Markets continue to show bullish strength in an environment that is not as friendly as I would like to see. Get my take on where we are going in this week’s round-up.
MARKET SOUND BITES:
The S&P and the Dow all moved to record highs over the week, helped by some upside surprises to kick off earnings season with JPM and WFC all coming in above market expectations. A solid rise in NVIDIA shares helped growth stocks outperform value stocks and compensated for a decline in Google following reports that the DOJ was considering asking a federal judge to order a breakup of the company.
The earnings focus offset several disappointing economic reports over the week. On Thursday, we saw some upside surprises in headline and core inflation, which rose on a year-over-year basis, to 3.3% in September versus 3.2% in August, marking the first increase since March 2023. Also on Thursday, we saw a surprise jump in weekly jobless claims to 258,000, the highest level in 14 months.
The upside consumer inflation surprise led to a significant change in expectations for the Fed’s next policy meeting in November, with futures markets now pricing in a 14% chance of the Fed keeping rates steady. Minutes from the Fed’s last policy meeting, released Wednesday, also revealed that several members preferred only a 25-bps rate cut as opposed to the 50-bps cut announced despite only one member officially dissenting. Long-term bond yields also rose in the wake of the inflation data, with the yield on the benchmark 10-year U.S. Treasury note hitting its highest intraday level of 4.12% since July 31.
In Europe we see that analysts forecast Germany ’s economy would contract 0.2% this year, a meaningful downward adjustment from its previous estimate for a 0.3% expansion. Factory orders also dropped by 5.8% sequentially in August, a sharper downdraft than the consensus forecast for a decline of 2.0% but we did see Germany’s Industrial production surprise to the upside, increasing 2.9% as automotive industry output rebounded. Meanwhile, we see that the ECB reiterated that it expects inflation to slow toward the 2% target by year-end, according to the minutes from the September meeting. Recent comments from ECB officials, however, appeared to align with the market’s view that the pace of policy easing could quicken as inflation slows and the economy weakens. We also saw the British economy rebounded in August, expanding 0.2% sequentially after stagnating in the previous two months as well as a rise in manufacturing and construction output.
In Japan real inflation-adjusted wages fell 0.6% year on year in August. We also saw household spending falls 1.9% year on year in August, but less than the consensus forecast for a 2.6% decline. The latest comments by BoJ policymakers reaffirmed that the central bank’s stance remains unchanged after the change in government.
Chinese equities fell over a holiday-shortened week as optimism about Beijing’s stimulus measures waned. The country’s economic planning agency, announced at a press conference on Tuesday that China would speed up countercyclical measures to support growth. The PBOC launched a multi-billion-dollar swap facility to provide liquidity to institutional investors to buy stocks, Bloomberg reported. Spending by Chinese consumers over the long holiday that ended this past Monday lagged pre-pandemic levels, citing official data.
Enjoy This Week’s Round-Up
Don’t Be a Rat Brain Trader – Be the Red Stripe Zebra !!
Trade Smart !
hpb
