Earnings reports, lingering trade tensions as well as the US consumer price index (CPI) reading were amongst the main drivers of market sentiment for the week, with US equity indices ultimately ending higher. Netflix was amongst those whose earnings reports underwhelmed, with its stock falling over 10% on Wednesday. However, of the S&P 500 companies who have reported so far, 87% have posted a positive earnings per share surprise, according to FactSet. On the trade front, there was unease on reports that the Trump administration was considering a plan to curb software-powered exports to China. Close attention will be paid to this week’s meeting between Presidents Trump and Xi. In less positive trade news, Trump announced that he was ending all trade negotiations with Canada.
Having been delayed by the government shutdown, Friday saw the release of the September CPI, in which inflation rose 0.3% month-on-month, slightly lower than the 0.4% expected. This reinforced the view that the Federal Reserve would cut interest rates again at its next meeting in November. In response, stocks rallied on Friday to close out the week at record highs. For the week, the S&P 500 gained 1.9% and the tech-heavy Nasdaq Composite was up 2.3%, both seeing their best performance since August. Meanwhile the Dow Jones Industrial Average added 2.2%, crossing the 47,000 mark for the first time. US Treasuries traded lower for most of the week - while the 10-year yield briefly ticked higher following the CPI report, for the week it ended lower, just below the 4% level.
European markets also saw positive performance for the week, lifted by the cooler US inflation report as well as earnings reports and economic data. The pan-European STOXX 600 gained 1.7%, closing at a record high. The Hamburg Commercial Bank eurozone composite purchasing managers’ index (PMI) rose to 52.2 in October, a 17-month high and a reading on consumer confidence also moved up. Regional indices saw gains, with the UK FTSE 100 was one of the best performers, rising 3.1%. UK inflation held steady while retail sales came in better-than-expected.
Japan’s markets saw strong gains in response to the election of Sanae Takaichi as the country’s first female prime minister. There was growing hopes that Takaichi would announce a large stimulus package to support the economy. Meanwhile the Japanese yen weakened and government bonds ticked higher. Positive momentum also carried across to China, whereby the Shanghai Composite was up 2.9%. This was even with some data suggesting weakness in areas of the economy with retail sales seeing their slowest growth pace since November.
Energy stocks were some of the best performers of the week thanks to higher crude oil prices. Brent crude gained 7.6% for the week, pressing higher on news that the US was sanctioning Russia’s Lukoil and Rosneft. On Monday gold had notched yet another record high, touching $4,381.21. However for the rest of the week it was on a downward path, partly due to profit taking as well as the easing of trade tensions. Overall gold was down 2.9%, ending a nine-week winning streak.
Weekly macro highlights
UK inflation remains flat in September
According to data published by the Office for National Statistics UK inflation was flat in September, resulting in an annual increase of 3.8% year-on-year (YoY). This reading was below market and Bank of England (BoE) expectations of a 4.0% YoY increase, Transport prices rose 3.8% over the year, driven by higher fuel costs and air fares. However, this was offset by declines in recreation and culture, food and non-alcoholic beverages, and housing and household services. Goods price inflation edged up to 2.9% YoY, from 2.8% in August, marking its’ highest rate since October 2023, while services inflation remained unchanged at 4.7% YoY. Core CPI, which excludes energy, food, alcohol, and tobacco, rose 3.5% YoY, down from 3.6% in August. While this outcome will be welcomed by the Monetary Policy Committee, it is unlikely to prompt a rate cut in November, though a December cut remains possible if current economic conditions and the softening of price pressures persist.
Japan inflation accelerates in September
Japan’s consumer price index (CPI) rose 2.9% year-on-year (YoY) in September, up from 2.7% YoY in August, according to data published by the Statistics Bureau of Japan. Service-sector prices increased 1.4% YoY, compared to a 4.2% rise in goods prices. Core CPI, which excludes fresh food, accelerated to 2.9% YoY in September, which marks the first increase since May and is broadly in line with market expectations. In contrast, the core-core inflation rate, which excludes both fresh food and energy, and is closely monitored by the Bank of Japan (BoJ), declined to 3.0% YoY in September, from 3.3% the previous month, remaining largely sticky and above the BoJ’s 2.0% annual target. Notably, rice inflation declined sharply to 49.2% YoY in September, from 69.7% in August, after peaking at 101.7% in May. These figures continue to reflect a nuanced inflation outlook for Japan.
US inflation rises marginally
According to the Bureau of Labor Statistics, US consumer price index (CPI) rose by 3.0% year-on-year (YoY) in September, slightly below market expectations of a 3.1% print. This exceptional data release came after delays caused by the ongoing US government shutdown. On a monthly basis, the CPI index increased 0.3% in September, compared to a 0.4% rise in August. Energy prices rose 1.5% month-on-month (MoM), up from a 0.7% increase in August, with gasoline prices the primary driver, rising 4.1% MoM. Shelter costs, which account for one-third of the CPI weighting, increased by 0.2% MoM. Food prices also rose by 0.2% over the month, led by a 0.6% MoM increase in the food at home index. In contrast, indexes for energy services and used cars and trucks, were among the few that declined. Markets expect a 25-basis point rate cut at the next FOMC meeting on 28 and 29 October.