Hey folks, an interesting week where we had a mixed market but Volatiliy moved much higher to reflect more market risk of a potential expansion of war in the Middle East. Get my take on the markets in this week’s round-up.
Weekly Sound Bites:
US indexes finished mixed as investors weighed inflation data against dovish signals from Federal Reserve officials. Large-cap value stocks outperformed, helped by earnings beats from Citigroup, Wells Fargo, and JPMorgan Chase. The banking giants kicked off the unofficial start to Q3 earnings reporting season on a positive note, as their profits got a boost from higher interest rates. However, the prospect of a widening war in the Middle East following last weekend’s Hamas attacks against Israel boosted energy shares and defense stocks while weighing on airlines and cruise operators and driving Volatility 10% higher on the week to close at 19.32 from last week’s 17.45. The top 7 stocks that make up Big Tech make up 29% of the S&P Index. Seasonality could now exert some force on the markets as the official strongest period for the S&P kicks off on Oct 13th and extends thru year-end. During this period the S&P has average gains of 6.85 having moved higher over 70% of the time. [AAPL, MSFT, GOOGL, META, AMZN, NVDA, TSLA make up over 29% of Index]
We did get CPI data mid-week which showed core (excluding food and energy) producer prices rose 0.3% in September, a tick above expectations. The surprise 2.7% increase in year-over-year core producer prices was the highest level since May, however, due to a significant upward revision in the previous month. Core consumer price index (CPI) inflation data, released Thursday, was in line with expectations, rising 4.1% for the year ended September 30, its slowest pace in two years.
Mid Week’s release of the minutes from the Fed’s September policy meeting seemed to confirm most policy maker’s shift in official thinking toward leaving rates at current levels due to higher yields in the Treasury markets leading to tighter financial conditions. Officials also agreed that the “Fed should shift communications from how high to raise rates to how long to hold rates. By the end of this week, federal funds futures were pricing in only a 5.7% chance of a rate hike at the next Fed meeting in November versus 27.1% the previous week. Total Debt coming to auction in 2024 will be 24% higher than 2023. Austerity vs higher inflation and interest rates.
The minutes of the European Central Bank’s (ECB) September meeting revealed that “a solid majority” of policymakers voted to raise the key deposit rate to a record high of 4.0%. Meanwhile, the German economy is now projected to shrink by 0.4% due to higher energy prices and weaker demand from major markets like China from an earlier projected rise of 0.4%. The UK economy bounced back in August thanks to growth in professional services and education. Gross domestic product (GDP) expanded 0.2% sequentially after contracting 0.6% in July. But the data also showed that construction and production fell.
Japan’s stock markets had a strong gain for the week coming in up 4.3%. Meanwhile. the yen weakened to around JPY 149.6 against the U.S. dollar, from about JPY149.2 the prior week. In its October World Economic Outlook, published during the week, the International Monetary Fund (IMF) revised up its forecast for Japan’s growth in 2023 to 2.0% from 1.4% previously. The IMF also lifted its forecast for Japan’s price gains, anticipating that consumer inflation will tick up 3.2% this year, up from a previously expected 2.7% rise.
Financial markets in China declined in the first full week of trading after the Golden Week holiday, as softer inflation and trade data renewed concerns that the economy may slip back into deflation. Overseas exports fell 6.2% in September from a year earlier, slower than the 8.8% drop in August. Imports also shrank by 6.2%, better than the 7.3% contraction in August and marking the seventh straight month of declines.
Enjoy this week’s round-up
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