A look at the day ahead in European and global markets from

Ankur Banerjee

Markets are wrestling with political drama in Japan, France

and the U.S., pushing safe-haven of choice, gold, past $4,000

per ounce to yet another record high, as investors use the metal

as a hedge against a plethora of worries.

To say spot gold has been on a tear would be an

understatement - the eye-watering 50% gain so far this year is

on top of a 27% surge in 2024 and a 13% rise in 2023.

Still, investors' appetite for all things gold remains

insatiable. Inflows into gold ETFs globally hit $64 billion

year-to-date, according to data from the World Gold Council,

with a record $17.3 billion in September alone.

The broad expectation of the Federal Reserve cutting rates

in the near term, worries over geopolitical and economic

uncertainties along with fears of a looming AI bubble have all

been cited as reasons for gold to become the favoured hedge.

It probably means that there is still room for more gains,

and that is a sign of worry.

Beyond commodities, investors are enraptured by what comes

next in the French political world where President Emmanuel

Macron faces growing pressure to resign or hold a snap

parliamentary election.

France was engulfed in further political chaos earlier this

week after its fifth prime minister in less than two years

resigned. Markets have taken fright, with the risk premium on

French government bond yields near a nine-month high.

The euro has been under pressure and that has

provided some respite to the dollar even as the U.S. shutdown

enters its eighth day.

The Japanese yen slipped further, taking its losses

to over 3% in just three sessions. The yen is back where it was

in mid-February, hovering around the 152.50 per dollar level as

whisper-it-quietly intervention risks emerge.

The market reaction to fiscal dove Sanae Takaichi's victory

has been explosive, as the yen crumbled, the Nikkei rocketed to

record highs and long-end bond yields surged on fiscal health

worries and on receding bets of another rate hike this year.

And yet, there has been very little to take cues from what

the fiscal policy path will look like in the near term. Her

stance has been relatively softer than last year and investors

are hoping that the next rate hike will be delayed but not

denied.

Key developments that could influence markets on Wednesday:

Economic events: German industrial data for August

(By Ankur Banerjee; Editing by Muralikumar Anantharaman)