🟢Morning Wrap: Lack of escalation lowers oil prices. Unexpected Lula victory hurts Brazilian stock market

• Oil prices opened the week with a downside gap (January Brent contract is down nearly 1.9% to around 109.5 USD/bbl), moving away from multi-month highs after a lack of direct US strikes on Iran over the weekend, despite ongoing attacks by Houthi militants on Saudi infrastructure.
• The Tokyo-listed ETF tracking the Brazilian Bovespa index crashed nearly 15% after Luiz Inácio Lula da Silva unexpectedly won the second round of the presidential election (approx. 52% to 48% against Flavio Bolsonaro), forcing investors into panic closing of positions betting on a right-wing victory.
• A key central bank week begins in the markets, as decisions will be announced by the Fed, ECB, and BoJ (where the market prices in keeping interest rates unchanged), as well as RBNZ and BoC (expected 25 bps rate hikes).

🇺🇸 Wall Street: How did the session end?

• After a disastrous week for US indices, especially tech stocks, US index futures indicate only a moderate cooling of sentiment: S&P 500 (US500) oscillates around 7676.6 pts (-0.12%), tech-heavy Nasdaq 100 (US100) retreats near 29157.2 pts (-0.42%), Russell 2000 (US2000) trades around 2793.4 pts (-0.06%), while Dow Jones (US30) holds slightly above the line near 52543.0 pts (+0.06%).
• The VIX volatility index rises slightly by 0.57% to around 19.35 pts, reflecting heightened investor caution ahead of the Fed decision and earnings releases from tech giants.
• Last Friday, among S&P 500 companies, cybersecurity and energy sector entities gained the most: CrowdStrike (CRWD, +7.97%, Technology), Palo Alto Networks (PANW, +7.22%, Technology), SLB (SLB, +6.92%, Energy), Halliburton (HAL, +5.15%, Energy), APA (APA, +4.98%, Energy), and Datadog (DDOG, +4.53%, Technology) – gains were driven by the earlier surge in oil prices and rising geopolitical risks in cyberspace.
• Decline leaders included industrial and telecommunications companies: Bloom Energy (BE, -10.96%, Industrials) and Comfort Systems USA (FIX, -9.06%, Industrials), as well as AT&T (T, -8.04%, Communications) and T-Mobile US (TMUS, -7.90%, Communications) – telecom stocks came under severe pressure due to reports about Elon Musk's plans to expand terrestrial cellular infrastructure linked to Starlink; Globe Life (GL, -7.69%, Financials) and CBRE Group (CBRE, -6.13%, Real Estate) also declined.

🌏 Asia

• Declines prevailed on Asian stock markets: Japan's Nikkei 225 weakened by about 0.70% to 62,537 pts under pressure from a sell-off in chip and electronics manufacturers as well as concerns over energy import costs, while Australia's ASX 200 managed to rise by about 0.74% near 8800 pts.
• A sharp sell-off hit the Seoul floor, where Kospi lost 1.6% and tech Kosdaq plummeted 2.8% – sentiment was further dampened by Goldman Sachs cutting its 12-month target for the Kospi index by 25% (to 9000 pts).
• In China, sentiment was relatively stable: Hang Seng rose about 0.32% to 23167 pts, and China A50 held steady around 12933 pts (0.00%); the focus remains on the ongoing fifth plenum of the CPC Central Committee.

• 🇪🇺 Europe before the open

• Futures on major European indices point to a moderately positive start of the day in Germany and the UK: DAX 40 (DE40) gains about 0.28% to around 25309 pts, Euro Stoxx 50 (EU50) rises 0.31% near 6090 pts, and FTSE 100 (UK100) trades higher by 0.17% near 10738 pts.
• France's CAC 40 (FRA40) clearly lags behind, with quotes down about 0.85% to around 7797 pts, impacted by ongoing social unrest and protests in France, raising concerns about fiscal discipline.
• The European volatility index VSTOXX rises by 2.24% to around 20.53 pts, indicating market positioning ahead of the upcoming ECB meeting.

💱 Currencies and commodities

• Crude oil sees a sharp pullback: Brent crude (OIL) falls about 1.89% to around 109.47 USD, while WTI (OIL.WTI) drops 1.12% down to near 100.89 USD.
• The direct cause of the downside gap is the absence of a weekend US strike on Iran following remarks by Donald Trump ("we will not attack Iran today").
• Gold (GOLD) stabilizes after sliding to three-month lows, gaining about 0.32% near 4012.56 USD per ounce, while silver (SILVER) rises 0.13% to around 54.13 USD; metals remain under pressure from the prospect of higher-for-longer Fed interest rates.
• Relative calm prevails in forex: EUR/USD rises 0.06% near 1.1215, GBP/USD is stable at 1.3372 (-0.01%), and USD/JPY rises 0.12% to around 157.07 (after overnight swings from 157.10 to below 156.75).
• The Polish zloty remains stable: USD/PLN pair is quoted near 3.9259 (+0.09%).
• The Chinese yuan stands out: onshore USD/CNY rate dropped to 6.6682 (strongest yuan since June 2022), with the central bank fixing set at its strongest since February 2023 and a liquidity injection of 398 billion CNY via reverse repo operations.

🔑 Key news from overnight

• Election surprise in Brazil: Luiz Inácio Lula da Silva returns to the presidency after winning the second round (approx. 52% to 48%), triggering a crash in Tokyo-traded Bovespa ETF by nearly 15%. Goldman Sachs outlined an extreme scenario with a 10% weakening of the real (USD/BRL) and a 200 bps surge in debt yields.
• Middle East tensions: Yemeni Houthis launched further drone and missile attacks on Saudi airports (including Riyadh) and oil pumping stations, to which the Saudi coalition responded with airstrikes destroying silos and launchers; simultaneously, a coordination meeting of senior representatives from Saudi Arabia, Turkey, Pakistan, and Iran is planned in Tehran.
• Black Sea and peace talks: Russian Defense Ministry reported shelling a cargo ship in the Black Sea; concurrently, President Zelenskyy announced the resumption of full intelligence sharing with the US and previewed a planned trilateral US-Ukraine-Russia meeting for November.
• AI Financing: Elon Musk informed that SpaceX secured 40 billion USD in debt financing to purchase graphics processing units (GPUs), warning of a potential crisis and consolidation among smaller AI cloud providers ("neoclouds").

📅 What lies ahead today

• 10:00 | Germany / Eurozone: ifo Business Climate Index for October (consensus: 90.0 pts vs 89.9 pts previously) – a key barometer of German industry health.
• 12:00 | UK: CBI Realized Sales index for October (consensus: -47 pts vs -55 pts previously).
• US and South American sessions: Opening of exchanges in São Paulo – the market will test the extent of the sell-off in the Brazilian real and the Bovespa index after the overnight crash in the Asian ETF.
• Start of positioning ahead of central bank meetings (RBNZ, BoC, Fed on Wednesday; ECB on Thursday; BoJ on Friday).

🔎 Suggested to watch

• Brent Crude (OIL) — falls nearly 1.9% after no weekend US strike on Iran, yet the commodity remains extremely overbought on a 5-year horizon (Z5L +1.94, 95.2th multi-year percentile, RSI 59.9); ongoing Houthi attacks on Saudi fuel infrastructure could quickly bring back supply risk premium.
• Gold (GOLD) — hovers just above the round 4000 USD mark after its worst week in four months; indicators show strong short-term oversold conditions (Z1R -1.33, RSI 35.3, Z5L +1.22 at 79.5th percentile), where pressure from high US yields clashes with structural demand from central banks (79 tons purchased in August per Goldman Sachs estimates).
• CAC 40 (FRA40) — distinct relative weakness in the contract (-0.85%) against a rising DAX; the French index is in a deep annual oversold territory (Z1R -1.80, 64.8th 5-year percentile, RSI 37.8), reacting to the risk of escalating budget spending in response to mass protests in France.
• China A50 (CH50cash) — extreme annual oversold conditions (Z1R -3.26, RSI 22.4, Z5L -0.42, 34.5th 5-year percentile); the start of the fifth plenum of the CPC Central Committee, massive liquidity injections from PBOC, and the strongest yuan since 2022 lay the groundwork for a potential sharp closure of the valuation gap.