Eyes Wide Open

Once again equity markets were negative last week with a fall of 1.8% in local currency and sterling. Global equities are now up 4.9% for the year in sterling.

Earnings season is in full flow in the US with all eyes on members of what has become known as the Magnificent Seven (Apple, Microsoft, Meta, Amazon, Alphabet, Nvidia and Tesla). With results broadly ahead of expectations, markets focused on indications of rising costs. Amazon, which reported on Thursday after the close jumped by 6.8% on Friday. Conversely Chevron and Exxon Mobil fell after releasing disappointing results. Ford also struggled, falling by 12.2% after missing quarterly estimates and lowering forecasts due to the UAW strikes.

Turning to the macro environment the US also reported better than expected GDP at 4.9% for the third quarter – importantly this was led by strong consumer spending. Interestingly, this was the strongest showing since the end of 2021.

US Treasuries crossed the 5% level at the start of the week although settled below this level by Friday. All eyes will be on the Federal Reserve’s meeting on October 31/1 November although broad consensus remains for no change.

Closer to home the European Central Bank held rates unchanged at 4% after ten consecutive increases. The rhetoric remains that rates will remain at or above these levels until inflation comes back to the long-term target of 2%. Support for no change will have been backed up by early estimates of the composite PMI remaining in below 50 for the fifth consecutive month and the contraction in German GDP over the quarter.

In the UK we saw an increase in unemployment to 4.2% from 4% whilst manufacturing PMI remained in contractionary territory. Undoubtedly these issues will be discussed by the Bank of England this Thursday with expectations that, along with the US and Europe a pause is in order.

In Japan the 10-year bond hit a ten year high of 0.87%. The Japanese Central Bank which has a upper limit of 1% intervened in markets. Speculation regarding intervention in the Yen was also mooted as it passed through the psychological 150 level against the dollar.

There were more positive signs in China with the Shanghai Index increasing by 1.2% and the Hang Seng by 1.3%. Whilst concerns remain around the housing market issues were not helped by Country Garden Holdings’ defaulting on its offshore debt payments; the government’s issuance of one trillion renminbi for disaster relief and construction, coupled with a plan to increase the level of fiscal deficit as a percentage of GDP will be supportive for the economy.

Whilst the ongoing issues in the Middle East remain of huge concern from a humanitarian perspective, the impact on markets continues to be muted. Gold has pulled back a fraction since passing the $2,000 mark and oil is also back below $90 per barrel. Any escalation or concern that peace is unlikely to be an option could swiftly reverse this.

Paul Surguy – Managing Director, Head of Investment Management & Proposition