Markets in a minute 23rd October 2023

Last week, the S&P 500 fell by -2.4% (MTD -1.4%, YTD 11.5%), while the Euro Stoxx 50 fell by -2.7% (MTD -3.6%, YTD 9.4%). Equity markets fell as strong economic data and hawkish rhetoric from central bank speakers pushed up bond yields.

US activity data continued to surprise to the upside, with September retail sales rising by 0.7% m/m and industrial production by 0.3%. As a result, consensus estimates for Q3 GDP for the US has risen to 4.0% q/q annualised, nearly double the 2.1% Q2 expansion.

Meanwhile, German business sentiment showed a marked improvement as the October ZEW economic sentiment index rose to -1.1 from -11.4 in September. The report stated: "The heightened economic expectations are accompanied by the anticipation that inflation rates will decrease further".

China data was positive. Q3 GDP rose by 4.9% y/y, above consensus expectations of 4.5%. Other activity data was also solid for September. Retail sales rose by 5.5% y/y, industrial production by 4.5% and fixed asset investment by 3.1%.

The improved global activity backdrop has led to expectations of higher growth. This could lead to renewed inflation pressures and the need for tighter monetary policy. Fed Chair Powell reiterated this in his speech last week, stating: "We've certainly got a resilient economy on our hands. It may just be that rates have not been high enough for long enough."

This backdrop pushed yields higher (bond prices fall as yields rise) across the curve last week. The two-year US Treasury yield rose by 2bps to 5.07%, though was at 5.22% during the week, close to the highest level since 2006, while the 10-year yield was up by 30bps to 4.91%.

This week, focus is set to be on tomorrow's October global PMI data and, on Thursday, US Q3 GDP and the ECB meeting, though no change in policy is expected. Geopolitical events are also likely to be monitored closely by markets.