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 a mild downturn last week, influenced by increasing U.S. Treasury yields. The broad S&P 500 Index dipped slightly after a six-week gain streak, primarily responding to Treasury market movements and indications that the Federal Reserve may proceed with a milder rate-cutting cycle than previously expected. Notably, large-cap stocks outperformed small-cap stocks, and technology and growth stocks continued to edge out value stocks, keeping the Nasdaq Composite Index on an upward path.
Tesla outshone the broader market with a record-breaking gain of 22% on Thursday. Strong quarterly earnings and a promising forecast for 2025, targeting 20-30% growth in vehicle sales, were key drivers of Tesla’s success. Meanwhile, Apple moved in the opposite direction, dragged down by analyst downgrades tied to lower projections for its iPhone 16 sales. On the economic front, the Federal Reserve's Beige Book, a regional economic conditions summary, indicated only modest growth across the U.S. Demand for labor saw a slight decrease, and inflation showed signs of moderation. Treasury yields rose, with the 10-year yield reaching 4.20% and holding steady. This trend, partly driven by cautious rate cut expectations, has been projected by T. Rowe Price’s Arif Husain to reach 5% within six months due to high fiscal spending and inflation concerns.
European markets also faced pressure, with the STOXX Europe 600 Index falling by 1.18%, reflecting concerns that the Federal Reserve might not accelerate rate reductions as anticipated. Key indices across major economies, including France, Germany, and Italy, registered declines, showing Europe’s susceptibility to shifts in U.S. monetary policy expectations.
Economic activity in the eurozone continued to contract, with the Purchasing Managers' Index (PMI) reading at 49.7, indicating a slowing economy. France and Germany, the region’s economic engines, showed the steepest downturns. European Central Bank (ECB) policymakers were divided on the pace and extent of potential rate cuts. While ECB President Christine Lagarde and other officials advocated caution, others, like Portugal’s Mário Centeno, signaled readiness for a more substantial rate reduction to support the slowing economy. In the UK, business activity also showed signs of slowing. The UK’s PMI reached an 11-month low of 51.7, and consumer confidence fell to its lowest this year due to fears of potential tax hikes. These developments highlight growing concerns over the UK’s economic trajectory and possible fiscal tightening measures.
In Japan, markets saw declines, with the Nikkei 225 and TOPIX indices down by over 2% as investors awaited the outcome of the country’s general election. The yen weakened, pressured by a strong dollar and investor caution ahead of the election. Meanwhile, Japan’s inflation ticked up, with the Tokyo-area core Consumer Price Index (CPI) increasing by 1.8% year-over-year in October. This uptick adds complexity to the Bank of Japan's approach to interest rates, as Governor Kazuo Ueda navigates toward achieving a 2% inflation target while avoiding long-term low-rate expectations.
China’s market, by contrast, saw modest gains. The People’s Bank of China (PBOC) introduced more stimulus measures, including injecting RMB 700 billion into the banking system, aligning with broader efforts to support economic growth. Chinese banks also reduced lending rates, making it easier for consumers to access mortgages and loans. In addition, the youth unemployment rate declined to 17.6% in September, down from a record 18.8% in August, suggesting some improvement in China’s labor market conditions amid recent policy adjustments.
Overall, global markets last week reflected the complex interplay between regional economic signals, central bank policies, and shifting investor sentiment. Elevated U.S. Treasury yields, expectations around Federal Reserve rate policies, and regional economic pressures continue to set the tone, underscoring the challenges and opportunities within the global financial landscape.
