Markets are setting records and buyers are overly enthusiastic – what can go wrong?
Get my take on this week’s market round-up.
MARKET SOUND BITES:
The S&P and the Dow all moved to record highs over the week, with the S&P up 6 weeks in a row, the longest streak in 2024. The National Retail Federation expects 2024 Holiday spending to grow between 2.5% and 3.5% from last year. 12 out of 15 times that the S&P posted 2 consecutive winning years, it extended the advance into the following year with an average gain of 7.3%. And Gold hitting over $2,700 an ounce for the first time on Friday given the high debt levels over future economic growth and the US Deficit more than 6% of GDP. In fact, Gold reserves of all central banks have grown from 3% to over 10% this past decade. Also, since 1950, the US National Savings rate has declined from 13% to 3%.
In an encouraging sign for Q3 economic growth, the value of U.S. retail sales increased 0.4% last month, accelerating from the 0.1% uptick registered in August. The September reading was slightly above the consensus estimate for a 0.3% gain. Strength in consumer spending was broad-based: 10 of the 13 retailer categories reported higher sales for the month. Industrial production dropped 0.3% in September after increasing 0.3% in the preceding month. The final number for August was revised downward from an initial estimate of 0.8%. Initial jobless claims fell unexpectedly to 241,000 during the week ended October 12, a decline of about 19,000 filings. Meanwhile, the number of people receiving jobless benefits for more than one week increased by 9,000 to 1.867 million, falling short of a consensus estimate for 1.876 million.
Over in Europe, as expected, the ECB lowered its key deposit rate by a quarter of a percentage point to 3.25%, the first back-to-back reduction in 13 years. ECB President Christine Lagarde said that the disinflationary process seemed to be “well on track,” citing recent downside surprises in economic activity data. Although the ECB reiterated that it would not pre-commit to a particular rate path, financial markets appeared to expect the ECB to reduce rates in December to support the economy. In addition, they reported that annual inflation came in at 1.7% in September—a downward revision from its initial estimate of 1.8% and well below the ECB’s stated target of 2%. The ECB forecasts that inflation will rise again before falling back toward the 2% target next year. And in the U.K. slower-than-expected UK inflation and a further decline in wage growth appeared to open the door for the Bank of England (BoE) to lower borrowing costs again. CPI rose 1.7% in the year through September, the lowest rate since April 2021 and below forecasts for 1.9% and we see that services inflation, which is closely watched by the BoE, decelerated to a more than two-year low of 4.9%.
In Japan, the latest comments from BoJ officials emphasized that while the prerequisite conditions for beginning monetary policy normalization have already been met—rate hikes should be implemented at a very gradual pace. The yield on the 10-year Japanese Gov bond rose to 0.97% from 0.94% at the end of the previous week. Japan’s core CPI showed inflation easing in September with it coming in at 2.4% year on year, compared with 2.8% in August. Separate data also showed that Japan’s exports in September fell 1.7% from year-ago levels, the first decline in 10 months, which reflected weakness in Chinese demand. Imports grew 2.1%, partly due to the impact of the weak yen, which inflates their value.
And in China, their Q3 GDP expanded 4.6% from year-ago levels, beating a consensus estimate. This growth rate was slightly lower than the 4.7% expansion recorded in Q2 and below the government’s stated target of “around 5%.” On a quarter-over-quarter basis, the economy grew 0.9%. Other economic data showed signs of improvement. Industrial production rose a better-than-expected 5.4% in September from a year earlier, up from August’s 4.5% increase. Retail sales grew an above-forecast 3.2% YoY, an acceleration from the 2.1% increase logged in August. Annual inflation came in at a below-consensus 0.4% in September, the lowest level in three months and a slowdown from the 0.6% rate recorded in August. Core CPI increased 0.1%, the lowest since February 2021 while the PPI fell a bigger-than-expected 2.8% from a year ago, deepening from August’s 1.8% drop.
Enjoy this week’s round-up
Don’t Be A Rat Brain Trader – Be the Red Stripe Zebra !!
Trade Smart !
hpb
