US lawmakers were unable to reach a funding deal, resulting in a government shutdown starting on Wednesday. As a result, the closely watched non-farm payrolls data due out on Friday from the Bureau of Labor Statistics was postponed. Nevertheless, markets were still able to get a look into the US economy via alternative data suppliers. A report from payroll processor ADP revealed that private sector employment fell by 32,000 in September. Signs of a cooling labour market reinforced the belief that the Federal Reserve will cut interest rates at its October meeting. Furthermore, ISM’s gauge on manufacturing activity remained in contraction in September, while its services purchasing managers’ index (PMI) dropped to its breakeven point.
Despite the government shutdown US equity markets took this in their stride and pressed higher. Both the S&P 500 and Dow Jones Industrial Average ended at record highs, and each added 1.1% for the week. Meanwhile the Nasdaq Composite added 1.3%, although slipped from its Thursday peak. The best performing sector of the week was healthcare. This was fuelled by news that Pfizer would be part of TrumpRx, a new direct-to-consumer website allowing Americans to buy certain drugs at discounted prices. The drugmaker also agreed to set new drug prices at 'Most Favored Nation' levels. In contrast, energy was the weakest sector, dragged down by lower oil prices. Brent crude fell around 8% as OPEC members indicated they would increase production in November. Treasury yields were lower for week amid the softer labour market data, with the 10-year Treasury yield ending at 4.12%.
European markets notched gains, supported by rising expectations for another Fed rate cut. For the week the pan-European STOXX 600 advanced 2.8% to end at a record high, in its best weekly performance since April. The European healthcare sector also received a boost from the Pfizer drug pricing deal and outperformed; on Wednesday healthcare stocks climbed over 5% in their best once-day performance since 2008. In addition, technology stocks continued to move higher fuelled by ongoing optimism around artificial intelligence. On the data front eurozone inflation accelerated in September while the manufacturing PMI fell back in to contraction in September.
Chinese markets had a holiday-shortened week, although for the two sessions ahead of the Golden Week holiday the Shanghai Composite was up 1.4%. The Hang Seng was closed on Wednesday but logged a weekly gain of 3.9%. South Korea’s Kospi rose 4.8%, with particular strength in chip-related names SK Hynix and Samsung Electronics, following of a partnership with OpenAI to develop data centres. Japanese markets were mixed with the Nikkei 225 up 0.9% whereas the broader Topix declined 1.8%. There was some uncertainty ahead of the weekend’s election, in which Sanae Takaichi was elected leader of the ruling Liberal Democratic Party.
Weekly macro highlights
US manufacturing improves in September, but remains in contraction
The manufacturing PMI registered 49.1 in September, a slight increase of 0.4 from August’s 48.7, according to data released by the Institute for Supply Management. The US manufacturing sector contracted in September for the seventh consecutive month, following two months of expansion that were preceded by 26 months of decline. New export orders saw the largest decrease, to 43.0 in September. The new orders index fell to 48.9 after reaching 51.4 in August. Meanwhile, the production index rose to 51.0. Although the prices index remained in expansion at 61.9, it was down compared to August’s reading of 63.7. The backlog of orders index contracted for the 36th consecutive month, registering 46.2, a slightly slower rate than August’s 44.7. Lastly, employment remains in contraction at 43.8 this month, compared to 45.3 in August.
Eurozone inflation accelerates in September
Eurozone headline inflation increased 2.2% year-on-year (YoY) in September, up from 2.0% in August, but below market expectations of 2.3% YoY, according to flash estimates from the statistical office of the European Union. Of the main components, services inflation registered a 3.2% YoY increase, compared with 3.1% increase in August. Prices for food, alcohol, and tobacco recorded a 3.0% YoY increase in September. Meanwhile, energy prices decreased by 0.4% YoY in September, from August’s -2.0% YoY print. Core inflation, which excludes energy and unprocessed food, remained at 2.3% YoY in September, unchanged from the previous four months. Across eurozone countries, headline inflation in France saw a 1.1% YoY increase, below consensus forecasts, while Italian inflation was 1.8% YoY in September. Germany’s headline inflation registered 2.4% and Spanish inflation was at 3.0% YoY. The next European Central Bank monetary policy meeting will be held on 30 October, with economists expecting interest rates to remain unchanged.
Swiss Inflation rises marginally in September
Switzerland’s consumer price index (CPI) fell by 0.2% month-on-month (MoM) in September and was up 0.2% compared to a year earlier, according to data from the Swiss Federal Statistical Office. The low headline inflation was mainly due to lower prices for lodging, travel, and transportation, while only a few items, such as berries and knitwear, saw price increases. Specifically, the index for restaurants and hotels fell by 1.2% in September compared to the previous month. Prices for transport declined by 0.5% from the previous month and by 1.5% compared to September of last year. Prices for healthcare, housing and energy, education, and alcoholic beverages remained unchanged on a MoM basis. Switzerland’s core inflation was 0.7% year-on-year in September, down 0.2% compared to August. Reflecting this subdued inflation environment, the Swiss central bank kept its key interest rate unchanged at zero at its latest meeting in September, ending a sequence of six consecutive rate cuts.
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