third cut is now widely anticipated in December. However, the accompanying statement is likely to be muted, with officials emphasising that future policy decisions will depend on incoming data once the government fully reopens.
As an aside, a decision is also due from the Bank of Canada, which is expected to cut rates amid softer labour market conditions and easing inflation pressures. The central bank may also be mindful of the re-emerging trade tensions with the US, after Donald Trump threatened an additional 10% in duties following an anti-tariff advertisement that “featured” former President Ronald Reagan criticising tariffs.
Meanwhile, the European Central Bank is expected to hold rates steady for a third consecutive meeting.
Asian markets were very strong last week, and China appears to be gaining momentum. China’s industrial profits jumped 21.6% year-on-year in September, the biggest rise in almost two years - five times the forecast. The surge followed a similar gain in August, lifting profits 3.2% year-to-date, with manufacturing earnings up 10% over the same period, driven by technology sectors. While those figures benefit from a weak base last year, there is optimism that Beijing’s stimulus measures and crackdown on inefficient firms and price wars are beginning to work.
The stronger-than-expected data gives President Xi a firmer hand going into the Trump talks, signalling that China’s manufacturing base remains resilient despite tariff pressures. That said, policy-makers acknowledge that the domestic recovery remains fragile. At last week’s five-year strategic planning meeting, officials cautioned that the economy faces “high winds, rough waves and even raging storms.” There have though been some notable olive branches from the Trump administration - Treasury Secretary Scott Bessent confirmed that Trump’s 100% tariff threat is “off the table,” while Beijing agreed to delay new rare-earth export curbs and increase US soybean purchases.
Both sides have clear incentives to stabilise a fragile global backdrop before year-end. Time will tell whether this becomes an extended truce or something more substantial.
Meanwhile, Japan’s stock market hit a major milestone, with the Nikkei 225 rising above 50,000 for the first time ever on Monday. The Japanese market has already had a strong year, supported by the return of modest inflation and wage growth after decades of deflation. The Bank of Japan meets this week, and investors will be watching closely for any shift in tone as the central bank slowly moves away from ultra-loose monetary policy and negative interest rates.
A softer yen has boosted exporters’ earnings in foreign-currency terms, attracting foreign capital inflows into Japanese equities. Investors have also responded positively to corporate reforms, better governance, and share buybacks. Japan’s deepening role in AI-related supply chains - including semiconductors, robotics, and chip-testing equipment - has added another layer of appeal.
After years of under-allocation, foreign investors are returning to Japan. Optimism around new Prime Minister Sanae Takaichi’s pro-growth agenda has added further fuel to the rally. Takaichi is also pro-security, with defence-related stocks underpinning recent gains. Her government is bringing forward plans to lift defence spending to 2% of GDP, two years ahead of schedule - a decisive break from Japan’s historic 1% cap.
Takaichi aims to make Japan a global defence powerhouse, rolling back post-war export restrictions, building weapons factories, and accelerating military investment. Export traction was already improving before she took office, with a Japanese consortium recently selected as the preferred bidder for 11 warships for Australia (and New Zealand also evaluating the same frigates). The higher defence budget and export reforms are expected to align well with Takaichi’s upcoming meeting with Donald Trump, a strong advocate of defence burden-sharing among allies.
Australia & NZ
In Australia, the market rose 0.3% over the course of last week, setting a series of fresh record highs in the process. The gold sector was volatile as prices corrected from record levels, while critical materials were in focus following a landmark agreement between Australian Prime Minister Anthony Albanese and the Trump administration aimed at strengthening supply-chain security and reducing US dependence on China for rare earths and other strategic resources.
The deal includes a US$8.5 billion pipeline of Australian and American projects ready for implementation. Both governments will commit US $1 billion each over the next six months toward early-stage ventures, covering initiatives in lithium, gallium, and rare-earth production.
Looking ahead, attention turns to Australia’s third-quarter CPI, due for release Wednesday. Forecasts suggest inflation will tick up to around 2.8%. RBA Governor Michele Bullock reiterated over the weekend that the labour market remains “a little tight”, despite the unemployment rate rising to 4.5% in September. Markets are currently pricing in only a 15% chance of a rate cut on Melbourne Cup Day, as policymakers weigh persistent services inflation against emerging signs of slower economic growth.
The New Zealand market rose 0.8% last week. Annual inflation came in at 3% for the September quarter - the highest since June 2024 and at the top of the RBNZ’s 1–3% target band - but broadly in line with expectations. With overall demand remaining soft, another subdued dairy auction during the week, and food and rent inflation easing, the RBNZ has noted there is ample spare capacity in the economy. As a result, another 0.25% rate cut next month remains the most likely scenario.
Among cyclical stocks, Fletcher Building performed well, rising 2.2% for the week. At its AGM, the company acknowledged that conditions remain challenging and announced plans to remove a further $100 million in costs. Management reiterated ongoing uncertainty around the timing of recovery in the residential sector, though they expect recent OCR reductions to improve liquidity in the housing market over time. There are also early signs of stabilisation in the Australian housing market. Freightways rose 2.7% over the week. Auckland Airport and Meridian Energy, gained 2.0% and 1.7%, respectively - both companies also held their AGMs last week.
Looking ahead, attention domestically will turn to the upcoming releases of consumer and business confidence data, which will provide further insight into domestic demand trends and the RBNZ’s policy outlook.