Week ending 25th October 2024.

As shown in the accompanying table, markets closed the week broadly lower.

In the UK, anticipation builds ahead of the Autumn Budget on October 30th, while the upcoming US election on November 5th continues to weigh on sentiment, with polls indicating a tight race. Consequently, markets remain subdued, with some participants taking profits on recent gains and reassessing the potential policy impacts of each candidate.

Political uncertainty surrounding the US election and renewed uncertainty about the direction of global monetary policy drove market sentiment this week. Recent remarks from Federal Reserve officials indicated a more cautious approach to rate cuts, intensifying attention on 10 year Treasury yields, which rose above 4.25% early Thursday as market participants adjusted their expectations for interest rate changes in the coming months.

On the data front, US PMI showed that business activity continued to expand in October, with the composite index rising to 54.3 from 54.0 in September, signalling a robust start to the fourth quarter. Growth was driven solely by the service sector however, as manufacturing output improved but remained in contractionary territory.

This week was marked by a series of corporate earnings reports that yielded mixed results, although of the 37% of S&P 500 companies that have reported so far, 59% delivered a positive revenue surprise. Notably, Tesla stood out within the S&P 500, helping to soften the index’s decline. The electric vehicle manufacturer announced stronger-than-expected quarterly earnings and projected robust growth in vehicle sales for 2025, causing its stock to surge by 22% on Thursday.

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European markets closed lower due to shifting expectations of slower rate cuts from the Fed and their implications for European Central Bank policymakers. Eurozone PMI data revealed that business activity remained in contraction territory but edged up to 49.7 in October from a seven-month low of 49.6 in September. While service-sector growth unexpectedly slowed, the decline in manufacturing was not as severe as anticipated.

So far this month, UK economic indicators have reflected signs of slowing growth and weaker consumer confidence, with surveys noting that “gloomy government rhetoric and uncertainty ahead of the budget” dampened business confidence and spending. The UK composite PMI remained in expansionary territory but fell to 51.7 from 52.6 in September, driven by slower growth in new orders. GFK’s survey also highlighted a decrease in UK consumer confidence, despite inflation returning to the 2% target, likely due to concerns over the Autumn Budget and potential tax increases.

In contrast, stocks fared better as the People’s Bank of China injected liquidity into the banking system, keeping key lending rates unchanged while signalling ongoing support for economic stability. Recent rate cuts by Chinese banks aim to encourage borrowing as part of broader stimulus efforts. Youth unemployment eased slightly in September, offering a positive signal, though it remains high amid continued economic pressures.

Japan’s stock markets declined this week amid pre-election uncertainty. Tokyo’s inflation rose by 1.8% year-over-year in October, slightly easing from September’s 2.0% due to renewed energy subsidies. Bank of Japan Governor Ueda emphasised a cautious approach to policy adjustments to avoid prolonged low-rate expectations and speculative risks. Following Sunday’s election, the country faces political uncertainty, as no party secured a majority. Prime Minister Ishiba’s coalition won 215 seats, falling short of the 233 needed, while the opposition CDPJ gained 148. Parties now have 30 days to negotiate a coalition government.

Next week, Chancellor of the Exchequer Rachel Reeves will present her Autumn Budget on Wednesday, October 30th. Be sure to check for our updates on the day.

In terms of data releases this week, we can expect the following: Eurozone Q3 GDP, inflation, and unemployment rates; Japan’s industrial production and retail sales; and the US core PCE (the Federal Reserve’s preferred measure of inflation), along with non-farm payrolls, the unemployment rate, and the participation rate. Earnings season continues with reports from the “Magnificent Seven”, including Apple, Microsoft, Meta, and Amazon”.

Kate Mimnagh, Portfolio Economist