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United States
October still seems to be a very positive month for US equities. Some analysts pointed it out as the month for a possible rate hike, but it ended up being positive so far, even if uncertainties about the long-awaited rate hike still hold. The S&P500 is up 122.25 points or 6.40%, and the Nasdaq is up 303.3 points or 6.62% from the beginning of the month. Another important measure for the sentiment of the market, CBOE VIX Index, was down 5.4% at 15.18 in late trade on Friday, as it headed for a second week of trading below the 20 level, which many believe to signal extreme stress in the stock market.
USD continued to rebound against most of its developed market peers and emerging market currencies surrendered some of their recent gains, while gold stayed within sight of a four-month high. Brent oil regained the $50 a barrel mark, but was still down sharply over the week.
US government bonds, meanwhile, continued to benefit from the pushing back of Fed rate rise expectations. While the yield on the more policy-sensitive 2-year Treasury was up 1bp at 0.61% on Friday, it was down 4bps for the week.
Looking at macroeconomic data, CPI set at 0.2% MoM (versus expectations of 0.1%). On the other side, Philadelphia FED Manufacturing Index resulted lower than expected.
Next week, the few relevant macroeconomic news will give us a snapshot of the US construction industry, with building permits and existing home sales out on Tuesday and Thursday respectively.
European Union
European shares closed at their highest level in five weeks on Friday, helped by expectations that monetary policies will remain accommodative. Nonetheless, while the overall market ended with a small gain this week (the Stoxx Europe 600 rose 0.1% to end at 363.13), consumer goods and luxury fashion stocks fell after they lowered their financial outlooks. On the national indexes, Germany’s DAX 30 added 0.4% to finish at 10,104.43, and France’s CAC 40 put on 0.6% to end at 4,702.79. IBEX outperformed the rest of Europe, lifted by gains in banks Santander, BBVA and Banco Popular of between 3% and 1.5%. EUR closed on late Friday at USD 1.1349.
Moving to macroeconomic data, the Eurozone consumer prices fell 0.1% in September from a year earlier, the first annual price dip since March. Core prices, excluding food and energy, gained 0.9%. Industrial production in the Eurozone decelerated to 0.9% YoY in August, half the downward-revised 1.8% pace in July. Energy production contracted by 3% for the month. Finally, Germany ZEW Economic Sentiment Index came in below expectations.
Moving to next week, the most important release being the European Central Bank announcement of its monetary policy on Thursday. Investors will also be watching the Eurozone composite purchasing managers’ index closely on Friday.
United Kingdom
UK stocks followed a path similar to other major world markets for the week; however, FTSE 100 did not manage to close the week in the positive territory. On the FX side, GBP gained against USD, ending at 1.5439 on Friday.
UK CPI, published on Tuesday, is still rather weak at -0.1% (while economists were pointing at 0% both MoM and YoY). On Wednesday, while unemployment rate (August) dropped below 5.5%, setting at 5.4%, the average earnings + bonus index for the same month was published below expectations. Moreover, the claimant count change was positive (i.e. more people asking for unemployment benefits compared to previous period), while forecasts expected a decrease.
Next week, retail sales will be revealed on Thursday: markets expect an acceleration versus previous periods.
Elsewhere in the world
As often happens, most of other economic news came from the Eastern part of the world.
On Monday, Indian CPI came in just above expectations. It is interesting to wonder about the sustainability of this data, also bearing in mind that RBI cut rates more than expected just few weeks ago.
Meanwhile, Kuroda (interviewed in Peru, following the IMF meeting) told CNBC that inflation is on target in Japan. His words sound like they are excluding further stimulus to the QQE program at the end of the current month.
Finally, Chinese CPI set below expectations at 1.6% (forecasts pointed towards 1.8%).
Looking forward, Chinese authorities will publish Q3 GDP figures on Monday, while Brazilian central bank will communicate the decision on interest rates on Thursday.
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