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Global markets experienced significant volatility over the past week as investors grappled with shifting central bank narratives, record tech valuations, and evolving trade dynamics between the world's largest economies.

Central Banks Signal Caution

The Federal Reserve's latest rate cut came with a notably hawkish twist that caught markets off guard. While delivering the expected 25 basis point reduction, Fed Chair Powell emphasized that December's decision remains far from certain, with two dissenters highlighting deep divisions within the committee. The lack of economic data due to the ongoing government shutdown - now the longest on record at over 30 days - has left policymakers navigating in the dark, contributing to heightened uncertainty about the monetary policy path ahead.

This cautious tone resonated across global central banks. The Reserve Bank of Australia held rates steady and revised inflation forecasts higher, pushing expectations for any potential easing well into 2025. Governor Bullock acknowledged that policy might not be as restrictive as previously thought, effectively questioning whether further cuts are warranted. Similarly, the European Central Bank maintained its stance that policy is "in a good place," while the Bank of Canada suggested its easing cycle might be complete.

Tech Euphoria Meets Reality Check

The technology sector continued its remarkable run, with Nvidia briefly surpassing a $5 trillion market capitalisation - adding a trillion dollars in just four months. However, this milestone coincided with growing concerns about valuations and sustainability. The Magnificent Seven now represent 38% of the S&P 500, with their price-to-earnings ratio hitting 41.5 compared to 28.5 for the broader index.

Third-quarter earnings revealed both strength and vulnerability. While technology companies posted 25% year-over-year earnings growth, led by AI and cloud computing demand, markets began questioning whether massive capital expenditures - totalling $78 billion in the latest quarter alone - will deliver promised productivity gains. Several Wall Street executives warned of potential corrections, particularly in tech, triggering a sharp selloff that saw the Nasdaq drop 1.5% in Tuesday's session.

Trade Relations: Temporary Détente

Presidents Trump and Xi announced a one-year trade truce following their meeting at the ASEAN summit, with China agreeing to maintain rare earth mineral exports and purchase American soybeans while the US reduced some tariffs. However, markets remained skeptical, recognising this as largely kicking the can down the road rather than addressing fundamental structural issues.

Manufacturing data reflected ongoing trade policy impacts, with US ISM manufacturing remaining in contraction for the eighth consecutive month. Manufacturers explicitly cited tariffs as dampening demand and squeezing margins, while Chinese export orders declined sharply ahead of the truce announcement.

Inflation Refuses to Retreat

Persistent inflation emerged as a global theme, with Australia's CPI surprising to the upside at 3.5% annually, European services inflation accelerating, and Tokyo's core CPI jumping to 2.8%. This stickiness in price pressures reinforced central banks' cautious stances and pushed rate cut expectations further into the future.

Looking Ahead

Markets enter the week ahead facing multiple crosscurrents: stretched tech valuations, uncertain monetary policy paths, and fragile trade agreements. With traditional economic indicators disrupted by the US government shutdown, investors must navigate with limited visibility. The key question remains whether AI-driven productivity gains can justify current valuations before monetary policy support fully withdraws.