USA
While the week started with a selloff on Monday, giving back gains posted during the previous session’s post-jobs-report surge, the S&P 500, Dow Jones Industrial Average, and S&P MidCap 400 Index still reached record highs this week. The Dow Jones Industrial Average and S&P 500 gained 1% and 0.6%, respectively, while the Nasdaq Composite added 0.3%. The major indexes have recorded weekly gains for five consecutive weeks now, boosted by optimism about the outlook for the U.S. economy and corporate earnings.
As mentioned above, a main catalyst was the strong earnings season kick-off. On Friday, both JPMorgan Chase (+4.46%) and Wells Fargo (+5.71%) beat analysts’ expectations, reporting smaller-than-feared declines in third-quarter profits, while the former managed a small increase in revenues. BlackRock stock gained 3.6% after the asset manager reported that its assets under management had hit a record high for the third straight quarter. In general, the financials set a positive tone for earnings releases in other industries in the next few weeks, with JPM CFO Jeremy Barnum going as far as stating that the bank’s results are consistent with a soft landing.
Tech stocks also made headlines; NVIDIA (+7.89%) led growth stocks in outperforming value stocks, partially offsetting Tesla’s decline (-8.96%). Tesla faced investor scepticism after unveiling its “robotaxis” and “robovans.” Investors were hoping for more details on the company’s autonomous-driving projects and were disappointed Tesla didn’t reveal a new, lower-cost vehicle.
Economic data added a mixed tone. Headline and core inflation surprised slightly on the upside, increasing by 0.2% and 0.3%, respectively, in September—up from previous expectations. On an annual basis, core inflation rose to 3.3%, from 3.2% in August, marking the first annual increase since March 2023. Medical care prices climbed 0.7%, while transportation services rose 1.4%, partially offsetting a 1.9% decrease in energy prices. Additionally, jobless claims jumped to 258,000, a 14-month high, with Michigan recording notable job losses and continuing claims reaching 1.86 million. The University of Michigan’s consumer sentiment index also dipped unexpectedly in October, as households grew more cautious about finances.
The modest inflation uptick dampened hopes for another half-point rate cut by the Federal Reserve. By week’s end, the CME FedWatch Tool priced in only a 14.1% chance of the Fed holding rates steady at its November meeting. Minutes from the previous Fed meeting, released Wednesday, revealed that several members had preferred a smaller, 25-basis-point rate cut rather than the 50-basis-point reduction ultimately decided, with only one official dissenting. Long-term bond yields rose on the inflation news, with the 10-year U.S. Treasury yield reaching 4.12%, the highest level since July 31, while bond issuance in both tax-free municipal and investment-grade corporate markets was met with strong demand. The equity market pullback earlier in the week translated into some softening in the high-yield market.
Source: Marketwatch, Bocconi Students Investment Club
Europe and UK
European markets closed the week on a positive note, lifted by anticipation of new stimulus measures from China expected over the weekend, despite early losses at the start of the week. That led to the pan-European STOXX Europe 600 Index rising by 0.66%, driven by optimism over potential interest rate cuts from the European Central Bank (ECB). Major indexes also saw gains, with Italy’s FTSE MIB up 2.13%, Germany’s DAX rising 1.32%, and France’s CAC 40 adding 0.48%. Meanwhile, the UK’s FTSE 100 slipped by 0.33%.
In corporate news, BP expects Q3 net debt to rise due to weaker refining margins and a $1 billion delay in divestment proceeds to Q4, with earnings impacted by $400m to $600m. Stellantis appointed Doug Ostermann as CFO, replacing Natalie Knight, and announced CEO Carlos Tavares’ planned 2026 retirement, which led shares to fall 2.4% in Paris. Novo Nordisk announced plans to expand in India, targeting a 16% workforce increase to 5,000 by 2025, boosting shares by 2.6% in London. Bayer, facing a $78m U.S. jury verdict over Roundup, saw shares drop 1.4% in Frankfurt.
Regarding macroeconomic news, Germany’s Federal Ministry for Economic Affairs and Climate Action revised its 2023 economic forecast to a 0.2% contraction, down from an earlier estimate of 0.3% growth, urging stronger consumption to drive recovery in early 2025. Germany’s annual inflation rate decreased to 1.6% in September, down from 1.9% in August, driven by falling energy costs. The British economy saw a rebound in August, growing 0.2% month-over-month after remaining flat for the prior two months. This growth was driven by gains in manufacturing and construction, which offset a modest rise in the services sector.
Following all this action with respect to yields, bond prices also saw fluctuations. Bond fund managers remain wary of France’s budget, citing high debt and political risks, which are likely to keep borrowing costs elevated. These concerns drive higher yields on French bonds as investors demand more return for added risk. That being said, the Eurozone at large experienced yield increases on their 10-year bonds across the board.
Source: Marketwatch, Bocconi Students Investment Club
Rest of the World
Chinese equities declined during a holiday-shortened week as optimism around Beijing’s stimulus measures faded. The Shanghai Composite Index dropped by 3.56%, and the blue-chip CSI 300 fell 3.25%. Meanwhile, Hong Kong’s benchmark Hang Seng Index tumbled 6.53%, according to FactSet. Markets in mainland China were closed on Monday due to the National Day holiday, which began on Tuesday, October 1.
But the main event being anticipated took place on Saturday with China’s finance ministry unveiling their fiscal stimulus package. However, China’s latest fiscal update fell short of market expectations for a robust stimulus package, with no new concrete deficit figures announced. Instead, the focus was on supporting local governments to stabilise the housing market using “special” bonds and assisting banks with capital recovery. Investors were hoping for a larger fiscal push, and the lack of direct stimulus aimed at boosting consumer confidence may heighten concerns about China’s economic trajectory.
Japan’s stock markets rose over the week, with the Nikkei 225 Index gaining 2.51% and the broader TOPIX Index up 0.45%. Yen weakness provided a favourable backdrop, boosting the profit outlook for Japan’s exporters. The Japanese currency hovered in the high-JPY 148 range against the U.S. dollar, close to its lowest levels since August, having come under pressure earlier in the month as Japan’s new prime minister, Shigeru Ishiba, cautioned that the environment is not ready for an additional interest rate hike. Recent comments from Bank of Japan policymakers confirmed that the central bank’s approach remains steady post-government change. Deputy Governor Ryozo Himino noted that the BoJ will evaluate data and risks, considering rate hikes only if economic conditions meet expectations, without a predetermined rate path.
Global markets saw mixed performance over the past week. Turkey’s BIST-100 led declines with a 2.56% drop, though it still holds a strong 16.42% gain year-to-date. Brazil’s Bovespa and Mexico’s IPC Index also posted losses, down 1.37% and 0.41%, respectively. In contrast, South Korea’s Kospi gained 1.06%, while Australia’s S&P/ASX 200 rose 0.79%. India’s Reserve Bank hinted at potential monetary easing in the coming months, a shift not seen since the height of the COVID pandemic in 2020. Meanwhile, Brazil’s Senate appointed 42-year-old economist Gabriel Galipolo as the Central Bank’s new governor, marking changes for both emerging markets.
FX and Commodities
Over the past week, oil prices saw modest gains, with Brent Crude up 1.27% and WTI Crude rising 1.59%. Natural Gas experienced a sharp decline, falling 7.78%, while Gold edged up 0.45%. Silver and Copper both posted losses, with Silver down 1.89% and Copper decreasing by 1.57%. With tensions remaining high in the Middle East, the main price driver for oil has not been subject to change, leading to a second weekly gain on war risk. While prices remain high, the rally has eased, however, amid uncertainty over how Israel will respond. When analysing Gold, the price is supported by a bullish macro picture and increased safe-haven demand amid the conflict in the Middle East and the war in Ukraine, according to analysts.
In currency markets, the USD strengthened over the past week. The USD/JPY pair rose 1.53%, reflecting yen weakness, while USD/CHF also gained 0.53%. Meanwhile, the euro and British pound softened against the dollar, with EUR/USD and GBP/USD down 0.86% and 0.47%, respectively. Currency markets saw the euro weaken against the U.S. dollar amid stronger U.S. inflation data, recession concerns in Europe, and the region’s energy challenges. Expectations of further ECB rate cuts also weighed on the euro, enhancing the dollar’s relative appeal.
Next Week Main Events
Brain Teaser #21
There is a light bulb inside a room and four switches outside. All switches are currently at off state and only one switch controls the light bulb. You may tum any number of switches on or off any number of times you want. How many times do you need to go into the room to figure out which switch controls the light bulb?
SOLUTION
Tum on switches 1 and 2; move on to solve some other puzzles or do whatever you like for a while; then tum off switch 2 and turn on switch 3; get into the room quickly, touch the bulb and observe whether the light is on or off, this are the possible scenarios:
- The light bulb is on and hot – switch 1 controls the light;
- The light bulb is off and hot – switch 2 controls the light;
- The light bulb is on and cold – switch 3 controls the light;
- The light bulb is off and cold – switch 4 controls the light.
Brain Teaser #22
How many trailing zeros are in 100! (factorial of 100)?
0 Comments