Hey folks, markets sure are giving us a Halloween treat with most indexes moving into official correction territory. Get my take on current market action with this week’s round-up.
WEEKLY SOUND BITES:
US indexes finished lower for a second straight week with any rally attempt swiftly batted down, as market sentiment was dented by mixed corporate earnings reports and concerns about higher interest rates—highlighted by the yield on the benchmark 10-year U.S. Treasury note briefly breaching the 5% level for the first time in 16 years. About a third of the S&P reported this past week with a focus on results from AMZN, GOOGL, META and MSFT all of which are members of the Mega-Cap Tech focused group of stocks known as the Magnificent Seven which helped drive positive market results earlier in the year. Although most metrics reported by these companies showed solid growth and exceeded consensus expectations, markets seemed to pounce on indications of rising expenses, which weighed on shares except for AMZN which showed the strongest growth.
Economic news during the week was highlighted by a better-than-expected GDP, which showed the U.S. economy grew at an annualized pace of 4.9% in Q3, led by strong consumer spending (accounted for over 55% of Q3 GDP – with Est. of 1.5% GDP in Q4). Meanwhile, the core personal consumption expenditures (PCE) price index, the Feds preferred inflation gauge, provided mixed evidence on whether inflation is moderating. On a monthly basis, core PCE—which excludes volatile food and energy costs—increased to 0.3% in September from 0.1% in August, although the year-over-year measure ticked down to 3.7% in September from 3.8% previously. After crossing the 5% threshold on Monday, the yield on the 10-year U.S. Treasury Note trended lower and traded around 4.8% at the end of the week. So, we have set up the upcoming Fed Meeting on Nov 1st where the markets do not expect a rate hike. Currently the rates are 5.25 – 5.50%.
In Europe, after increasing interest rates 10 consecutive times, the ECB left its key deposit rate unchanged at 4.0% and reiterated that maintaining this level for a long enough period would help to bring inflation down to its medium-term target of 2%. ECB President Christine “Queen Bee” Lagarde said at a press conference that the eurozone economy was “weak” and would remain so “for the remainder of this year.” An early estimate of the Eurozone Composite PMI, which includes both the manufacturing and services sectors, fell more than expected to 46.5 from 47.2 in September. This latest reading, a 35-month low, marked the fifth consecutive month that the PMI was less than 50. And in the UK, the unemployment rate rose to 4.2% in the three months through August from 4.0% in the March-to-May period.
In Japan, the yield of the 10-year Japanese government bond rose to a 10-year high of 0.87%, approaching the central bank’s upper bound of 1.0%, at the start of the week. And in the currency markets, the yen weakened past the closely watched 150 level to the U.S. dollar, spurring fears of a possible intervention by the authorities. Japan’s core inflation rate, accelerated to 2.7% in October, which was above consensus and the first strengthening in four months. The CPI rose to 3.3% from 2.8% in September. Separately, the PMI fell to 49.9 in October from 52.1 in September due to ongoing weakness in the manufacturing sector.
Equities in China rose as an improvement in industrial profits suggested that the economy may be stabilizing. For the first nine months of 2023, Corp. profits fell by 9% from a year ago while we see Country Garden Holdings, previously China’s largest property developer, defaulted on its offshore debt payments for the first time after it was unable to meet interest payments at the end of a 30-day grace period.
Enjoy this week’s round-up.
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