Morning Wrap: Strong Crypto, Weaker Nasdaq and Another Chapter in the US–Canada Trade War

Stock Market

• Yesterday's session on Wall Street ended on a mixed note, with the Dow Jones being the only major U.S. index to stay in the green, closing up nearly 0.3%.

• The remaining flagship indices suffered losses, as the S&P 500 fell 0.3%, while the tech-heavy Nasdaq ended the session down 0.8%.

• Sharp sell-offs hit the semiconductor and memory chip sectors, where Nvidia, Intel, and AMD each dropped nearly 3%, while Micron and Sandisk lost about 6%.

• Pressure on the tech sector comes just two days before Nvidia's quarterly earnings release, which will serve as a pivotal test for sustaining high expectations around AI-related companies.

• Asian stock markets initially opened lower, tracking weak sentiment from Wall Street and pressure on the tech sector.

• During trading, several Asian markets managed to erase losses, bringing the Japanese Nikkei into positive territory, while the South Korean KOSPI almost completely erased earlier declines, and the Australian ASX 200 gained.

• Initial market pressure significantly faded, though stock exchanges in Hong Kong, India, and parts of Southeast Asia remained weaker.

Geopolitics and Trade Policy

• Donald Trump is sharply escalating the trade war with Canada following the collapse of trade negotiations, targeting Prime Minister Mark Carney and suggesting that Canada needs to "get in line."

• The heaviest hit is projected to be a 50% tariff on Canadian cars, trucks, and auto parts starting January 1, 2027.

• This move could severely damage the Canadian automotive industry, while simultaneously raising production costs in the U.S. due to highly integrated supply chains.

• Canada is promising a tough response, with Prime Minister Carney declaring retaliatory tariffs.

• Doug Ford suggested Ottawa could leverage energy and critical raw material exports as bargaining power, including electricity, nickel, uranium, and potash.

• This escalates the risk of further friction between two deeply interconnected economies and places strain on businesses and consumers on both sides of the border.

• The U.S. is launching a broad campaign aimed at severing Iran from the global financial system, with Treasury Secretary Scott Bessent announcing sanctions targeting oil trade, shipping, gold, technology, aviation, and cryptocurrencies.

• Bessent warned that countries conducting business with Iran risk being subjected to U.S. sanctions themselves, emphasizing that no one, including China, is off-limits.

• Washington has held off on secondary sanctions against major Chinese banks for now, offering Iran's partners time to scale back cooperation, as China remains a key buyer of Iranian crude.

• The U.S. goal is to choke off Tehran's primary revenue sources and force economic isolation, which concurrently increases the risk of oil market friction and deteriorating U.S.-China relations.

Macroeconomics and Monetary Policy

• RBA minutes reveal that the August decision to hold interest rates at 4.35% was no mere formality.

• Members of Australia's central bank actively debated a preemptive 25 bps rate hike, citing persistently elevated inflation and the risk of re-acceleration.

• Ultimately, the argument prevailed that past tightening is sufficiently cooling the economy, while a weaker labor market and signs of a slowdown give the RBA time to monitor incoming data, though the door remains open for a future rate hike.

• Japan is considering tax incentives for retail investors buying Japanese Government Bonds (JGBs) to increase domestic household participation in funding sovereign debt.

• Finance Minister Satsuki Katayama noted that program specifics are yet to be finalized, but the core objective is encouraging households to step up engagement in the Japanese bond market.

Commodities and Precious Metals

• Precious metals face downward pressure, causing gold prices to dip slightly and slide back below the $4,700 level.

• Silver experienced a sharper pullback than gold, declining by around 1.3% and breaking below $68.

Cryptocurrencies

• Significantly stronger sentiment is taking hold across the digital asset space, showcasing a distinct rebound in crypto markets.

• Bitcoin broke above the $80,000 mark for the first time in three months, validating an improvement in risk appetite and a return of market demand.

• Ethereum continues its upward momentum, with prices currently testing the $2,950 level.