Shaw and Partners

US stock indices posted weekly losses in a volatile week filled with earnings reports and macroeconomic data as well as uncertainty ahead of the presidential election. Much of the losses were attributable to a steep decline on Thursday, which pushed indices lower for the month of October. The Nasdaq Composite fell 2.8% for the session, its worst drop in nearly two months, as tech mega caps sold off following earnings from Meta Platforms and Microsoft. While results were better-than-expected, investors were concerned about the significant growth in capital expenditures.

Stocks did rebound on Friday, but this was not enough to push them back into positive territory overall. This was supported by strong revenue and profit from Amazon, which helped to offset a disappointing jobs report in which employers added just 12,000 jobs in October, although this was impacted by hurricanes and strikes. For the week, the S&P 500 dropped 1.4%, the tech-heavy Nasdaq lost 1.5% while the Dow Jones Industrial Average fell 0.2%. Meanwhile Treasury yields ticked higher over the week, with the 10-year note closing at 4.361%, its highest level since early July. This marked its seventh consecutive week of gains, its longest run since October 2022.

European markets also experienced a weekly loss, with the STOXX 600 down 1.5%. This was despite strong performance seen on Friday whereby banks, which were some of the top gainers for the week, rallied. The latest eurozone data releases showed gross domestic product (GDP) doubling in the third quarter, while headline inflation came in slightly higher than expected at 2%. This prompted traders to moderate their expectations for the European Central Bank’s rate cut path. Meanwhile Swiss inflation fell to its lowest level since July 2021, rising by 0.6%, prompting hopes for further Swiss National Bank rate cuts.

Losses were also seen in China, despite an improvement in manufacturing purchasing managers’ indices (PMI). Both the official and Caixin’s PMIs moved back into expansionary territory in October. For the week the Shanghai Composite fell 0.8% while the Hang Seng experienced a 0.4% loss. Japan’s Liberal Democratic Party coalition failed to secure a majority in the election over the weekend, the first time in 15 years that it has not controlled the assembly. The yen was initially weaker after the result amid political uncertainty and its implications for the Bank of Japan. Despite the uncertainty, Japan’s Nikkei 225 added 0.4% for the week.

Weekly macro highlights

US PCE inflation declines in September

US personal consumption expenditure (PCE) inflation fell from 2.3% year-on-year (YoY) in August to 2.1% YoY in September, in line with market expectations. In month-on-month (MoM) terms, headline PCE inflation rose 0.2% in September, having risen 0.1% in August. Goods inflation fell 0.1% MoM, with a 0.3% increase in durable goods prices offset by a 0.4% decline in non-durable goods prices. Services inflation, which has been more persistent than goods inflation, was 0.3% MoM in September, above the 0.2% increase registered in August. Excluding food and energy inflation, which were 0.4% and -2.0% respectively, core PCE inflation was 0.3% MoM in September. This contributed to YoY core inflation of 2.7%, unchanged from August. In addition to the PCE data, the Bureau of Economic Analysis also published its advance estimate for US Q3 GDP last week, with annualised quarter-on-quarter GDP growth estimated at 2.8%. This is marginally below the 3.0% registered in Q2, which markets had expected to be repeated.

US non-farm payroll employment rises in October

US non-farm payroll employment rose by 12,000 in October according to data published by the Bureau of Labor Statistics (BLS). The data was below market expectations for a 113,000 increase and below the downwardly revised 223,000 recorded in September. The change in total non-farm payroll employment for August was revised down by 81,000, meaning that combined with the 31,000 downward revision to September’s data, employment in August and September is 112,000 lower than previously reported. October’s data reflected the addition of 52,000 jobs in healthcare, partially offset by declining manufacturing employment, which fell by 46,000 jobs. Almost all of the decrease in manufacturing employment came from the transportation equipment sector and was due to strike activity. The BLS also noted that the data may have been distorted by Hurricanes Helene and Milton, as well as a shorter-than-usual collection period for the survey. The unemployment rate was unchanged at 4.1% in October.

Bank of Japan leaves policy unchanged in October

The Bank of Japan (BoJ) Policy Board left interest rates unchanged at its meeting on 31 October. The BoJ also released its updated outlook for economic activity and prices at the resolution of its meeting. Gross domestic product is expected to continue growing above its potential growth rate, reflecting stronger spending as wages rise. The BoJ forecasts real GDP growth of 0.6% in the fiscal year 2024, followed by 1.1% and 1.0% in 2025 and 2026 respectively. Prices are also expected to continue rising, with core consumer price index inflation of 2.5% forecast for fiscal year 2024, after which the rate of prices increases is expected to moderate to around the BoJ’s 2% target in the following two fiscal years. Against this backdrop, the BoJ noted that real interest rates are at “significantly low levels” and if the Bank’s projections are realised then it will continue to raise the policy interest rate accordingly.