*

Q3 dominated by surges in Japanese yen, Chinese stocks

*

Oil falls 17%, central banks cut rates

*

U.S. election expected to bring more volatility

*

Gold thrives on heightened uncertainty

By Marc Jones

LONDON, Sept 30 (Reuters) - What a wild quarter for the

markets! The yen's strongest run since the 2008 global crash,

central banks swivelling at speed, oil diving, gold shining and

China spraying economic stimulus.

The Q3 scores show world stocks and U.S.

Treasuries both up around 6%, gold almost 15%

higher, the yen up a whopping 11%. Oil is 17% lower and

central banks have just delivered the biggest batch of interest

rates cuts since the COVID-19 pandemic.

The storms started when the normally docile yen went wild at

the idea of higher Japanese rates at almost exactly the same

time U.S. economic data started looking queasy.

In just a few weeks, MSCI's main world equity index shed $6

trillion in one of the fastest sell-offs in years, especially

for Big Tech. Traders went from pricing one or two U.S. rate

cuts this year to five or six.

"The biggest thing that happened in Q3 was that the yen

carry trade broke down," Societe Generale's Kit Juckes said,

explaining the strategy of borrowing cheaply in Japan to buy

higher-yielding assets elsewhere.

"That, along with the first pieces of weak U.S. data, really

changed the market."

The prospect of lower borrowing costs did the trick though.

By the end of August, world stocks had rebounded and Chinese

markets were about to make a remarkable turnaround of their own.

As Beijing turned on the stimulus taps, including lower

rates and measures aimed at the ailing property market, Chinese

stocks have just notched up their strongest week since

1996 and real estate shares have rocketed by a

third.

China's largesse has also helped spur the biggest quarterly

spike in both emerging market stocks and the main

global volatility gauges since 2022.

"China needs to recover to see a turnaround in the asset

class," said Claus Born, an emerging markets equity portfolio

manager at Franklin Templeton. "China's influence is very

important".

A BIT LESS MAGNIFICENT

Markets are still showing signs of bruising from the August

turmoil.

Among the "Magnificent Seven" tech stocks that dominate

world markets - Nvidia ( NVDA ), Microsoft Amazon

and Google - are all ending the quarter lower

than where they were at the start.

Don't panic yet though, Apple ( AAPL ), Meta and

Tesla are up 9%, 13% and 32% respectively in Q3 and

Nvidia ( NVDA ) is up a staggering 145% for the year.

In commodities, the big Q3 shift has been the 17% slide in

oil, despite escalating conflict in the Middle East

where Israel's bombings have now spread to Lebanon.

The Middle East tensions and the weaker dollar have helped

gold to set new record highs and it looks set have had

its strongest quarter since 2016.

In agricultural commodities, cocoa shortages have pushed

prices up 87% for the year, which will be its second biggest

annual price jump on record barring a Q4 meltdown.

Europe has not escaped the volatility. French bond risk has

exploded to its highest level since the euro zone crisis after

gains by the far right has caused major headaches for French

President Emmanuel Macron.

As a result, investors are now demanding a higher interest

rate to buy 5-year French debt than they do from Greece, the

country that was at the centre of the euro zone crisis.

The euro has also fallen against European peers like

Britain's pound and the Swiss franc.

Distressed debt specialist fund Gramercy said the rise in

French government bond yields which also includes the

Franco-German yield differential topping 80bps had prompted

comparisons to the "Liz Truss moment" that the UK gilt market

endured two years ago.

TRUMP CARD

But there's no chance of a quiet end to the year, with the

fourth quarter set to be dominated by November's U.S. election

between Donald Trump and Kamala Harris.

Analysts at BofA highlight that even in normal conditions

the CBOE's VIX index, the Wall Street "fear gauge",

typically rises around 25% between July and November in U.S.

election years.

The vote - which could bring trade tariffs if Trump wins -

will trigger even more turbulence if investors sense the outcome

might influence the Fed's rate plans.

JPMorgan's economists estimated U.S. inflation could jump

2.4% if Donald Trump wins and slaps a 60% tariff on all China

imports and a 10% universal minimum tariff on those from

elsewhere. They also think it would push the dollar up 4-6%.

Fidelity's Henk-Jan Rikkerink said that the wild card for

the markets (for Q4) is a broadly more complex set of

geopolitical risks. "The conflicts in the Middle East and

Ukraine roll on, with no end in sight, and the US election

beckons on November 5th."

(Additional graphic by Pasit Kongkunakornkul; editing by Jane

Merriman)