InvestMacro

On Monday, the Dow Jones Index (US30) rose by 0.47%. The S&P 500 index (US500) gained 0.77%. The NASDAQ Technology Index (US100) closed positive 0.87%. The S&P 500 and Dow Jones Industrials indices hit new all-time highs, and the Nasdaq 100 Index hit a 2-month high. Optimism about corporate earnings for the third quarter helped boost stock prices after bank stocks rose last Friday on strong earnings results from JPMorgan Chase and Wells Fargo. According to data compiled by Bloomberg Intelligence, companies in the S&P 500, on average, are expected to report a 4.3% increase in quarterly earnings in Q3 from a year earlier, down from the 7.9% increase estimate in July. In addition, gains in chipmakers stocks on Monday helped boost the overall market.

Trading volumes were below average as trading in the Treasury cash market was closed due to the Columbus Day holiday. Fed comments signaled support for the gradual pace of interest rate cuts. Minneapolis Fed President Kashkari said a “further moderate reduction” in the federal funds rate would likely be appropriate in the coming quarters.

Mexico’s Consumer Confidence Index fell to 47.1 in September from 47.6 in August, the highest reading since February 2019. The decline reflects worsening sentiment about household finances and the country’s economic outlook, as well as a decrease in consumers’ willingness to make significant purchases. The minutes of the Bank of Mexico meeting emphasize the need for a less tight monetary policy in light of slowing economic growth and easing price pressures. The Central Bank is expected to cut rates by 50 basis points to 10% by the end of 2024.

Equity markets in Europe rose steadily on Monday. Germany’s DAX (DE40) rose by 0.69%, France’s CAC 40 (FR40) closed higher by 0.32%, Spain’s IBEX 35 (ES35) added 1.12%, and the UK’s FTSE 100 (UK100) closed up 0.47%.

The UK unemployment rate fell to 4.0% between June and August 2024, down from 4.1% in the previous three-month period and in line with market estimates. At the same time, the number of people in employment rose by 373,000 to 33.37 million, the highest on record, mainly due to growth in both full-time and part-time workers.

WTI crude oil prices fell by 2% to $74 a barrel on Monday amid concerns about China’s weakening economy. Markets were disappointed by China’s Finance Ministry briefing on Saturday, which lacked major new fiscal stimulus despite promises of support for the real estate sector and a potential increase in borrowing. China’s inflation also fell in September, raising concerns about weakening fuel demand in the world’s biggest oil importer.

Asian markets traded flat yesterday. Japan’s Nikkei 225 (JP225) was up 0.57%, China’s FTSE China A50 (CHA50) was up 1.66%, Hong Kong’s Hang Seng (HK50) was 0.75% cheaper, and Australia’s ASX 200 (AU200) was positive 0.47%.

India’s annual inflation rate for September 2024 rose to 5.49% from 3.65% in the previous month, well above market estimates of 5%. It was the highest inflation rate since the beginning of the year, surpassing the RBI’s 4% target after falling below the threshold in the first two months of the September quarter, jeopardizing earlier expectations of the Central Bank soon starting to cut rates.

At Thursday’s close, the Dow Jones Index (US30) was down 0.14%, while the S&P 500 Index (US500) decreased by 0.21%. The NASDAQ Technology Index (US100) closed negative 0.05%. The US stocks closed slightly lower on Thursday following the release of a sharper-than-expected inflation report, adding to uncertainty over the Federal Reserve’s upcoming rate decision in November.

The US inflation eased to 2.4% in September but exceeded average expectations of 2.3%, halting recent progress on disinflation amid rising housing, transportation, and food prices. Nevertheless, bullish assets received support from a surge in jobless claims, which refuted the view that the US labor market remains too resistant to restrictive interest rates following the release of the latest jobs report. Despite the inflation data, Fed officials are divided on whether to keep cutting rates, with some favoring a pause.

The Canadian dollar weakened to 1.37 per US dollar in October, hitting a nine-week low amid declining foreign exchange inflows and a stronger US dollar. Canada’s trade deficit widened to 1.10 billion Canadian dollars in August, the widest since May. This was helped by a 1.0% drop in exports, particularly a 4.1% drop in shipments of crude oil, the country’s main export. In addition, expectations of softening labor market data due out today fueled speculation of further monetary easing by the Bank of Canada.

Equity markets in Europe mostly fell yesterday. Germany’s DAX (DE40) fell by 0.23%, France’s CAC 40 (FR40) closed down 0.24%, Spain’s IBEX 35 (ES35) lost 0.72%, and the UK’s FTSE 100 (UK100) closed negative 0.07%.

In Europe, reports from the ECB’s last monetary policy meeting in September showed that the ECB wanted to keep options open for the next meetings and took a cautious stance on the next move. The Central Bank is expected to cut interest rates by 25 bps next week, the third cut this year.

WTI crude prices rose by 3.5% to $75.8 a barrel on Thursday amid rising demand for fuel in the US after Hurricane Milton hit Florida, concerns about supply disruptions from the Middle East, and expectations of rising energy demand in the US and China. Hurricane Milton knocked out power to more than 3.4 million homes and businesses, and nearly a quarter of gas stations across the state ran out of gasoline. These outages in one of the world’s largest oil-consuming regions contributed to the price spike. In addition, markets remain choppy, especially after Israel’s defense minister vowed that the response to Iran will be “deadly, precise and unexpected.” Additional pressure on prices comes from weak demand estimates, reinforced by China’s recent briefing, which provided few specifics on additional stimulus measures.

The US natural gas (XNG/USD) prices fell to $2.66/MMBtu, extending their decline from a three-month high of $3, as evidence of high supply reinforced weaker demand caused by hurricanes in the southeastern United States. New data from the EIA showed that natural gas inventories in the lower 48 states rose by 82 billion cubic feet in the week ending October 4, the biggest increase since March, and sharply above market expectations of a 71 billion cubic feet increase. Bearish pressure was also driven by the aftermath of Hurricane Milton on Florida’s Gulf Coast, which forced residential power outages and reduced electricity demand from gas-fired generators.

Asian markets were mostly down yesterday. Japan’s Nikkei 225 (JP225) was up 0.26%, China’s FTSE China A50 (CHA50) jumped 2.24%, Hong Kong’s Hang Seng (HK50) added 2.98%, and Australia’s ASX 200 (AU200) posted a modest 0.43% gain. Investors are cautiously awaiting the announcement of further stimulus measures from the Finance Ministry’s press conference on Saturday. Markets anticipate that officials will announce a major fiscal stimulus package, which is expected to amount to 2–3 trillion yuan. On Thursday, China’s Central Bank opened a 500 billion yuan swap facility to fund stock purchases by financial institutions as the recent stimulus rally began to fade.

The Bank of Korea cut its benchmark rate by 25 bps to 3.25% at its October meeting, the first cut since May 2020, in line with market estimates. The move brought borrowing costs to the lowest level in nearly two years, reflecting easing inflation, lower economic output, and efforts to curb household debt caused by mortgages.

At the end of Wednesday, the Dow Jones Index (US30) rose by 1.03%, while the S&P 500 Index (US500) gained 0.71%. The NASDAQ Technology Index (US100) closed yesterday positive 0.60%. Positive comments from Fed Vice Chairman Jefferson are helping stocks rise as he said the US economy is growing at a “robust pace”. Stocks also rose on speculation that today’s US consumer price report will ease price pressures. Economists expect annualized core inflation, which excludes food and fuel costs, to slow to 3.1% from 3.2%. Overall inflation is forecast at 2.3% y/y, down from 2.5% y/y in the previous month. The easing inflationary pressures and Friday’s strong employment report will convince the US Fed that inflation is on a steady path towards the 2% target. This will increase the likelihood that the US Fed will cut rates by 0.25% at each of its meetings in November and December. A sharper decline in inflationary pressures would be a negative scenario for the US dollar but positive for gold and risk assets (euro, pound, equities).

Minutes from the last FOMC meeting in September showed that Fed policymakers were divided over the size of the rate cut, with some participants favoring a quarter-point cut instead of the mandated 50 bps. Investors currently estimate the probability of a quarter-point rate cut in November at 78%.

Boeing’s (BA) stock price is down more than 3% and tops the list of losers in the S&P 500 (US500) and Dow Jones (US30). After talks to end a nearly month-long labor strike, it failed. Alphabet (GOOGL) shares fell more than 1% after the US Justice Department told a federal judge that it was considering recommending that Google be forced to sell some of its operations to settle an antitrust lawsuit.

Mexico’s core annual inflation rate fell to 3.91% in September, the lowest level since February 2021, down from 4% in August and slightly below forecasts. The annual inflation rate fell for the second consecutive month to 4.58%, the lowest level since March and below market expectations of 4.62%. Weakening price pressures may prompt the Bank of Mexico to consider further interest rate cuts after recent cuts, which would put pressure on the Mexican peso.

Equity markets in Europe mostly went up yesterday. Germany’s DAX (DE40) rose by 0.99%, France’s CAC 40 (FR40) closed up 0.52%, Spain’s IBEX 35 (ES35) added 0.06%, and the UK’s FTSE 100 (UK100) closed positive 0.65%.

ECB Governing Council representative Villeroy de Galhau said yesterday that an ECB interest rate cut next week is very likely and will not be the last. Still, the subsequent pace will depend on developments in the fight against inflation. His colleague, ECB Governing Council spokesman Kazaks, also said interest rates should be cut further because of the weakening Eurozone economy. Swaps discount the odds of a 25 bps ECB rate cut at the October 17 meeting by 94% and a 25 bps rate cut at the December 12 meeting by 100%.

WTI crude oil prices fell to $73.2 a barrel on Wednesday after falling 4.6% the previous day amid weak demand and rising supply. EIA data showed a 5.810 million barrel increase in US crude inventories, which exceeded market expectations by 2 million barrels, while API data totaled nearly 11 million. In addition, the US EIA revised its 2025 demand forecast downward, citing slowing economic growth in China and North America, which put additional pressure on oil prices.

Asian markets were mostly down yesterday. Japan’s Nikkei 225 (JP225) rose by 0.67%, China’s FTSE China A50 (CHA50) fell by 5.79%, Hong Kong’s Hang Seng (HK50) lost 0.91%, and Australia’s ASX 200 (AU200) posted modest gains of 0.17% over yesterday.

Today, the People’s Bank of China (PBOC) launched a RMB500 billion swap facility, allowing eligible financial institutions to use assets as collateral to provide liquidity. The initiative, known as the Swap Fund for Securities, Funds and Insurance Companies (SFISF), is part of the central bank’s efforts to develop a new structural monetary policy tool to support the stock market. This facility allows securities, funds, and insurance companies to obtain liquid assets to purchase equities using their bonds, ETFs, and stocks included in the CSI 300 index as guarantees.

At Monday’s close, the Dow Jones Index (US30) was up 0.30%, while the S& P500 Index (US500) was up 0.97%. The NASDAQ Technology Index (US100) closed positive 1.45% yesterday. Stocks rose amid upbeat comments from New York Fed Chairman Williams, who said the Fed is “well positioned” to provide a soft landing for the US economy. In addition, today’s news that the US trade deficit narrowed to a 5-month low in August was a positive for US Q3 GDP.

Nvidia (NVDA) jumped by 3% after Hon Hai said it is building the world’s largest Nvidia GB200 AI chip fab. Shares of American Express (AXP) are down more than 1% after BTIG LLC downgraded the stock to “sell” from “neutral” with a $230 price target.

The Canadian dollar weakened to 1.37 per US dollar in October, hitting an eight-week low amid a worsening outlook for foreign inflows and a strengthening US dollar. Canada’s trade deficit widened to CAD1.10 billion in August from a revised CAD0.29 billion in July, exceeding expectations of CAD0.5 billion. This is the widest gap since May, driven by a 1.0% drop in exports and a 3.0% drop in energy shipments, particularly crude oil, Canada’s main export, which fell by 4.1%. Meanwhile, upcoming labor market data is expected to show further weakness in the labor market, raising the stakes for further monetary easing by the Bank of Canada (BoC).

Equity markets in Europe were mostly down yesterday. Germany’s DAX (DE40) fell by 0.20%, France’s CAC 40 (FR40) closed down 0.72%, Spain’s IBEX 35 (ES35) gained 0.15%, and the UK’s FTSE 100 (UK100) closed negative 1.36%.  European stocks fell sharply on Tuesday, pressured by China-related sectors, as markets were stunned by the scope of Beijing’s new fiscal support and investors continued to assess the extent of rate cuts expected by global central banks in near-term decisions.

ECB Executive Board spokesman Elderson said the Eurozone economy is weaker than expected, and “if our projections that inflation will converge to our 2% target in the second half of 2025 are confirmed, the ECB will continue to gradually ease its restrictive policy stance.” Nagel, another representative of the ECB Governing Council and president of the Bundesbank, said he was “willing to consider the possibility” of an ECB interest rate cut at next week’s ECB meeting.

Oil prices fell by 4% yesterday. Expected supply disruptions caused by geopolitical risks in the Middle East have yet to materialize, and investors have shifted their attention back to Chinese demand. China’s National Development and Reform Commission has not announced any new support measures. In the absence of policy intervention, slowing economic growth could reduce Chinese oil demand in the short to medium term.

Asian markets were mostly down yesterday. Japan’s Nikkei 225 (JP225) was down 1.00%, China’s FTSE China A50 (CHA50) was up 4.08%, Hong Kong’s Hang Seng (HK50) decreased by 9.41%, and Australia’s ASX 200 (AU200) was negative 0.35%.

The Hang Seng Index (HK50) fell by 9.4% to finish at 20,927 on Tuesday after rising sharply in the previous two sessions as investors booked profits after the index rose to its highest level since early 2022. Market sentiment deteriorated further on disappointment over a media briefing in China that failed to announce major new economic stimulus measures. The government unveiled a 100 billion yuan investment plan for next year, up from the 1 trillion yuan allocated this year.

The Reserve Bank of India (RBI) kept the benchmark repo rate at 6.5% for the tenth consecutive meeting to ensure inflation falls to its medium-term target of 4%. The latest move came after annual inflation accelerated slightly to 3.65% in August 2024 on rising food prices but remained below the RBI’s target of 4% over five years.

The Reserve Bank of New Zealand (RBNZ) cut the official cash rate (OCR) by 50 basis points to 4.75%, the second consecutive rate cut in line with market expectations. New Zealand’s annual inflation rate in Q2 2024 fell to 3.3% from 4% in the previous quarter and was below market expectations of 3.5%.

At Monday’s close, the Dow Jones (US30) Index was down 0.94%, while the S&P 500 (US500) Index fell by 0.96%. The NASDAQ Technology Index (US100) closed negative 1.18%. Lower expectations of a Fed rate cut drove bond yields higher and hurt stocks. 10-year T-note yields rose to a 2-month high amid bearish sentiment from last Friday when a stronger-than-expected US September payrolls report eliminated market odds of a 50bp Fed rate cut at next month’s FOMC meeting.

Hawkish comments from Minneapolis Fed President Kashkari on Monday proved bearish for stocks when he said the Fed still has to reduce the size of its balance sheet, but it will not return to Covid-era levels. Markets are awaiting news on US consumer prices on Thursday to see if the downward trend in prices will continue. The consensus expects the Consumer Price Index for September to decline to 2.3% y/y from 2.5% y/y in August. The CPI, excluding food and energy, is expected to be unchanged from August at 3.2% y/y. Markets rate the odds of a 25 bps rate cut at the November 6–7 FOMC meeting at 85% and a 50 bps rate cut at this meeting at 0%.

Amazon.com (AMZN) stock is down more than 3% after Wells Fargo Securities downgraded the stock to equal weight from overweight. Netflix (NFLX) shares closed down more than 2% after Barclays downgraded the stock to underweight from equal weight with a $550 price target.

Equity markets in Europe were mostly up yesterday. Germany’s DAX (DE40) fell by 0.09%, France’s CAC 40 (FR40) closed higher by 0.46%, Spain’s IBEX 35 (ES35) gained 0.50%, and the UK’s FTSE 100 (UK100) closed positive 0.28%.

WTI crude oil prices fell to $75.6 per barrel on Tuesday, likely due to profit-taking after surging to the highest level in more than a month due to escalating conflict in the Middle East. Investors are closely watching Israel’s possible response to last week’s missile strike by Iran, with Iranian oil facilities seen as a possible target. However, President Biden recently urged against striking Iran’s oil fields, suggesting that alternative measures should be considered. In addition, OPEC’s spare capacity and the stability of global crude supplies are easing supply concerns.

Asian markets traded flat last week. Japan’s Nikkei 225 (JP225) rose by 1.80%, China’s FTSE China A50 (CHA50) did not trade last week due to holidays, Hong Kong’s Hang Seng (HK50) rose by 1.60%, and Australia’s ASX 200 (AU200) gained 0.68% over yesterday.

Goldman Sachs raised its outlook on Chinese equities to “overweight,” predicting a 15-20% rise if Beijing follows through on promised policy measures.

Minutes from the Reserve Bank of Australia’s September meeting showed that monetary policy should remain fairly restrictive until bank officials are confident that inflation is moving toward the 2–3% target range. Policymakers also discussed global monetary easing but agreed that domestic money rates should not move in line with other economies, given the country’s stronger inflation and labor market conditions and less tight policy.

On Friday, the Dow Jones (US30) Index gained 0.81% (for the week +0.15%), while the S&P 500 (US500) Index gained 0.90% (for the week +0.43%). The NASDAQ Technology Index (US100) closed positive 1.22% (for the week +0.38%). Stocks rose on Friday as a stronger-than-expected US September Payrolls report bolstered prospects for a soft landing. However, the prospect of escalating conflict in the Middle East is dampening investor appetite for risk assets and is a negative for equities. Markets are awaiting Israel’s response to Tuesday’s rocket attack on Iran after Israeli Prime Minister Netanyahu vowed to retaliate, saying Iran “made a big mistake” and will “pay.”

The US Nonfarm Payrolls for September rose by 254,000, indicating a stronger labor market than expected 150,000 and the largest increase in 6 months. The unemployment rate for September unexpectedly fell by 0.1 to 4.1%, showing a stronger labor market than expectations of no change at 4.2%. Average hourly earnings for September rose by 0.4% m/m and 4.0% y/y, stronger than expectations of 0.3% m/m and 3.8% y/y. Markets discount the odds of a 25bp rate cut at the November 6–7 FOMC meeting to 100% and a 50bp rate cut at this meeting to 6%.

Equity markets in Europe rallied strongly on Friday, but all major indices closed negative at the end of the week. The German DAX (DE40) rose 0.55% (for the week -1.50%), the French CAC 40 (FR40) closed higher by 0.85% (for the week -2.67%), the Spanish IBEX 35 (ES35) gained 0.35% (for the week -2.26%), the British FTSE 100 (UK100) closed down 0.02% (for the week -0.48%).

French Industrial Production rose 1.4% m/m in August, beating expectations of 0.3% m/m and the largest increase in 15 months. ECB Governing Council spokesman Centeno said on Friday that Eurozone labor market dynamics had cooled slightly, and inflation is very close to 2%, hinting at further rate cuts by the ECB. Swaps discount the odds of a 25bp ECB rate cut at the October 17 meeting to 90%.

WTI crude oil prices rose by 0.9% to close at $74.4 per barrel on Friday, the highest level in five weeks, amid concerns over possible supply disruptions in the Middle East. Concerns intensified after Biden refrained from directly condemning a potential Israeli strike on Iran’s oil facilities. Tel Aviv vowed this week to retaliate against Iran while ramping up operations in Beirut amid the ongoing conflict with Hezbollah. Meanwhile, OPEC’s spare production capacity and stability in global oil supplies eased supply concerns.

Asian markets traded flat last week. Japan’s Nikkei 225 (JP225) was down 1.23%, China’s FTSE China A50 (CHA50) did not trade last week due to holidays, Hong Kong’s Hang Seng (HK50) was up 11.20%, and Australia’s ASX 200 (AU200) was negative 0.76%.

Vietnam’s annual inflation rate fell to 2.63% y/y in September 2024 from 3.45% y/y in August, the lowest since July 2023 after a super typhoon hit the country earlier this month. Prices fell in several categories, including housing. Annual core inflation, which excludes volatile items, remained relatively stable (2.54% vs. 2.53%), close to the lowest level since August 2022. Vietnam’s GDP growth hit a 2-year high in the third quarter. Vietnam’s GDP grew 7.40% year-on-year in Q3 2024, accelerating from an upwardly revised 7.09% growth in Q2, the sharpest increase since Q3 2022.

Australia’s trade surplus in goods in August 2024 was A$5.64 billion. This was the largest trade surplus since April despite a small decline in both exports and imports.

Japan’s Index of leading economic indicators, which is used to gauge the economic outlook several months ahead on data such as job offers and consumer sentiment, fell to 106.7 in August 2024 from a final reading of 109.3 in the previous month, falling short of market estimates of 107.4.

At Thursday’s close, the Dow Jones (US30) Index was down 0.44%, while the S&P 500 (US500) Index decreased by 0.17%. The NASDAQ Technology Index (US100) closed negative 0.04%. On Thursday, all three major US indices ended trading in the red as investors fear escalating tensions in the Middle East ahead of the release of the September payrolls report. Sentiment on Wall Street worsened after President Biden voiced support for an Israeli strike on Iran’s oil facilities, raising fears of energy supply disruptions around the world.

Meanwhile, the US service sector data showed growth in September, which briefly lifted markets. The labor market showed signs of cooling, with a slight increase in jobless claims and a drop in planned layoffs. Today, the US will release Non-Farm Payrolls labor market data for September. Economists expect the US economy to expand by 144,000 jobs in September after 142,000 in the previous month. The US Federal Reserve began its rate-cutting cycle in September with a large 50 basis point rate cut. However, the labor market continues to be the focus of investors assessing how quickly the Central Bank will have to cut rates in the coming months. A weak report scenario would put pressure on the dollar index, which would give strength to stock indices and precious metals (gold and silver). The probability of a double rate cut at the November meeting is currently at 50%. On the other hand, unexpectedly strong employment growth could raise concerns that the Fed will not cut rates as much, which would support the US dollar and put pressure on risk assets, especially equities.

Equity markets in Europe were mostly down yesterday. Germany’s DAX (DE40) was down 0.78%, France’s CAC 40 (FR40) closed negative 1.32%, Spain’s IBEX 35 (ES35) was up 0.07%, and the UK’s FTSE 100 (UK100) closed down 0.10%.

The Eurozone PMI for September from S&P was revised upward by 0.7 to 49.6 from the previously released reading of 48.9. Swaps discount the odds of a 25 bp ECB rate cut at the October 17 meeting at 95% and a 25 bp rate cut at the December 12 meeting at 100%.

WTI crude oil prices rose 5% to $73.7 per barrel on Thursday, extending the week’s gains to a one-month high after US President Biden refrained from directly condemning the likelihood that Israel could attack Iran’s oil facilities. In addition to the subsequent shock to short-term supplies that such an attack would lead to, oil prices also rose thanks to the risk premium in futures amid the growing escalation of geopolitical tensions in the Middle East. Tel Aviv has vowed to retaliate against Iran with a series of ballistic missiles this week, as well as increase its activity in Beirut as it battles Hezbollah. Meanwhile, signs of resilience in the US economy also supported the outlook for fuel demand in the world’s top oil consumer.

Asian markets traded flat yesterday. Japan’s Nikkei 225 (JP225) was up 1.97%, China’s FTSE China A50 (CHA50) was not trading due to holidays, Hong Kong’s Hang Seng (HK50) was down 1.47%, and Australia’s ASX 200 (AU200) was positive 0.09%. The weakening yen has improved the outlook for Japan’s export-oriented industry and is supporting local equities. Earlier this week, newly inaugurated Prime Minister Shigeru Ishiba and his Economy Minister Ryosei Akazawa urged caution before proceeding with further interest rate hikes.

The New Zealand dollar (NZD/USD) fell to a 2-week low. Traders expect a significant interest rate cut by the Reserve Bank of New Zealand (RBNZ) amid concerns over the country’s economic growth prospects. The RBNZ began its monetary easing cycle in August with a 25 basis point rate cut and is expected to make further reductions. Markets are now fully pricing in the possibility of a half-point rate cut at next week’s Central Bank meeting.