A WEEK OF TWO HALVES
Equity markets started the week on a positive note, buoyed by an end to the US government shutdown. Later in the week, AI valuation fears and comments by the Federal reserve acted as a drag on US markets while European stocks managed to finish stronger.
It's another light week for data. US jobs data from September will be released on Wednesday now that the government is back open. Other than that, Eurozone inflation data is also due on Wednesday but will be overshadowed when NVIDIA release quarterly results on the same day.
An end to the longest US government shutdown in history saw markets kick off the week on a positive note but it didn't take too long for concerns about 'Big Tech' spending to surface again, acting as a drag on equity markets. J.P. Morgan estimate that as much as $1.2tn of Corporate Bonds may be linked to the AI trade and some investors have become uncomfortable with the prospect that long term debt has been raised for assets that have a short self-life (c.2yrs for some GPU chips).
Comments from US Federal Reserve officials led investors to revise downwards the odds for another rate cut in December. The overall tone of the comments was that lack of data and persistent inflation fears may make the case for a pause in further policy adjustments.
President Trump announced a roll-back on tariffs levied on certain food imports acknowledging that they may 'in some cases' make food more expensive. This move comes on the back of increasing noise about a 'K-Shaped' economy which is seeing high income households continuing to thrive while lower earners are becoming increasingly pessimistic about their future.
Equity markets had a mixed week. The S&P 500 closed with a modest gain of 0.08% for the week. The tech-heavy NASDAQ lost 0.45% while, in Europe, the STOXX 600 booked a gain of 1.77% through the week. AI valuation & spending concerns continued to be a drag in the US with Federal reserve comments also serving to mute investor mood.
Bond yields rose last week, (bond yields rise as bond prices fall) as various Federal Reserve officials expressed frustration at the lack of official data and hinted that, in the face of persistent inflation pressures, a pause in December might be the best option. Traders trimmed their expectations for a rate cut to just over 50% probability. The 10-year US Treasury yield rose by 10bps over the week from 4.14% to 4.15%. The German bund equivalent was up by 3bps to 2.72%.
- Tue 18th EU - Germany labour market data / US - October import/export data
- Wed 19th EU - HICP inflation data / US - September Jobs (JOLTS) data
- Fri 20th EU - Eurozone Flash PMI's
This is intended as a general review of investment market conditions. It does not constitute investment advice and has not been prepared based on the financial needs or objectives of any particular person.