As we start a new week, let's take a look at the significant events in the global economy over the past week with our weekly financial update, presented by Bas Kooijman, the CEO and Asset Manager of DHF Capital SA.
In the U.S., stock markets reached new heights, with the S&P 500, Dow Jones Industrial Average, and S&P MidCap 400 all hitting record levels. This surge was driven by a solid start to the earnings season, as major banking stocks such as JPMorgan Chase and Wells Fargo reported better-than-expected results. JPMorgan’s slight revenue growth was particularly well-received, easing fears of steeper profit declines in the financial sector.
Growth stocks, represented by companies like NVIDIA, outperformed value stocks. NVIDIA's stock experienced a notable rise, which helped offset a decline in Alphabet (Google's parent company), following news that the Justice Department was considering breaking up the company. Tesla, however, faced challenges as the market reacted coolly to the unveiling of its "robotaxis" and "robovans."
Regarding economic matters, inflation rose slightly more than expected in September, with core prices (excluding food and energy) increasing by 0.3%. While this inflation uptick was modest, it marked the first year-over-year core price increase since March, driven by rising costs in medical care and transportation. However, falling energy prices helped balance the broader inflation picture. Despite this, the Labor Department reported a surprising rise in weekly jobless claims, with the highest figure in 14 months, largely due to disruptions caused by Hurricane Helene and significant job losses in Michigan. The Fed’s November rate decision remains uncertain, with some officials favoring a smaller 25-basis-point cut, while market expectations now lean towards the possibility of the Fed keeping rates steady. The 10-year U.S. Treasury yield also rose in response to these inflation figures, hitting its highest point since July.
In Europe, stock markets ended the week on a positive note, with the pan-European STOXX 600 index rising 0.66%, supported by hopes that the European Central Bank (ECB) might accelerate rate cuts and that China could ramp up its economic stimulus. Among the major markets, Italy's FTSE MIB saw the most significant gain (up 2.13%), followed by Germany’s DAX (1.32%) and France's CAC 40 (0.48%). However, the UK's FTSE 100 dipped by 0.33%.
Germany's economy continues to face significant challenges. The Federal Ministry for Economic Affairs and Climate Action adjusted its forecast, predicting a 0.2% contraction in 2024—worse than the previously expected 0.3% growth. A sharp 5.8% decline in factory orders in August further underscored the country’s struggles, despite a rebound in industrial production, notably in the automotive sector.
The ECB remains cautious about future rate cuts but acknowledges that inflation is expected to ease towards its 2% target by year-end. Some officials, however, have suggested that the pace of easing could accelerate. Notably, Banque de France Governor François Villeroy de Galhau hinted that another rate cut in October was likely, with more to follow, reflecting the weakening economic outlook.
Meanwhile, the UK showed some resilience, as its economy returned to growth in August, expanding by 0.2% after stagnation in previous months. This was largely due to a rebound in manufacturing and construction, despite lingering concerns about the broader economic trajectory.
Turning to Asia, Japan’s stock markets enjoyed a strong week, with the Nikkei 225 rising 2.45%. The Japanese yen weakened further against the U.S. dollar, benefiting exporters and supporting a positive outlook for the country's economic growth. However, economic data showed mixed signals, with real wages declining by 0.6% year-over-year in August, driven by reduced summer bonuses. This wage weakness has led to speculation that the Bank of Japan (BoJ) might hold off on additional interest rate hikes, even as global inflationary pressures persist.
China’s equity markets, on the other hand, experienced declines, with the Shanghai Composite Index falling 3.56% over a holiday-shortened week. Optimism around Beijing's stimulus measures has faded, and spending during the long National Day holiday remained below pre-pandemic levels. Additionally, China's central bank introduced new liquidity measures, including a RMB 500 billion swap facility to support institutional stock investments, but these efforts have not yet ignited a meaningful recovery in market sentiment.
In conclusion, the past week highlighted the varied responses of global markets to economic data, policy changes, and corporate earnings. While the U.S. stock market benefited from upbeat earnings, Europe struggled with economic concerns, and Asian markets, particularly Japan and China, saw mixed outcomes due to their respective economic environments. As investors navigate these uncertain waters, all eyes remain on central banks and their next policy moves.
