Brazil ETF slides after Lula's win; Asia-Pacific stocks mostly lower

Summary:

• Crude started the session with a downward gap after a weekend that brought no fresh escalation by the US in its conflict with Iran, pulling back from the strongest levels in roughly six months; persistent strikes on Saudi Arabia, however, continued to keep supply worries alive.
• Senior officials from Saudi Arabia, Turkey and Pakistan were anticipated to gather in Tehran on Monday with Iranian counterparts for talks on regional coordination, according to Reuters sources.
• From the second half of 2027, Saudi crude is set to be held in underground caverns on Singapore's Jurong Island as part of an effort to strengthen supply security in Asia.
• Gold remained close to a three-month trough, with high energy prices feeding expectations that US rates will stay elevated for longer ahead of the Federal Reserve's decision.
• Currency trading was quiet overall; USD/JPY slipped from above 157.10 to below 156.75, and China's onshore yuan strengthened to its best level since June 2022.
• South Korea posted the steepest declines in the region as the Kosdaq fell 2.8% and the Kospi lost 1.6%; Japan's Nikkei dropped 0.7%, while the Hang Seng managed a 0.2% gain.
• An exchange-traded fund tracking the Bovespa and listed in Tokyo dropped nearly 15% after Lula's runoff victory, and Goldman Sachs sketched an extreme case in which USD/BRL climbs 10% and equities fall 15%; soybean futures in Chicago slid to a two-month low as Lula's win in Brazil stirred expectations of strengthened relations with China.
• Serbia's Aleksandar Vučić admitted defeat to the student-led movement, bringing an end to nearly 12 years in power.
• Michael Saylor, chairman of Strategy, did not publish his customary Sunday bitcoin chart.

Oil

Oil began Monday with a gap-down open after a weekend that brought no fresh escalation by the US in its conflict with Iran, stepping back from near six-month highs touched in the prior week. But the downside was contained because continued strikes on Saudi Arabia left supply worries front and center.

News was scarce through the session. Subsequently, two sources told Reuters that senior Saudi, Turkish and Pakistani officials were expected to hold talks in Tehran on Monday with Iranian officials on regional coordination.

In a separate development, Saudi Arabia and Singapore announced that Saudi crude will be stored in underground caverns on Singapore's Jurong Island from the second half of 2027, with the aim of reinforcing Asian supply security at a time when flows through the Strait of Hormuz are still disrupted. Saudi Aramco is expected to sign a memorandum of understanding with Singapore's Energy Market Authority and Jurong Group, with negotiations targeted for completion within months.

Gold

Gold sat close to a three-month low while traders waited for the Fed's meeting this week for hints on the path of US rates. High energy costs have bolstered the view that the central bank will hold rates at elevated levels for longer, increasing the cost of owning bullion, which pays no interest. Last week gold dropped around 4% and at one point slid under $4,000. On a structural level, Goldman Sachs calculates that central banks purchased 79 tonnes in August, over four times the average monthly pace before 2022, and that some reserve holdings have moved from New York to London.

FX

FX trading was mostly muted, though the dollar-yen pair swung within a narrow band, rising above 157.10 before falling below 156.75. China's onshore yuan firmed in early dealing, reaching its strongest level since June 9, 2022.

Equities

Equities across the region were largely in the red, with South Korea heading the losses:

• Japan's Nikkei: off 0.7%
• South Korea's Kospi: lost 1.6%
• South Korea's Kosdaq: dropped 2.8%
• China's Shanghai Composite: eased 0.3%
• Hong Kong's Hang Seng: gained 0.2%

In Tokyo, chip and electronics shares drove the slide. Earlier, Goldman Sachs trimmed its 12-month Kospi target to 9,000 from 12,000, while noting the index still has more than 60% upside after falling over 35% from its June peak.

Brazil

Brazil's presidential runoff on Sunday was won by President Luiz Inacio Lula da Silva, who defeated right-wing Senator Flavio Bolsonaro to clinch a fourth non-consecutive term after trailing in the first round. A Tokyo-listed exchange-traded fund that tracks the Bovespa dropped almost 15% in Asian trading on the outcome. Goldman Sachs outlined an extreme scenario on Monday in which USD/BRL advances 10%, long-dated government bond yields rise about 200 basis points, credit spreads widen by 30 to 40 basis points, and Brazilian shares fall roughly 15%.

Other news

In Serbia, Aleksandar Vučić, who has been both prime minister and president across nearly 12 years, admitted defeat to the student-led protest movement after Sunday's snap parliamentary election.

On crypto, Strategy's chairman, Michael Saylor, was absent from his customary Sunday bitcoin chart, a post that has usually come ahead of the firm's purchase disclosures. Market observers viewed the omission as a potential indication that Strategy — the biggest corporate bitcoin holder — halted purchases last week, but the missing chart does not confirm that. Saylor remained active on X, calling bitcoin “the moat” in a response to Jack Dorsey. A Monday filing from the company is expected to clarify its activity, and third-quarter results are scheduled for Thursday.

Elsewhere, Elon Musk stated SpaceX has completed $40 billion in debt financing for GPUs and cautioned that tighter credit conditions could push AI-focused neocloud providers into failures and consolidation. China's commerce ministry said it maintains the right to respond with countermeasures to a proposed US Treasury rule that would expand restrictions on American investment in Chinese technology.

Week ahead

Central banks dominate the calendar this week. The Reserve Bank of New Zealand and the Bank of Canada are both anticipated to raise rates on Wednesday, while the Federal Reserve, also deciding that day, is expected to stay on hold. The European Central Bank is scheduled for Thursday, and the Bank of Japan, meeting Thursday and Friday, is likewise expected to hold rates steady. In Australia, RBA Assistant Governor Sarah Hunter stated on Sunday that the central bank has yet to do enough to curb inflation, with Wednesday's CPI figures and the November 3 policy meeting to follow.