Tesla triumphs while US bond yields hit the brakes

Markets

On Thursday, markets breathed a much-needed sigh of relief as the corporate earnings spotlight shifted to Tesla, delivering a mega-cap surprise, sending the stock soaring to nearly 22%. This was Tesla’s best day since 2013, as Q3 results outpaced expectations, and Elon Musk’s vague but bullish promise of “20% to 30% growth next year” lit the fuse. Sure, part of the rally was down to the numbers, but, honestly, Musk’s ability to fire up investors' imagination powered this massive surge. After all, we just witnessed SpaceX pull off a childhood dream by catching a Starship booster with 'Chopsticks' on a historic Flight 5! Musk has that magic touch, and investors are buying in.

With investors utterly vexed by the U.S. election run-up amid the suffocating tension, the rally couldn’t have come at a better time. The political uncertainty looming over markets has been palpable, with every twist in the polls sending waves of anxiety across trading desks. As Wall Street grapples with the unpredictable outcome, Tesla's earnings beat was a welcome lifeline.

Bond markets, blazing hot with yields soaring, finally hit the brakes. U.S. Treasury yields eased up after pushing to scorching levels, helped by softer global business surveys and to close to call mainstream "Blue Wall" polls that have thrown a wrench into the “Red Sweep” narrative. Traders, at least for now, are pausing to reassess just how much fuel is left in the tank for the idea of a Republican takeover. It’s as if the market decided to take a collective deep breath, reevaluating whether the Trump trade and its inflationary undertones have more legs to run wild.

So after three days of relentless selling, markets bounced back, as traders now turn their attention to the rest of the “Magnificent Seven” earnings reports. Tesla’s big win has set the stage, and now it’s game on for the other tech giants. However, while Tesla’s earnings offered a much-needed breather, the vexing election risk keeps traders cautious.

Meanwhile, across the Pacific, Japan is gearing up for its own political drama. With the country’s general election on Sunday, recent polls suggest the ruling coalition could lose its parliamentary majority, which could complicate the Bank of Japan’s plans to tighten monetary policy. The yen finally clawed back some ground on Thursday, clocking its biggest rise in a month and pulling the dollar down to 151.50 after flirting with 153.00. Some of that rebound can be attributed to Japan’s Finance Minister Shunichi Kato’s interventionist jawboning; likely, some “real “money flows helped stabilize things.

The yen's recent weakness has been a golden opportunity for foreign investors, who’ve been snapping up Japanese stocks for the fourth week in a row. Yet, while overseas money flows in, local investors have taken a step back, wary of the looming domestic election and a wave of local earnings reports. The Nikkei has felt the pressure, sliding over 2% this week as election jitters from Japan and the U.S. cast a long, unsettling shadow over global sentiment. It's a tale of political dice continuing to roll on both sides of the Pacific.

Despite Thursday’s brief market reprieve, Asian markets still feel the heat and remain on course for their third consecutive weekly loss. The relentless spike in U.S. bond yields and a surging dollar—driven by inflation fears surrounding Trump’s proposed tariff policies—cast a long shadow over Asian sentiment. This feels like a heavy dose of "bad karma" for the region as traders brace for the fallout from a potential Trump victory and the economic ripple effects it may bring.

Oil markets

Welcome to the yo-yo syndrome—otherwise known as trading oil in a geopolitical minefield. Oil prices eased overnight as traders continued to unwind some of the geopolitical risk premium amid ongoing Israel-Hamas ceasefire negotiations. Diplomats are set to meet next week to push forward efforts to halt the conflict in Gaza, with U.S. Secretary of State Antony Blinken exploring ways to revive talks during his visit to Qatar.

This oil pullback coincides with a bearish EIA inventory report out of the U.S., highlighting weak demand stateside. Add that into the mix, and you’ve got a market trying to balance geopolitical shocks and cold, hard numbers pointing to softer fundamentals. For now, traders are treading carefully as oil oscillates in a high-stakes geopolitical landscape.

Forex

Trump is gaining traction in the mainstream polls, with the latest WSJ survey showing him inching ahead. Meanwhile, sentiment surrounding Vice President Harris has nosedived, with unfavourable views now outnumbering favourable ones by a hefty eight-point margin—53% to 45%. It’s a worrying sign for Democrats as election day looms, and yet, counterintuitively, the dollar sold off in response.

But don’t get too comfortable—Trump’s surge makes the short-dollar trade a tricky beast to ride. Heading into next week, and if the polls continue to favour a Trump win, Dollar Bears will find it increasingly tough to hold their ground as resistance mounts with the former president’s momentum.

And let’s not forget: liquidity is thinning out fast, and volatility is on the verge of spiking. Risk managers are tapping traders on the shoulder, warning that the next market swings could be brutal. We might be staring down a situation where folks head for the exits en masse, triggering a broad wave of deleveraging and derisking. If traders start scrambling to get out of dodge, we’re likely in for a wild, unpredictable week ahead.

When liquidity dries up in any asset class, exit strategies that usually hinge on razor-thin margins—say, 0.25% or 0.50%—begin to feel like a game of “Pin the Tail on the Donkey.” For those of us who’ve weathered five or more of these political circus acts, you know exactly what I mean. Hold onto your hats—it’s about to get wild.

The view

The selloff in U.S. Treasuries is far from over, with bonds mired in one of their worst losing stretches of the year. The 10-year yield is still hovering around 4.21%, though prices steadied a bit today. Investors find plenty of reasons to ditch bonds, especially as the resilient U.S. economy makes a shallower path for Fed rate cuts look more likely. And while election guessing is notoriously tricky—polls showing Trump gaining ground —it's keeping the market on edge as we head into the race's final stretch to the White House.