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.
The U.S. stock market saw significant declines due to geopolitical concerns and financial policy changes. Notably, the Nasdaq Composite Index edged close to bear market territory, falling nearly 20% from its highs in early 2022. The week began with the 15th consecutive Monday gain for the S&P 500, bolstered by a lack of negative news from the Middle East. However, gains were quickly reversed with reports of U.S. military engagement in the region and escalating tensions. The Federal Reserve's stance further influenced market sentiment. While the Fed recognized a tightening in financial conditions, it did not anticipate policy changes that would lead the economy into a recession. On the economic front, October retail sales surprised with a 0.7% rise, and weekly jobless claims dropped below 200,000 for the first time since January. Yet, industrial production and housing starts remained sluggish. Lastly, the 10-year U.S. Treasury yield almost hit 5%, its peak since 2007, causing market concerns.
European markets ended notably lower due to concerns about interest rate outlooks and potential Middle East conflicts. The STOXX Europe 600 Index fell by 3.44%. Italy's FTSE MIB, Germany's DAX, France's CAC 40, and the UK's FTSE 100 all closed in negative territory. Investors were particularly concerned about lasting high-interest rates stemming from persistent inflation. German and Italian bond yields rose, reflecting these anxieties. European Central Bank (ECB) policymakers are closely monitoring the inflation risks posed by escalating oil prices. In the UK, inflation remained at 6.7%, driven by fuel costs, while wage growth, excluding bonuses, surged by 7.8% annually. In terms of economic sentiment, German investor morale saw a positive uptick, whereas France experienced a decline in business confidence.
Japanese stock markets faced declines, with the Nikkei 225 Index and TOPIX Index falling by 3.3% and 2.3%, respectively. The messaging from the U.S. Federal Reserve, suggesting enduring high interest rates, impacted Japanese bond yields. The 10-year Japanese government bond yield reached 0.83%, the highest in a decade. The Bank of Japan (BoJ) is poised to revise its inflation forecasts in its October meeting. While inflation slowed to 2.8% year on year in September, it remained above the BoJ's 2% target for 18 consecutive months. A crucial focus remains on wage growth. The significant labor organization, Rengo, is set to demand a wage increase of at least 5% in 2024, indicating the country's aspirations to sustainably meet its inflation targets.
In conclusion, while the US and European markets face headwinds from geopolitical tensions and inflationary concerns, Asian economies, particularly Japan and China, grapple with their own set of challenges, underscoring the interconnected yet diverse nature of the global economic landscape.