The US S&P500 and Dow Jones indices closed lower on Monday and Tuesday. The Nasdaq100 followed suit yesterday. The Russell 2000 index of small public companies lost for four consecutive sessions. There are signs that we are now seeing the beginning of a correction like the one we saw in August, and there is also the risk of a bear market beginning.

CNN’s Fear and Greed Index has been mostly in the 70-75 range since late September – on the cusp of extreme greed. A market correction often accompanies a pullback from current highs into neutral territory.

The VIX volatility index jumped above 20 in early October, indicating heightened nervousness, which is unusual in situations where historical highs are being systematically updated. Historically, however, current levels are lower than typical for this time of year, although slightly higher than in US presidential election years.

Let’s look at the dynamics rather than the absolute levels of the VIX. We are entering an important period of highest volatility, covering the week before and the week after the election. Volatility is often synonymous with falling markets.

This decline also looks logical, given the typical pre-election uncertainty. This time, it is prolonged in the US due to a very close race between the candidates, with no clear winner yet. Separately, we look at the RSI and price divergence for the S&P500: the price is well above the July peak, while the Relative Strength Index peaked at 70 at the beginning of last week and has already fallen back to 59.

The risks for financial markets in the coming weeks are, therefore, tilted to the downside. Using the Fibonacci pattern, the 5600-5700 area for the S&P500 is a potential correction target if the markets do not dig deeper.

An armed group fighting Myanmar's ruling military said it has taken control of a mining hub that is a major supplier of rare earth oxides to China, likely disrupting shipments of elements used in clean energy and other technologies.

Rare earth mining in Myanmar is concentrated in Kachin state around the towns of Panwa and Chipwe, adjacent to southwestern China's Yunnan province.

The Kachin Independence Army (KIA) took control of Panwa on Oct 19, spokesperson Colonel Naw Bu told Reuters on Tuesday. It had previously captured Chipwe, according to local Myanmar media. Reuters was not able to independently verify the status of both towns.

The KIA is focused on managing the town of Panwa and has no current plans for rare earths or other economic issues, Naw Bu said.

He did not respond when asked whether the KIA is open to working with China on rare earths.

Previously, rare earth mining areas in Kachin state were under the control of militia group NDA-K, which is allied with Myanmar's junta government and welcomed payments from Chinese companies looking to establish mines.

Last year, Myanmar supplied China with about 50,000 metric tons of rare earth oxides (REOs) from ion-adsorption clays (IACs), eclipsing China's domestic IAC mining quota of 19,000 tonnes and making it the world's top exporter of heavy REOs, according to broker Ord Minnett.

"Rebel control of these mining sites could potentially disrupt rare earth concentrate shipments into China, which have declined for four months straight owing to the monsoon season and other challenges," research firm Adamas Intelligence said in a note on Tuesday.

China is the world's biggest consumer and importer of rare earth ores and compounds, which it uses to produce refined rare earth and magnets, industries it dominates.

Last month, China halted rare earth imports from Myanmar and suspended exports of ammonium sulphate used to leach rare earths there due to the conflict, said Ord Minnett analyst Matthew Hope.

"I expect the KIA plans to resume the REO business provided China is prepared to accept the exports and supply the technicians and ammonium sulphate. But I reckon it will expect payments before letting the companies do so," Hope said.

"Once the conflict passes, we expect financial deals with Chinese miners will be renegotiated, likely delaying restarts until early-2025," he said, adding that prices for REOs used in magnets are likely to rise as supply tightens.

Source: The edge markets

AUD/JPY extends its gains for the third consecutive day, trading near 101.60 during European hours on Wednesday. The Japanese Yen (JPY) is under heavy selling pressure due to growing concerns over political instability, which further clouds the outlook for the Bank of Japan's (BoJ) monetary policy.

In Japan, recent polls indicate the ruling coalition led by the Liberal Democratic Party (LDP) may lose its majority in the general election this weekend, which could jeopardize Prime Minister Shigeru Ishiba's position or push the party to seek an additional coalition partner to remain in power, per Reuters.

In its October World Economic Outlook (WEO) report, the IMF downgraded Japan's economic growth forecast to 0.3% for this year, down from 1.7% in 2023. The projection was revised downward by 0.4% compared to the July outlook. Looking ahead, the IMF expects the economy to grow by 1.1% in 2025, driven by stronger private consumption as real wage growth picks up.

Furthermore, traders will likely observe the speech of the Bank of Japan Governor Kazuo Ueda at the IMF-hosted "Governors Talk" session scheduled later in the North American session.

The Australian Dollar (AUD) receives support as upbeat employment data has strengthened the hawkish sentiment surrounding the Reserve Bank of Australia (RBA). Further support for the Aussie Dollar came from China's recent rate cuts, as China remains Australia's largest trading partner.

On Monday, RBA Deputy Governor Andrew Hauser expressed some surprise at the robust employment growth. He pointed out that the labor participation rate is notably high and clarified that while the RBA relies on data for its decisions, it is not overly fixated on it.

Source: FXSTREET

Blackstone Inc chief executive officer Steve Schwarzman said the US is likely to avoid a recession regardless of who wins the presidential election, as both candidates have policy proposals that appeal to growth.

“I don’t see a recession risk because the economy is pretty strong and both of the candidates keep mentioning a lot of stimulative policies,” the billionaire private equity chief said Wednesday in an interview in Tokyo. “But time will tell as to what anybody actually will be able or want to do.”

The upcoming US election, just two weeks away, is set to be one of the most impactful events for global markets and economies this year going into next. Schwarzman said in May that he will raise money for Donald Trump’s campaign, reversing his earlier call for a “new generation” of Republican leaders.

Policies the candidates have put forth — like Trump’s proposed tariffs and Kamala Harris’s bid to boost affordable housing — would be consequential for businesses including Blackstone, the world’s largest alternative asset manager.

Schwarzman, 77, said historically Democrats have taken a more “vigorous approach” to regulation, and that could impact some buying and selling for the private equity industry. Many policy proposals around the economy and taxes would be up to Congress to enact and not the president, he added.

“I think it’s impossible at this point to predict what either of them will actually do,” he said. “Since they keep coming out with new announcements almost every day to counter what the other one is doing.”

In May, when Schwarzman said he was supporting Trump, he cited his concern that US economic, immigration and foreign policies were going in the “wrong direction.”

Schwarzman said he sees an improving environment for making deals and exiting investments as interest rates are likely to continue to fall in the US.

“It’s really about interest rates and economic growth,” he said. “Interest rates will continue to go down and that’ll provide an impetus of more transactions both on the buy and the sell.”

Dealmaking will likely continue to be robust in Japan, India and Australia — markets where Blackstone have been active this past year, Schwarzman said. While Europe is likely to see the lowest economic growth among developed nations, that could still present opportunities, he added.

Last week, Blackstone reported an increase in quarterly earnings that also showed credit edged out real estate as its biggest business by assets.

In a separate interview, Gilles Dellaert, Blackstone’s global head of credit and insurance, said the private credit industry is still at the beginning of expansion. “We’re in the very early days,” Dellaert said on Bloomberg Television.

Japan expansion

Schwarzman was in Tokyo for the second time this year to meet with investors as Japan becomes a more important market for deals and fundraising at Blackstone, which he co-founded in 1985 and now has US$1.1 trillion (RM4.7 trillion) in assets under management.

Blackstone will introduce at least three new products in 2025 for individual investors in Japan, including one tied to infrastructure, Schwarzman said. There will also be a “significant increase” in headcount in the country, he said, without giving a number.

Japan’s wealthy have become a strong source of fundraising for Blackstone, as the government encourages people to invest more of their cash savings, the value of which is eroding as inflation takes hold in the country. The firm has publicly offered funds in Japan focused on private equity, real estate and private credit. The PE fund has raised about US$1.4 billion from individuals since launching earlier this year, according to figures from the Japan Securities Dealers Association.

Blackstone expects to make about US$20 billion in real estate and corporate investments in Japan during the next three years, president Jon Gray said in September.

Global private equity firms have increasingly turned to Japan for investment, attracted by cheap financing, a weak currency and a large pool of undervalued companies to target. Although the Bank of Japan exited its negative interest-rate policy this year, investors have said that borrowing costs remain low and attractive in the country.

“Japan has become one of the most interesting destinations for people in the financial world,” Schwarzman said. “There’s a lot of reasons to be increasing our focus here and our number of people as well.”

Source: The edge markets

Top financial regulators around the globe are voicing concern about private credit valuations, whether lenders are hiding troubled loans, and the deep entanglement between private markets and insurance money.

“Valuation risks are where we see a core issue,” Andrew Dean, the co-chief of the Division of Enforcement Asset Management at the US Securities and Exchange Commission, said during a Bloomberg regulatory forum in New York City on Tuesday.

Dean was joined by regulators from the European Central Bank and the International Monetary Fund, who also emphasised a need to prod private credit firms about portfolio valuations and warned of potential issues arising from redemptions.

Regulators have warned about a lack of transparency around private loan valuations and potential liquidity mismatches over the last year or so, as the market has ballooned to US$1.7 trillion (RM7.4 trillion) in size and interest rates have remained high. Some, including the ECB, have gone further to scrutinise how banks, private equity firms and insurers are tied to private credit, and how a lack of transparency could affect those groups.

The ECB has asked around a dozen lenders for more information on their private credit exposures, Bloomberg reported last month. In the UK, the Financial Conduct Authority launched a review of private asset valuations last year, while the Bank of England has also warned that the opaqueness of private equity valuations could jeopardise financial stability.

“Systemic risk is something we think about,” Elizabeth McCaul, a member of the supervisory board at the ECB, said on the panel.

The regulators, who expressed apprehension around leverage and an uptick in borrowers deferring payments through so-called payment-in-kind loans, narrowed in on concerns that private credit is not silo-ed from broader financial systems.

The SEC’s Dean used Credit Suisse Group AG’s loss after the collapse of Archegos Capital Management as “one example of why we care about the systemic risk,” he said.

Charles Cohen, an adviser at the IMF, said the fund wanted to “know more about the interconnectedness with private credit and insurance,” as insurers allocate more capital to “illiquid assets.”

“Given the growth, the stakes are real because more and more, we see private fund investors including retirement accounts and endowments with real people standing behind those,” Dean said.

For the SEC, private credit deals are “illiquid level-three assets,” he said, defined as the most illiquid and the most difficult to value. While there hasn’t been a downturn for private credit, Dean pressed for more transparency and an ability to “stress test.”

“Private markets reminds me of the Taylor Swift lyrics: ‘Nothing lasts forever but things are getting good now’,” Dean said. “It will last as long as the risk-adjusted returns are there.”

Source: The edge markets