Capital Idea: Market wrap, 8th October

• Wall Street pulls back from record highs

• The US Dollar threatens to reverse trend

• RBNZ could cut by 25 or 50 basis points

Wall Street pulled back from record highs, in a move that was as healthy as it was unremarkable. While these sorts of down days at the height of a bull market stoke commentary and concerns about the beginning of a deeper sell-off, the catalyst isn’t really there at the moment. Fears about overinvestment, skinnier margins, and underwhelming ROI on artificial intelligence captured the narrative overnight. While a legitimate and ever present risk, there was no fresh information that came to light overnight to really threaten the bull market. The S&P 500 re-testing and respecting previous resistance (now support) is a constructive signal that this uptrend remains intact. A bearish divergence on the RSI is somewhat of an amber signal but not a major cause of concern in isolation.

(Source: Trading View)

(Past performance is not a reliable indicator of future results)

The FX complex is being shifted by the weight of a resurgent US Dollar, which itself has found support this week from the election of deficit-dove Sanae Takaichi in Japan and the unraveling of another Government in France. The US Dollar Index, which has declined by more than double digits in 2025 so far, is showing signs of bottoming out, with resistance at 98.60 a critical line in the sand. Despite the stronger Dollar, gold continues to climb, in a symptom of the “run it hot” trade where governments in many developed market economies are looking to stimulate despite inflation running above target. The yellow metal is within touching distance of the $US4000 milestone and looks poised to give it a test at the outset of Asian trade.

(Source: Trading View)

(Past performance is not a reliable indicator of future results)

Futures point to a sluggish open for Asian markets with several countries coming back online  today after public holidays yesterday. The RBNZ meeting will inevitably be a volatility event. The central bank is all but certain to cut rates. However, market pricing is reflecting a genuine split between a 25 and 50 point move – with a 42% chance being ascribed to the latter. As a result, either way, the NZD/USD will have to move to discount whatever the RBNZ decides to do. The markets will also be paying attention to guidance after the central bank’s dovish pivot in August and whether it still sees weak growth and building spare capacity putting enough downward pressure on inflation to keep cutting rates into the mid-2%s next year.