Shaw and Partners

Wall Street extended its weekly winning streak, with the major equity indices supported by company earnings releases. Amongst those reporting, Netflix surged over 11% to a record high on Friday as the streaming giant’s subscribers topped expectations, helping lift the communication services sector. Technology stocks also picked up momentum, with data revealing a sharp uptick in iPhone sales in China, boosting Apple, while Nvidia touched a new record high on Thursday after earnings from Taiwan Semiconductor reignited enthusiasm for artificial intelligence related names.

The Dow Jones Industrial Average and S&P 500 added 1.0% and 0.9% respectively. Both indices ended at fresh highs, and this marked their sixth consecutive winning week, their longest streak since December. The tech-heavy Nasdaq Composite gained 0.8%. The majority of sectors managed to see weekly gains, with utilities leading, however the energy sector was the main laggard, hurt by declining oil prices, with Brent crude falling over 8%, given that geopolitical tensions were not as elevated as the previous week. The yield on the 10-year Treasury note had jumped on Thursday to end at 4.095% following better-than-expected retail sales data while weekly jobless claims dropped, pointing to a resilient economy. Despite this uptick, the 10-year yield ended slightly lower for the week.

European markets logged a second weekly rise, with the pan-European STOXX 600 up 0.6%. This came even after some disappointing earnings reports. The luxury sector came under pressure after LVMH posted weak third quarter sales. Meanwhile the tech sector lagged after ASML fell to a 10-month low as it delivered an underwhelming 2025 sales forecast. Investors found support as the European Central Bank delivered another 25 basis point interest rate cut, its first back-to-back cut since 2011. This boosted expectations of another reduction at the December meeting. This followed on from September eurozone inflation being downwardly revised from 1.8% to 1.7%, taking it further below the central bank’s target. The UK inflation rate also fell 1.7% in September, less than expected.

Chinese equities were boosted by supportive measures from the People’s Bank of China. The central bank launched swap and relending schemes to support capital markets, as well as the governor flagging a further cut to the reserve requirement ratio by year end. This came as data revealed that the economy grew by 4.6% in the third quarter, slightly higher than expected but below the second quarter’s 4.7% pace. Nevertheless, other data such as September retail sales and industrial production showed signs of improvement. For the week the Shanghai Composite was up 1.4%, however the Hang Seng declined 2.1%. Another market which experienced a weekly loss was Japan, with the Nikkei 225 falling 1.6%. The core consumer price index eased to 2.4% in September, raising doubts on whether the central bank would raise interest rates again this year.

Weekly macro highlights

UK CPI inflation eases in September

UK consumer price index (CPI) inflation rose 1.7% year-on-year (YoY) in September, below the 2.2% registered in August and market expectations for a 1.9% increase. The decline in headline inflation to its lowest level since April 2021 was driven by transport prices, which fell 2.2% YoY. In addition, 1.7% and 1.0% YoY declines in housing and household services, and furniture and household goods prices helped lower inflation in September. The core CPI inflation measure, which excludes food, energy, alcohol and tobacco, rose 3.2% YoY in September, down from the 3.6% YoY increase recorded in August. Services inflation, which the Bank of England has been paying close attention to as a signal of underlying domestic inflationary pressures in the UK economy, rose 4.9% YoY in September, declining from the 5.6% YoY rise in August. Goods prices extended their 6-month deflation streak, falling 1.4% YoY in September, below the 0.9% YoY decline in August.

ECB cuts rates in October

The European Central Bank (ECB) Governing Council voted to reduce the deposit facility rate by 25 basis points to 3.25% at its meeting on 17 October. The move was in line with market expectations and represented the second consecutive rate cut at a Governing Council meeting following the one on 12 September. The ECB noted the decision was based on its updated assessment of the inflation outlook, which has been affected by recent downside surprises to indicators of economic activity. The central bank expects inflation to rise in the coming months before declining to its 2% target over the course of 2024. In her post-meeting press conference, President of the ECB Christine Lagarde highlighted a continued contraction of the manufacturing sector in the eurozone and a recent loss of momentum in the services sector. In addition, employment growth and demand for labour have been slowing. Risks to growth are tilted to the downside.

China’s GDP expands in Q3

China’s gross domestic product (GDP) rose 4.6% year-on-year (YoY) in Q3 according to data published by the National Bureau of Statistics (NBS). The increase in GDP was above market expectations for a 4.5% YoY expansion but below the 4.7% recorded in Q2. Combined with the 5.3% YoY GDP growth in Q1, the Chinese economy has expanded 4.8% YoY year-to-date. Contributing to this were 3.4%, 5.4% and 4.7% YoY increases in the value added of the primary, secondary, and tertiary industries respectively. In addition to the quarterly data, the NBS released monthly data last week, showing a pickup in activity in September. Retail sales rose 3.2% YoY, above market expectations for a rebound from August’s 0.7% increase to 2.5%. Industrial output rose 5.4% YoY, with markets having anticipated it would remain unchanged at August’s 4.5% YoY. The unemployment rate declined from 5.3% to 5.1%, remaining in the 5.0-5.3% range it has occupied since March 2023.