Summary of the week - 1st Nov

Interest rate

• US: At their September meeting, the Fed was unsure about the degree of interest rate cuts needed but chose a half-point reduction to balance confidence in controlling inflation with worries about the labour market, as per meeting minutes. At the moment, US interest rate is between 4.75 to 5%.

  
  

• UK: The Bank of England maintained its Bank Rate at 5% during its September 2024 meeting, in line with market expectations, after a 25 basis point reduction in August—the first cut in over four years. However, one committee member advocated for an additional 0.25 percentage point decrease to 4.75%. Some economists suggest that recent economic measures may exert mild inflationary pressure, potentially slowing the pace of future rate cuts by the BoE. Nevertheless, another 25 basis point rate cut is anticipated next week as the central bank continues to monitor economic conditions closely.

  
  

• EU: In October 2024, the European Central Bank (ECB) reduced its three key interest rates by 25 basis points, consistent with market expectations and following similar cuts in September and June. The deposit facility, main refinancing operations, and marginal lending facility rates are now set at 3.25%, 3.40%, and 3.65%, respectively. This decision reflects the ECB’s updated inflation outlook, which indicates steady progress toward disinflation.

  
  

Inflation rate

• US: The latest U.S. economic data showed that the Personal Consumption Expenditures (PCE) price index rose 2.1% on an annual basis in September, aligning with expectations. Monthly inflation was anticipated to increase by just 0.2%, according to Dow Jones estimates, with the annual PCE rate steady at 2.1%.

  
  

• UK: The UK’s annual inflation rate dropped to 1.7% in September 2024, marking its lowest level since April 2021 and coming in below expectations of 1.9%. This decrease follows a rate of 2.2% in the previous two months. The primary contributor to the decline was the transport sector, which saw a significant drop in costs, particularly in airfares and motor fuels, with transport inflation falling to -2.2% from 1.3%.

  
  

• EU: Eurozone inflation increased to 2% in October, surpassing analysts' expectations of 1.9% and up from September's 1.7% level. This higher-than-anticipated figure is likely to influence the European Central Bank's (ECB) approach to upcoming interest rate cuts. Economists now suggest that a larger, 50-basis-point rate cut at the December meeting is unlikely, with the ECB more likely to proceed with the anticipated 25-basis-point reduction.

  
  

Equity market

• US: The US equity market experienced a decline this past week, dropping by 1.80%. This decline reflects growing investor caution amid weaker-than-expected earnings reports from major technology firms, as well as recent economic data showing a stable yet modest increase in the Personal Consumption Expenditures (PCE) price index at 2.1% on an annual basis for September.

  
  

  While robust earnings from Amazon and Intel helped fuel optimism and some recovery midweek, downbeat sessions on Monday and Tuesday weighed heavily on the overall market. Additionally, concerns over future Federal Reserve interest rate decisions and uncertainty from the upcoming U.S. presidential election have likely added to the volatility, making investors hesitant to take on more risk in the equity markets.

  
  

• UK: The UK equity market faced a challenging week, recording a weekly decline of 0.9%, largely driven by cautious sentiment around UK fiscal policy and mixed economic data. On Thursday, housebuilders saw a broad retreat as government bond yields surged, with traders increasingly wary of the extensive tax rises and borrowing measures announced in the Autumn Budget.

  
  

  By Friday, the FTSE 100 managed to extend initial gains, closing about 0.8% higher after a three-day selloff had pushed the index to its lowest in three months. This rebound aligned with broader European and U.S. markets, which were buoyed by a softer-than-expected U.S. jobs report, raising hopes for further Federal Reserve rate cuts.

  
  

  On the corporate front, Reckitt Benckiser surged nearly 7% following its favorable outcome in a U.S. trial regarding baby formula health risks. Schroders also gained 4.3%, benefiting from an analyst upgrade. Despite these positive moves, the market remained under pressure, as UK house prices showed slower-than-expected growth in October, reflecting subdued economic momentum.

  
  

• EU: European stocks faced a volatile week, closing October with their steepest monthly decline in a year. The pan-European STOXX 600 ended Thursday 1.2% lower, contributing to a monthly loss of 3.4%—the worst performance since October 2023. Investors grappled with a range of factors, including corporate earnings, inflation, and the implications of the UK's new budget.

  
  

  However, markets rebounded on Friday, with the STOXX 50 and STOXX 600 both posting gains of around 1%, reducing the week's overall losses to 1.5% and 1.3%, respectively. Strong earnings reports from Amazon and Intel helped lift sentiment, while a weaker-than-expected US payrolls report initially supported credit instruments, though gains were tempered by a spike in the ISM manufacturing prices index later in the session. European banks led the rally, with UniCredit, Intesa Sanpaolo, Santander, and BBVA each adding over 2.5%. Additionally, Maersk shares surged 4.4% after Barclays and JPMorgan raised their target prices.

  
  

  As November began, both the STOXX 50 and STOXX 600 were up 0.2%, stabilizing after recent losses. Investors remain attentive to new corporate earnings and economic indicators, with particular focus on the upcoming US jobs report. Oil and gas stocks were among the strongest performers, further contributing to the positive start in November.

  
  

Fixed Income market

• US: The yield on the 10-year US Treasury note climbed above 4.3% this week, its highest in nearly four months, extending a 50bps increase in October. Economic data favored a less dovish Fed, with ISM reporting further contraction in factory activity but a surprising rise in prices, reinforcing concerns about persistent inflation. This came alongside a weaker-than-expected nonfarm payrolls report, though its impact was skewed by hurricanes and strikes. Meanwhile, the possibility of a Trump presidency and expectations of expansionary fiscal policies added pressure on long-term bonds, limiting yield declines.

  
  

• UK: UK gilt yields experienced a sharp rise, with the 2-year yield climbing by 17 basis points and the 10-year yield increasing by 15 basis points to reach 4.497%, marking the highest level in a year. The 10-year gilt yield ultimately surged above 4.51% amid concerns surrounding the Labour government’s first budget. While yields fluctuated following Wednesday’s budget announcement, they trended upward as traders digested key aspects of the fiscal plan.

  
  

• EU: The yield on Germany's 10-year government bond has decreased to a 26-month low of 1.19%, reflecting market adjustments amid a mixed economic outlook for the Euro Area. While German yields declined, they still saw a net gain of 34.9 basis points over the past four weeks. Euro Area GDP is projected to grow modestly by 0.2%, with expansions in France (0.4%) and Italy (0.3%) but a slight contraction expected in Germany (-0.1%).

  
  

Commodities

• Oil: WTI crude oil futures rose to $69.5 per barrel on Friday, marking the third consecutive day of gains, despite a weekly decline of 3%. The recent uptick is driven by market anticipation of potential escalations from Tehran in response to Israel's latest military actions.

  
  

  Iran, a key OPEC member, has been producing about 4 million barrels per day (bpd) and is expected to export 1.5 million bpd in 2024. Market concerns also focus on speculation that OPEC+ may delay its planned production increase in December, amid softening demand and rising supply. The combination of geopolitical uncertainty and potential adjustments by OPEC+ has helped sustain oil prices, with investors closely watching developments in the Middle East and OPEC’s response to evolving market conditions.

  
  

• Gold: Gold held steady at the $2,750 per ounce mark on Friday, maintaining a 1.5% decline from its recent record high as markets weighed the demand for safe-haven assets ahead of the upcoming U.S. elections. Investors remain cautious, balancing political uncertainty with the Federal Reserve’s evolving policy outlook. The precious metal's recent dip reflects a mix of profit-taking and cautious positioning, as traders assess potential shifts in risk sentiment amidst both geopolitical and economic uncertainties.

  
  

FX

• EUR/USD: The Euro rose to $1.087, reaching a two-week high, as a higher-than-expected inflation reading in the Euro Area fueled speculation that the European Central Bank (ECB) will maintain a cautious approach to rate cuts, likely opting for smaller, gradual reductions. Despite this temporary boost, the Euro is on track for its longest weekly losing streak against the dollar in eight months, reflecting broader pressures as investors weigh the region's economic challenges against a relatively resilient U.S. dollar.

  
  

• GBP/USD: The British pound dropped to $1.285, its lowest level since mid-August, as concerns mounted over the Labour government’s first budget. While the sterling initially fluctuated between gains and losses during Wednesday’s budget presentation, it ultimately depreciated as traders analyzed the proposed fiscal measures. The budget’s combination of increased borrowing and substantial tax hikes raised worries about the UK’s economic trajectory, contributing to the pound’s downward pressure.

  
  

• JNY/USD: The Japanese yen appreciated to approximately $0.0065 on Friday, gaining nearly 1% following Thursday's session. This strength was supported by less dovish remarks from Bank of Japan Governor Kazuo Ueda, which bolstered market confidence in a potential shift towards a more cautious policy stance. Although the BOJ decided to keep its policy rate unchanged at 0.25% on Thursday, as expected, the central bank’s steady approach comes amid a period of political transition in Japan, adding uncertainty to the nation's fiscal and monetary outlook.

  
  
  
  

  Source: CNBC, Bloomberg, FTnews and Reuters.

  
  

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