Markets retreated last week, pulling back about 2.5-3% from record levels. While the decline is modest, it is marked by several headwinds that could create further pressure this week.

Government Shutdown Reaches Historic Length

The ongoing shutdown has now reached record duration, and there's still no clear resolution in sight. Healthcare remains the primary sticking point between the two sides. Some reports suggest potential progress, but the jury's still out on whether any deal will materialise or gain bipartisan support before the Thanksgiving holiday season.

Key Economic Data May Be Delayed

The shutdown's impact extends to data releases. Market-influencing government reports, including jobs numbers and CPI data, may be delayed this week — CPI is still technically scheduled, but the shutdown could affect its release. This data delay will make it harder to gauge the economy's true direction and could inject further volatility into markets.

Earnings Season Continues to Impress

Despite these macro headwinds, corporate America is delivering exceptional results. We're seeing an 82% EPS beat rate and 77% of companies exceeding revenue expectations. While we're in the final 10% of S&P 500 reports, some important retail stocks are still due. These consumer-facing companies could provide valuable insights into spending patterns and economic health.

NVIDIA Tests Critical Support Level

AI stocks are facing pressure, with NVIDIA testing a key technical level around $180-$185. The stock experienced five consecutive days of losses before bouncing strongly on Friday with a major wick rejection. If support at $180 breaks, we could see a drop to $165. However, Friday's bounce suggests a possible retest of $193. This is a crucial moment for the AI sector leader, and its direction could influence broader tech sentiment.

Market Insights

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Key economic events

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Artificial intelligence stocks have begun to waver slightly, experiencing a selloff period in the first week of this month. The Nasdaq has fallen approximately 2%, wiping out around $500 billion in market value from top technology companies.

Palantir Technologies dropped nearly 8% despite beating Wall Street estimates and issuing strong guidance, highlighting growing investor concerns about stretched valuations in the AI sector.

Nvidia shares also fell roughly 4%, while the broader selloff extended to Asian markets, which experienced some of their sharpest declines since April.

Wall Street executives, including Morgan Stanley CEO Ted Pick and Goldman Sachs CEO David Solomon, warned of potential 10-20% drawdowns in equity markets over the coming year.

And Michael Burry, famous for predicting the 2008 housing crisis, recently revealed his $1.1 billion bet against both Nvidia and Palantir, further pushing the narrative that the AI rally may be overextended.

As we near 2026, the sentiment around AI is seemingly starting to shift, with investors beginning to seek evidence of tangible returns on the massive investments flowing into AI, rather than simply betting on future potential.

However, despite the recent turbulence, many are simply characterising this pullback as "healthy" profit-taking rather than a fundamental reassessment of AI's value.

Supreme Court Raises Doubts About Trump’s Tariffs

The US Supreme Court heard arguments overnight on the legality of President Donald Trump's "liberation day" tariffs, with judges from both sides of the political spectrum expressing scepticism about the presidential authority being claimed.

Trump has relied on a 1970s-era emergency law, the International Emergency Economic Powers Act (IEEPA), to impose sweeping tariffs on goods imported into the US.

At the centre of the case are two core questions: whether the IEEPA authorises these sweeping tariffs, and if so, whether Trump’s implementation is constitutional.

Chief Justice John Roberts and Justice Amy Coney Barrett indicated they may be inclined to strike down or curb the majority of the tariffs, while Justice Brett Kavanaugh questioned why no president before Trump had used this authority.

Prediction markets saw the probability of the court upholding the tariffs drop from 40% to 25% after the hearing.

The US government has collected $151 billion from customs duties in the second half of 2025 alone, a nearly 300% increase over the same period in 2024.

Should the court rule against the tariffs, potential refunds could reach approximately $100 billion.

The court has not indicated a date on which it will issue its final ruling, though the Trump administration has requested an expedited decision.

Shutdown Becomes Longest in US History

The US government shutdown entered its 36th day today, officially becoming the longest in history. It surpasses the previous 35-day record set during Trump's first term from December 2018 to January 2019.

The Senate has failed 14 times to advance spending legislation, falling short of the 60-vote supermajority by five votes in the most recent vote.

So far, approximately 670,000 federal employees have been furloughed, and 730,000 are currently working without pay. Over 1.3 million active-duty military personnel and 750,000 National Guard and reserve personnel are also working unpaid.

SNAP food stamp benefits ran out of funding on November 1 — something 42 million Americans rely on weekly. However, the Trump administration has committed to partial payments to subsidise the benefits, though delivery could take several weeks.

Flight disruptions have affected 3.2 million passengers, with staffing shortages hitting more than half of the nation's 30 major airports. Nearly 80% of New York's air traffic controllers are absent.

From a market perspective, each week of shutdown reduces GDP by approximately 0.1%. The Congressional Budget Office estimates the total cost of the shutdown will be between $7 billion and $14 billion, with the higher figure assuming an eight-week duration.

Consumer spending could drop by $30 billion if the eight-week duration is reached, according to White House economists, with potential GDP impacts of up to 2 percentage points total.

Major companies have announced over 25,000 layoffs in the U.S. this month alone, with Amazon leading the charge with 14,000 announced corporate job cuts.

This number may increase to 30,000 for Amazon by the end of the year, as CEO Andy Jassy pursues a vision of operating like "the world's biggest startup.”

Other big corporations have followed the same trend, with Target making 1,800 corporate cuts, Starbucks 2,000 positions, and, in Europe, Nestlé plans for over 20,000 cuts.

What distinguishes this round of layoffs is the focus on white-collar roles seen as vulnerable to AI-driven automation—affecting middle managers, analysts, and corporate staff.

Gartner analysts predict that by 2026, one in five organizations will use AI to eliminate at least half of their management layers.

According to a KPMG survey, 78% of executives face intense pressure from boards and investors to prove AI is saving money and boosting profits, with traditional metrics often failing to capture its business impact.

Ford CEO Jim Farley warned that AI will "replace literally half of all white-collar workers," while Salesforce's Marc Benioff claims AI is already doing up to 50% of his company's workload.

Anthropic CEO Dario Amodei predicts AI could eliminate half of all entry-level white-collar jobs within five years, potentially spiking unemployment to 10-20%.

Nvidia Makes History Again As First $5 Trillion Company

NVDA hit a $5 trillion market on October 29, becoming the first company in history to reach this milestone. The achievement came just three months after breaching $4 trillion, further cementing its position as the dominant force in artificial intelligence infrastructure.

Since Q4 2022 — when Chat-GPT launched and began the AI-boom — Nvidia shares have climbed by over 1200% and Nvidia's valuation now exceeds the entire cryptocurrency market and equals roughly half the size of Europe's benchmark Stoxx 600 index.

The milestone comes on the back of CEO Jensen Huang unveiling $500 billion in AI chip orders and plans to build seven supercomputers for the US government.

However, there are warnings that AI's current expansion relies on a few dominant players financing each other's capacity, and valuations may be running hot. The real test comes on November 19 when Nvidia reports its quarterly results.

Fed Lowers Rates, but May Be Last Cut of 2025

The Federal Reserve delivered a quarter-point rate cut last night, but Jerome Powell's post-meeting press conference sent a clear message: don't expect another cut anytime soon.

While the Fed moved forward with the expected reduction, Powell pointed to two key obstacles that may prevent further easing this year. First, the ongoing federal government shutdown has created a data blackout, depriving policymakers of critical employment and inflation reports.

Second, Powell revealed "strongly differing views" among Fed officials about the path forward, with a "growing chorus" advocating for a pause before cutting rates again.

Markets responded by adjusting expectations, now pricing in roughly two-to-one odds for a December rate cut — down from what had been considered more certain just hours earlier.

While the Fed still seems to remain committed to eventual rate cuts, the timeline has become dependent on the government shutdown and clearer economic signals about inflation and employment trends.

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President Trump and President Xi have scheduled talks for later this week in South Korea, marking their first face-to-face meeting since Trump's return to office. After two weeks of heightened tension, a preliminary framework was established that effectively takes the threatened 100% tariffs off the table.

Treasury Secretary Scott Bessent characterised the framework agreement as being "very successful." This diplomatic progress has created some optimism across markets that the world's two largest economies can avoid the deeper trade conflict that was threatening to destabilise supply chains and accelerate inflation.

Copper Tests Key Resistance

Following a dramatic Q3 that saw prices surge to a record high of $5.81 in July, before plummeting to $4.37 by early August, copper has been steadily recovering as supply fundamentals reassert themselves. 

Since breaking through $5.00 in early October, prices have continued to gain strength, rising to $5.11 on October 9. Today's gap higher on trade talk optimism pushed prices back to this key technical level that has proven resistant since March. 

A confirmed breakout above $5.24 could open the door to $5.50 and potentially higher, making copper worth watching closely this week as both supply constraints and improving US-China trade relations provide potential tailwinds.

Fed Rate Decision This Week

The Federal Reserve will meet this Wednesday for the October 28-29 policy meeting, with a quarter-point rate cut seemingly fully priced in by markets. Market pricing indicates a 100% probability of an October cut and an 88% chance of another reduction in December. 

The key moment will come after the meeting during Fed Chair Powell's press conference — particularly on what he has to say about future rate policy and how the Fed views the balance of risks between inflation and employment.

Market Insights

‍Watch the latest video from Mike Smith for the week ahead in markets.

Key economic events

‍Stay up to date with the key economic events for the week.

New U.S. Sanctions on Russia as Putin Conducts Nuclear Tests

The U.S. has imposed new sanctions on Russia's two largest oil companies, Rosneft and Lukoil, after planned peace talks between Trump and Putin collapsed on Wednesday.

Oil prices spiked 3% after the announcement, with Brent crude hitting $64 per barrel.

The targeted companies are among the world's largest energy exporters, collectively shipping about three million barrels of oil daily and accounting for nearly half of Russian production.

The sanctions build on recent European measures, as the UK targeted the same companies last week and the EU approved its own sanctions package on Wednesday.

In a show of force coinciding with the new sanctions, Putin supervised strategic nuclear exercises on Wednesday involving intercontinental ballistic missile launches from land and submarine platforms.

While the Kremlin emphasised these were routine drills, the highly coincidental timing is notable.

For markets, the key question now is whether secondary sanctions will follow, and if Trump’s enforcement remains strict. Traders will watch closely for any TACO signals that see Trump ease pressure in an attempt to restart negotiations.

Historic PM Wasting No Time on Celebrations

Sanae Takaichi made history this week as Japan's first female Prime Minister. The 64-year-old conservative leader, dubbed the "Iron Lady,” is already rolling out an aggressive policy agenda that could reshape Japan's economic and geopolitical position.

Her first major move is an economic stimulus package expected to exceed US $92 billion. The package includes abolishing the provisional gasoline tax and raising the tax-free income threshold from ¥1.03 million ($6,800), moves designed to put more money in consumers' pockets and battle inflation.

Her next move will come when Trump arrives in Tokyo next week, as the Japanese government is finalising a purchase package including Ford F-150 pickup trucks, US soybeans, and liquefied natural gas as sweeteners for trade talks.

Takaichi has campaigned on being a champion for expansionary fiscal policy, monetary easing, and heavy government investment in strategic sectors, including AI, semiconductors, biotechnology, and defence.

Critical Workers to Miss First Paycheck Due to Shutdown

The U.S. government shutdown is on the verge of creating a crisis for aviation safety, with 60,000 workers set to miss their first full paycheck this week.

These essential workers, who earn an average of $40,000 annually, already saw shortened paychecks last week. By Thursday, many will receive pay stubs showing zero compensation for the coming period, forcing impossible choices between basic necessities and reporting to work.

During the last extended shutdown, TSA sick-call rates tripled by Day 31, causing major delays at checkpoints and reduced air traffic in major hubs like New York — disruptions which are directly attributed to pressuring the end of the previous shutdown.

The National Air Traffic Controllers Association warns that similar pressures are building, with many workers soon to be facing a decision between attending their shift or putting food on the table.

S&P 500 and ASX Rally as Big Banks Drive Markets

Both the S&P 500 and ASX have rallied on the back of stronger-than-expected major bank earnings reports on both sides of the Pacific.

In the US, Bank of America reported a 31% year-over-year increase in earnings per share at $1.06, exceeding Wall Street's estimate of $0.95. Meanwhile, Morgan Stanley delivered a record-breaking quarter with EPS of $2.80, a nearly 49% increase from the same period last year.

On the Australian front, the benchmark ASX 200 leapt 1.03% to 8990.99, with all four major Australian banks playing a major role. CBA closed 1.45% higher, Westpac 1.98%, NAB 1.87%, and ANZ 0.53%.

These strong bank results indicate broader economic strength, despite recent concerns about US-China trade tensions. US Treasury Secretary Scott Bessent emphasised that Washington did not want to escalate trade conflict with China and noted that President Trump is ready to meet Chinese President Xi Jinping in South Korea later this month.

With the third-quarter earnings season just getting underway, these early positive results from financial institutions could prove as the start of continued market strength through to the end of the year.

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U.S. Government Shutdown Likely to Last Into November

Washington remains gridlocked as the U.S. enters its 16th day of shutdown. With no signs of compromise on the horizon, it appears increasingly likely the shutdown will extend into November and could even compromise the Thanksgiving holiday season.

Treasury Secretary Scott Bessent has warned "we are starting to cut into muscle here" and estimated "the shutdown may start costing the US economy up to $15 billion a day."

The core issue driving the shutdown is healthcare policy, specifically the expiring Affordable Care Act subsidies. Democrats are demanding these subsidies be extended, while Republicans argue this issue can be addressed separately from government funding.

The Trump administration has taken steps to blunt some of the shutdown's immediate impact, including reallocating funds to pay active-duty soldiers this week and infusing $300 million into food aid programs.

However, House Speaker Mike Johnson has emphasised these are merely "temporary fixes" that likely cannot be repeated at the end of October when the next round of military paychecks is scheduled.

By the end of this week, this shutdown will become the third-longest in U.S. history. If it continues into November 4th, it will surpass the 34-day shutdown of 2018-2019 to become the longest government shutdown ever recorded.

This prolonged shutdown adds another layer of volatility to markets. While previous shutdowns have typically had limited long-term market impacts, the unprecedented length and timing of this closure, combined with its expanding economic toll, warrant closer attention as we move toward November.

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Trump Announces Modi Has Agreed to Stop Buying Russian Oil

Yesterday, Trump announced that Indian Prime Minister Narendra Modi has agreed to stop purchasing Russian oil. He stated that Modi assured him India would halt Russian oil imports "within a short period of time," describing it as "a big step" in efforts to isolate Moscow economically.

The announcement comes after months of trade tensions between the US and India. In August, Trump imposed 50% tariffs on Indian exports to the US, doubling previous rates and specifically citing India's Russian oil purchases as a driving factor.

India has been one of Russia's top oil customers alongside China in recent years. Both countries have taken advantage of discounted Russian oil prices since the start of the Ukraine invasion.

Analysis suggests India saved between $2.5 billion to $12.6 billion since 2022 by purchasing discounted Russian crude compared to other sources, helping support its growing economy of 1.4 billion people.

Trump suggested that India's move would help accelerate the end of the Ukraine war, stating: "If India doesn't buy oil, it makes it much easier." He also mentioned his intention to convince China to follow suit: "Now I've got to get China to do the same thing."

The Indian embassy in Washington has not yet confirmed Modi's commitment. Markets will be closely watching for official statements from India and monitoring oil trading patterns in the coming weeks to assess the potential impact on global energy flows and prices.

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Chart of the Day - Gold futures CFD (XAUUSD)