Strong US growth, employment and consumer spending data reshaped interest rate expectations in global markets, leading to regional divergence in stock markets. Market expectations for the Fed to raise interest rates in October fell from around 70 percent to 38 percent.
The US economy grew at an annualized rate of 2.2 percent in the second quarter. This exceeded the preliminary estimate of 1.5 percent. Private-sector employment also rose by 90,000 in September, surpassing expectations.
The core personal consumption expenditures price index, which excludes food and energy prices and is monitored by the Fed as an inflation indicator, rose 0.2 percent month over month and 3 percent year over year in August. Market expectations had pointed to increases of 0.3 percent monthly and 3.3 percent annually.
Personal consumption expenditures rose 0.9 percent in August, exceeding forecasts, while personal income increased 0.2 percent. The data strengthened expectations that the US economy remains resilient, inflationary pressures may ease and the Fed may achieve a soft landing through its interest rate policy.
However, the fact that rising diesel prices in September had not yet been fully reflected in the data kept uncertainty alive over whether inflationary pressures would decline permanently. Exceeding expectations for growth, employment and personal consumption expenditures also revived assessments of the impact of high interest rates on the US economy.
The yield on the US 10-year Treasury note reached 5.31 percent, its highest level since 2007, before stabilizing at 5.28 percent. The 30-year Treasury yield also reached 5.65 percent, its highest level since 2002, before trading at 5.62 percent.
Supported by the rise in Treasury yields, the dollar index reached 101.7, its highest level since June 24. Gold rose 0.7 percent to $4,184 per ounce, while December Brent crude futures fell 1.4 percent to $96.6 per barrel.
US President Donald Trump said former Fed Chair Jerome Powell should be forced to resign from the Board of Governors over cost overruns in a project to renovate Fed buildings. Trump also announced that South Korea planned to invest up to $200 billion in major energy projects in the US and said he was considering the option of banning diesel exports.
Fed Governor Lisa Cook said inflation had remained above target for more than five years. Cook said the commitment to returning inflation to its target level while preserving strength in the labor market remained in place. The Fed also finalized changes to increase the transparency and public accountability of the stress tests applied to banks.
US stock indexes diverge
Selling pressure in the bond market caused indexes on the New York Stock Exchange to move in different directions. The Dow Jones fell 0.86 percent and the S&P 500 declined 0.25 percent, while the Nasdaq rose 0.24 percent.
Shares of US chipmaker Micron Technology gained 0.6 percent in after-hours trading following earnings that exceeded expectations. The average interest rate on 30-year home loans in the US also rose to 7.3 percent last week, reaching its highest level since November 2023. US stock index futures opened higher.
Energy pressure weighs on European markets
European stocks ended the day lower as rising energy costs increased inflation concerns and pressure in the bond market. Germany's annual inflation rate rose to 3.3 percent in September, exceeding expectations amid the impact of escalating conflicts in the Middle East on energy costs. This was the country's highest inflation rate since December 2023.
Following the data, expectations strengthened that the European Central Bank would maintain its tight monetary policy to keep inflation under control. The UK economy grew 0.5 percent quarter over quarter and 1.4 percent year over year in the second quarter. In money markets, expectations for the Bank of England to raise interest rates rose to 85 percent.
At the close, the FTSE 100 in the UK fell 0.29 percent, Germany's DAX 40 declined 0.79 percent, France's CAC 40 dropped 0.89 percent and Italy's FTSE MIB lost 0.84 percent. European stock index futures also opened lower.
Chip earnings support Asian markets
Asian stocks rose as expectations of a Fed rate hike weakened and strong earnings from Micron Technology supported chip companies in Japan and South Korea. Japan's manufacturing Purchasing Managers' Index stood at 54.1 in September, meeting expectations.
South Korea's exports rose 83.5 percent year over year in September, exceeding expectations. Rising global artificial intelligence investment boosted chip demand and contributed to record semiconductor shipments. Japan's Nikkei 225 rose 2.9 percent, while South Korea's Kospi gained 1.2 percent. Markets in China and Hong Kong were closed for a holiday.
Selling pressure weighs on Borsa Istanbul
The BIST 100 index on Borsa Istanbul ended the day down 2.79 percent at 11,947.18 points after trading was dominated by selling pressure. The October futures contract based on the BIST 30 index also fell 0.66 percent in the evening session compared with the regular-session close.
The dollar/Turkish lira exchange rate ended the day flat at 49.0113. The rate rose 0.1 percent to trade at 49.0360 at the opening of interbank trading.
The Capital Markets Board decided to make interim payments to all participation-share holders whose settlements had been completed in funds established by Tera, Pusula, Atlas and Hedef Portfolio Management Inc. and undergoing liquidation, with the payments to be offset against the amounts they would be entitled to receive upon completion of the liquidation.
Weekly monetary and banking statistics and the manufacturing PMI will be monitored domestically, while global manufacturing PMI data will be followed abroad. Weekly US jobless claims and the manufacturing PMI, the euro area unemployment rate, and remarks by Bank of England Governor Bailey and European Central Bank President Lagarde will also be followed.
According to technical assessments, 11,800 and 11,700 points stand out as support levels for the BIST 100 index, while 12,100 and 12,200 points are seen as resistance levels.
