US Stock Market Falls as Investors Weigh Earnings, Fed Rate Expectations, and Global Currency Movements | Daily Market Analysis

Key events:

• Japan - BoJ Board Member Adachi Speaks
• UK - CPI (YoY) (Sep)
• Eurozone - ECB President Lagarde Speaks

US stocks dropped on Tuesday as investors assessed a series of corporate earnings, with particular attention on the banking sector.

The Dow Jones Industrial Average fell by 325 points, or 0.75%, while the S&P 500 index declined by 42 points, or 0.7%, and the NASDAQ Composite lost 181 points, or 1%.

Investor attention was firmly on the third-quarter earnings season, which gained momentum on Tuesday.

The banking sector stood out, with Goldman Sachs (NYSE: GS) shares climbing 2% after the investment banking giant exceeded third-quarter expectations. A key contributor was its Global Banking & Markets division, which generated impressive net revenues of $8.55 billion for the quarter.

Bank of America (NYSE: BAC) stock also rose 1.9%, as the second-largest US bank reported earnings per share that beat forecasts. Although net profit slipped compared to the previous year, higher investment banking fees helped offset a slight decline in net interest income.

Boeing (NYSE: BA) shares edged up 0.2% amid volatile trading after the aerospace giant secured a $10 billion credit agreement with a group of banks. The company also filed a registration statement with US regulators, enabling it to raise up to $25 billion through the sale of various debt securities and stock classes.

Meanwhile, traders of the British Pound are eyeing the upcoming UK CPI data release, weighing the possibility of a Bank of England rate cut next month following mixed signals from BoE policymakers earlier in October.

The UK’s Office for National Statistics (ONS) will release its September Consumer Price Index (CPI) report on Wednesday at 06:00 GMT. The data could confirm expectations of a 25-basis-point interest rate cut by the BoE in November, which may spark volatility in Pound Sterling. Analysts expect UK annual CPI to rise by 1.9%, slowing from August’s 2.2%, and dipping below the BoE’s 2.0% target. Core CPI inflation is forecast to ease to 3.4% year-over-year in September, down from 3.6% in August. Services inflation is also anticipated to drop to 5.2%, compared to 5.6% in the prior month, according to a Bloomberg survey.

Meanwhile, the Australian Dollar extended its losing streak against the US Dollar for the third consecutive day, despite hawkish comments from Reserve Bank of Australia Deputy Governor Sarah Hunter, who reiterated the central bank’s commitment to curbing inflation. The AUD is facing downward pressure due to uncertainty surrounding China’s economy, its largest trading partner, and tepid market reactions to China’s newly announced fiscal stimulus package.

In New Zealand, the NZD/USD pair experienced its second consecutive decline, trading around 0.6060 during the Asian session, hitting a two-month low of 0.6039. New Zealand’s CPI rose by 2.2% year-over-year in the September quarter, down from a 3.3% increase in the previous quarter. Quarterly, CPI increased by 0.6%, slightly higher than the 0.4% rise recorded in the June quarter. Nicola Growden, consumer prices manager at Stats NZ, noted, “For the first time since March 2021, annual inflation is within the Reserve Bank of New Zealand’s target range of 1% to 3%. Prices are still increasing but at a slower rate than before.”

The US Dollar remains supported by strong employment and inflation data, tempering expectations of aggressive Federal Reserve rate cuts. Market projections now anticipate 125 basis points in total rate cuts over the next year, with the CME FedWatch Tool showing a 94.1% probability of a 25-basis-point cut in November. On Tuesday, Federal Reserve Bank of Atlanta President Raphael Bostic signaled the likelihood of one more 25-basis-point cut by year-end.

The Japanese yen strengthened against the US dollar on Tuesday, recovering from recent losses and hitting its highest level since early August. The drop in US equity markets and ongoing geopolitical risks fueled demand for the safe-haven JPY.

However, uncertainty over the Bank of Japan's rate-hike plans has limited the Yen’s gains. Disappointing August Core Machinery Orders in Japan further capped the JPY's advance during Wednesday’s Asian session. Meanwhile, the US Dollar remains near a two-month high, driven by expectations of modest Fed rate cuts, keeping the USD/JPY pair steady around the 149.00 mark.

The market’s attention turns to upcoming US Retail Sales, Industrial Production data, and Initial Jobless Claims due later this week.