Shaw and Partners

US stocks were cautious across most of the week, pressured by mounting tensions in the Middle East. On Tuesday Iran launched a missile attack against Israel, with most missiles being intercepted but Israeli Prime Minister Netanyahu vowing to retaliate. Oil managed to benefit from the worsening conflict on concerns that this could disrupt supply. Oil prices did however see some pullback following comments from US President Biden that discouraged Israel from targeting Iranian oil facilities. Nevertheless, for the week Brent crude rose 9% to settle at $78 a barrel, in its biggest weekly gain since January 2023. Another factor that weighed on sentiment was a strike by dockworkers at US East Coast and Gulf Coast ports, and its implications on supply chain delays. However, a wage deal was agreed, and the ports resumed operations on Friday.

Also, helping to lift the mood on Friday was the much-awaited jobs report. Non-farm payrolls rose by 254,000 in September, much higher than the 140,000 estimated, while August’s gain was also revised higher. This managed to lift stocks back into positive territory for the week. The Dow Jones Industrial Average ended at a record high and was up 0.1%, while the S&P 500 and Nasdaq Composite were up 0.2% and 0.1% respectively. Meanwhile, US Treasury yields ticked higher in response to the jobs report, which prompted traders to increase their bets of a 25bps rate cut from the Federal Reserve at its November meeting. The 10-year yield ended at 3.98% in one of its biggest weekly gains of the year.

European markets also experienced an uptick after the US jobs print however this was not enough to offset earlier losses as caution around the Middle East prevailed. The pan-European STOXX 600 ended the week 1.8% lower, with regional indices also down. The energy sector was the best performer while personal and household goods as well as autos were some of the weakest. Losses in autos came even after a 1.6% rise on Friday following news that the EU will proceed with tariffs on China-made electric vehicles. Eurozone inflation cooled to 1.8% in September, marking the first time in three years that it has dropped below the European Central Bank’s 2% target.

Japan’s Nikkei 225 ended the week 3% lower. Much of this was due to losses logged early in the week in response to Shigeru Ishiba’s victory in the Liberal Democratic Party’s leadership contest. The yen strengthened as Ishiba’s monetary policy views were perceived as being slightly hawkish, although the yen managed to later weaken as he adopted a more dovish tone, commenting that the environment didn’t currently warrant an additional interest rate hike. In China, optimism around the previous week’s stimulus announcements continued. Due to the Golden Week holiday, the Shanghai Composite was only open on Monday, so notched a gain of 8.1%. In Hong Kong, markets were shut on Tuesday, but the Hang Seng index jumped 10.2%.

Weekly macro highlights

US unemployment rate falls again in September

US non-farm payroll employment rose by 254,000 in September, above the upwardly revised 159,000 increase registered in August and market expectations of 140,000. July’s data was revised up by 55,000 meaning that combined with the 17,000 upward revision to August’s data, employment in July and August combined was 72,000 higher than previously reported. Driving the job gains in September were respective increases of 69,000, 45,000 and 31,000 in food services and drinking places, healthcare, and government employment. The household survey data collected by the Bureau of Labor Statistics showed a 430,000 increase in employed persons, above the 254,000 increase reported in the establishment survey. This reflected an expansion of the labour force by 150,000 persons and the number of unemployed persons declining by 281,000. As a result, the unemployment rate fell from 4.2% to 4.1% in September, its second consecutive monthly change of this magnitude and below market expectations to remain unchanged.

Swiss inflation falls in September

Swiss consumer price index (CPI) inflation fell 0.3% month-on-month (MoM) in September, below market expectations for a 0.1% decline and the 0.0% change registered in August. The drop in inflation was a result of several factors including 1.5%, 1.4% and 0.7% respective MoM declines in average prices for recreation and culture, transport, and restaurants and hotels. Fresh and seasonal products, and energy and fuel prices were 0.0% and -1.6% over the month. Core inflation, which excludes these factors, fell 0.2% over the month. In year-on-year terms, headline and core inflation rose 0.8% and 1.0% respectively. The data mean that headline inflation averaged 1.1% in Q3, in line with the Swiss National Bank’s forecast presented at its Governing Board’s September meeting. In addition to the inflation data, labour market data released last week showed the unemployment rate rose from 2.4% in August to 2.5% in September, exceeding market expectations to remain unchanged.

China’s PMIs decline in September

The Caixin China composite purchasing managers’ index (PMI) declined from 51.2 in August to 50.3 in September, remaining marginally above the 50 level which separates expansion from contraction. The decline was driven by weaker prints for both the manufacturing and services sector. The manufacturing output PMI eased from 50.7 in August to 50.3 in September and the services business activity PMI dropped from 51.6 to 50.3. Regarding the outlook for activity, the new orders PMI for the manufacturing sector fell from 50.3 to 47.5 in September, its fastest pace of contraction for two years, and the pace of expansion for services new business slowed, with the PMI dropping from 52.6 to 51.0. As a result, the composite new orders PMI fell from expansion territory at 51.6 in August, to contraction territory at 49.4 in September. The employment subindex was unchanged at 49.8 as firms continued to lay off workers in September.