So, what do we know?
(A forex, index, and commodity market review)
Clocks have gone back by one hour in Europe which means the US markets close an hour earlier, so all end of day routines are one hour earlier, until the US puts its clocks back next weekend on the 3rd of November.
The NASDAQ finally edged above its all-time high last Friday although it failed to hold on to those gains. The NASDAQ, albeit relatively quiet compared to moves since the start of the year, has now advanced every week for the last seven weeks. In contrast, the S&P500 lost ground from mid last week, ending the week down 1% - its first weekly fall in seven weeks. The last few weeks we have seen the broad S&P500 index make successive new highs whilst the tech sector experienced some doubts about the sustainability of the rise of the magnificent seven.
Weekly change (amount change and percentage change on the week)
FTSE -134 -1.60%
DAX -233 -1.19%
DOW 1,218 -2.81%
S&P -63 -1.07%
NASDQ Unchanged
NIKKEI -1,086 -2.76%
Hang Seng -251 -1.21%
Over the weekend Israeli forces carried out the much talked about retaliation against Iran for its missile barrage against Israel three weeks ago. Escalation concerns aside, oil markets have plunged as the IDF targeted only military sites and not oil or atomic infrastructure. Global markets have responded positively to the measured response and comments coming out of Iran which suggest this war will not escalate anytime soon.
The rotation out of tech stocks and into the broader market has persisted for several weeks after the NASDAQ topped out in Mid-July. The significant rallies in the mega cap stocks, referred to as the Magnificent seven, had generated concern amongst investors that the market was supported by just a handful of stocks whilst most others were flat this year. The reality of lower interest rates also hit the mega caps as investors assessed the loss of interest on the huge cash piles held by these stocks. Over the past few weeks, these mega cap stocks have recovered as investors focus again on the effects of A1 on earnings. Nvidia hit an all time high again last Monday, valuing the company at $3.5 Trln. Apple and Meta have also hit new highs underlining the renewed strength in tech.
The presidential election next Tuesday seems to be having little effect on investor sentiment. The key swings states are very balanced with recent polls giving each candidate less than2s% lead over their rival, which is within the bounds of error, so no one knows the outcome with any certainty.
UK markets continue to be dominated by the upcoming budget this Wednesday to be presented by Rachel Reeves. The budget has come a full sixteen weeks after labour’s victory as the polls and the longest gap between a new administration and its first budget in decades. The effect has been to worry almost all taxpayers, despite Labour’s view that they will not raise taxes for working people. The classification of what a working person is seemed to confuse one of Labour’s own minister, who said that SME owners and landlords were not working people. The effect has been manifested in a sharp drop in consumer confidence as consumers hold of spending ahead of the uncertainty surrounding this budget.
UK equities have travelled sideways for weeks now as fund managers don’t know what sectors will be affected; Oil, banking, gambling, house building, and real estate could all be affected by the budget.
Bond yields have also been affected by labour’s rumoured plans. The yield on 5-year Gilts has increased by 0.25% over the past month (yields rise as prices fall) as investors worry about Reeve’s confirmation that she will change the fiscal rules and include government assets when calculating government debt. This is to help fund the extra £20 Bln in investment in infrastructure spending. Whilst not a spectacular rise in yields, the reaction in the Bond markets will remind Reeves that there are consequences if investor confidence in her plans erodes.
EURUSD -0.72 -0.66%
GBPUSD -0.94 - 0.72%
USDJPY +2.78 +1.86%
Then Japanese Yen fell again last week and over Sunday night has fall sharply again following the disastrous outcome of the snap election called by the new Prime Minister Shigeru Ishiba. The LDP governing coalition failed to get the 50% of seats in the DIET and so the task is now for the LDP to form a coalition with other parties to form a viable government. The uncertainty will undermine both the Yen and investors sentiment.
Gold +24 +0.88%
UK OIL +2.62 +3.60%
US OIL +2.70 +3.92%
This week’s data and events to watch out for.
Non Farm employment report and Bank of Japan policy meeting are the main international events this week. In the UK, the focus of attention is on the UK budget, which is looking to raise up to £42 Bln to plug so-called inherited debts and future spending plans.
Monday
No key data
Tuesday
UK Monetary Policy hearings. BOE Governor and several MPC members testify on inflation and the economic outlook. GBP sensitive.
US Conference Board Consumer confidence. On the up as investors respond to stock market performance and improving jobs market.
Wednesday
UK Autumn Budget. Labour adonisation sets out its spending and taxation plans. Probably the most anticipated budget for decades. GBP and UK assets very sensitive to the announcements. Expected to take place around 12:30pm.
US ADP Employment report. Less impactful than the Bureau of Labor that reports on Friday.
US Advanced GDP for Q3. The first of three readings Expected at 3%. The contrast with Europe’s growth rates is stark.
Thursday
China Manufacturing and service sectors PMI. Balanced but not growing yet despite Beijing’s stimulus plans.
Japan Bank of Japan policy meeting. No change expected as the country reels from the uncertain outcome of the election this past weekend. The new Prime minister had made it clear that he favoured no further increases in interest rates. That is up to the BoJ. Japanese Yen very and Japan assets very sensitive.
Eurozone Core CPI inflation Flash estimates. Remaining subdued – 2.6% expected. Euro and Eurozone assets sensitive.
US Core PCE Price Index. The Fed’s preferred measure of inflation. Expected at +0.3%. the core rate had moved higher in August as headline data fell. Inflation remains subdued and is unlikely to affect the Fed’s decision next week.
Friday
Europe All Saints Day. Markets closed in France, Italy, Spain and Belgium.
US Non-Farm employment change. Expected at 111K new jobs following last month’s consensus beating number. Average hourly earnings +0.3% and unemployment rate at 4.1%. Jobs market has improved – the market wont want to see new jobs much less than consensus. USD and US assets sensitive
