So, what do we know?
(A forex, index, and commodity market review)
Weekly change (amount change and percentage change on the week)
FTSE +96 +1.17%
DAX +671 +3.58%
DOW +249 +0.59%
S&P +34 +0.60%
NASDQ +203 +1.02%
NIKKEI -939 -2.44%
Hang Seng +2,648 +14.56%
The standout move last week was the astonishing rally in Chinses equities, which saw the CSI 300 up 15.7% on the week as it posted its best weekly performance since October 1998. The rally followed the announcement of a substantial economic stimulus package which also included a lending pool provided by the PBoC for China’s capital markets worth $114 Bln. The gains were exaggerated ahead of the weeklong national Day celebrations in China when markets will be closed for most of the week.
European markets responded top this much needed boost to one of the main markets for the likes of Germany that has witnessed a significant slowdown in its manufacturing sector as the Chinese economy failed to lift off following the pandemic. The German Dax 40 was up 3.5% on the week, its best weekly performance since early May.
US markets continued to push ahead last week with the S&P500 up 0.6% whilst the NASDAQ rallied a further 1% in a slightly subdued market following the jumbo interest rate cut by the Federal Reserve the previous week. Speculation now centres around the next FOMC meeting on 7th November with the forward market implying a 50/50 probability of a further 0.5% cut in interest rates. Another 0.5% cut might be a stretch as economists believe that the Federal reserve may prefer to gauge the effect of this first significant cut in interest rates since the start of the pandemic in early 2020. Expectations were given a boost last Friday with the publication of the better-than-expected PCE measure of inflation. The headline rate came in at 2.2%, below expectations of 2.3% and much better than the 2.5% print in August for July’s reading. The core PCE did not match the fall in the headline with the core data, Ex food and energy, coming in at 2.7% which what was expected.
UK markets are ignoring the goings on in the new labour government, as the FTSE100 tacked on 100 points last week, despite the sharp fall in world oil prices. Keir Starmer’s new government seem intent on snatching defeat from the jaws of victory. Their conference in Liverpool was very underwhelming with many wondering what the point in meeting was if no major new policies could be presented and discussed. The only news was the that the Chancellor was considering a revision to the non-dom tax overhaul. It seems that Reeves, and her advisers, was the only person that didn’t realise wealthy non-Doms would just up sticks and leave, thus resulting in a potential fall in the tax take
EURUSD unchanged
GBPUSD +0.50 +0.38%
USDJPY -1.70 -1.18%
The US Dollar continued to fall last week as traders priced in the possibility of another 0.5% rate cut at the next FOMC meeting.
Sterling was one of the stronger currencies last week following comments from Andrew bailey, the governor of the Bank of England, who said that interest rates would need to be cut gradually as the BoE needed "to be careful not to cut too fast or by too much".
Sterling reached its highest level versus the Euro since April 2022 as the UK and Eurozone’s relative economic performance diverges. Disappointing Eurozone Manufacturing and Services PMI data out last Monday suggests the ECB is now likely to cut rates by 0.25% at its next governing council meeting on October 17th.
Economists and analysts are bullish on Sterling with Barclays, Bank of America and Goldman Sachs all expecting sterling to strengthen further. The next MPC meeting is on Thursday 7th November with one last meeting this year on Thursday 19th December. Traders are expecting at least one further cut of 0.25% by year end.
Gold +32 -1.22%
UK OIL -2.08 -2.81%
US OIL -2.67 -3.75%
Gold had a modest pull back last week but remains close to its all-time highs as the weak US Dollar and fear of an escalating war in the Middle East help underpin prices.
News that Saudi Arabia is about to abandon its long-term target of $100 / barrel oil price caused world crude prices to fall last week although the fall was tempered by escalation in the Middle East conflict as Israel broadens its attacks on Iran backed militia groups in Lebanon and Yemen.
This week’s data and events to watch out for.
Golden week in celebration of national Day in China means those markets will be closed from Tuesday until the weekend. The key data out this week is eurozone inflation and US Non-farm employment change.
Monday
China Manufacturing and Service PMI data. China’s economy remains close to the 50 level, implying no growth in either sector. Beijing will be hoping last week’s stimulus package will change all that.
US Jay Powell speaking at the National Association for Business Economics Annual Meeting with a Q&A which always has the possibility to inform the markets.
Tuesday
China Start of the golden Week holiday in celebration of National Day. The holiday extends through the rest of the week.
Eurozone Headline and Core CPI inflation data. Both expected to fall to 1.9% and 2.7%, respectively. This will help inform the ECB ahead of their next meeting – a consensus number would lead to a rate cut that, up until last week, was not likely. Euro and eurozone assets sensitive.
US ISM Manufacturing PMI. Still mired below 50 albeit a modest improvement expected to 47.6 (last 47.2). USD sensitive.
Wednesday
OPEC+ The OPEC-JMMC regular meeting convenes at a time when crude prices continue to languish, despite the escalating war in the Middle East. Saudi Arabia’s reported abandonment of its long-term goal of $100 / barrel is symbolic but will be discussed. Crude oil prices has been far below this $100 target for many months but is an admission that OPEC’s policies had simply allowed the US to increase its market share whilst China’s demand has weakened.
US ADP non-farm employment. An increase of 124K jobs in September, better than August’s number but still a gradual decline as the US economy cools.
Thursday
US ISM Services PMI. Unchanged from September’s reading but remaining above the critical 50 level. USD sensitive.
Friday
US Non-farm employment change. 144K new jobs expected in September with average earnings falling to +0.3%. the unemployment rate is expected to unchanged at 4.2%. US Dollar, US, and global assets sensitive to this key release.
