Markets in a minute 16th OCTOber 2023

Last week, the S&P 500 rose by 0.5% (MTD 1%, YTD 14.2%), while the Euro Stoxx 50 fell by -0.2% (MTD -0.9%, YTD 12.4%). US equity markets were supported by somewhat dovish comments from Fed governors and a continued fall in core inflation.

The US NFIB small business survey fell by half a point to 90.8 in September. Inflation and labour quality remained key concerns for these businesses. Indeed, September US producer prices rose by a greater-than-expected 0.5% m/m (2.2% y/y) rise driven by energy (3.3% m/m) and food (0.9%) price rises.

Meanwhile, US consumer prices rose by 3.7% y/y (headline) and 4.1% (core) in September. The former was above expectations and driven by rising energy prices, though the latter was in line with expectations and continued its downward trend. The latest core inflation rate is the lowest since September 2021.

In the Eurozone, German manufacturing production rose by less than expected (0.5% m/m) in August after a 1.5% fall in July. This lacklustre data is somewhat at odd with last week's factory orders, which suggested healthy demand, so overall production issues may have been a problem in the summer months in Germany.

Minutes from September's Fed meeting and comments from Fed governors last week indicated that the central bank remains data dependent and could pause at next month's meeting given tighter financial conditions after the rise in real interest rates (nominal rate minus inflation) over the past few months. Rate markets are pricing in no rate hike at the November meeting. This supported a fall in yields (bond prices rise as yields fall) last week, with the 10-year US Treasury yield falling by 19bps to 4.61%.

Minutes from the ECB's September meeting, which resulted in a surprise 25bps hike in the deposit rate to 4.0%, shoed that the Governing Council was more concerned with getting inflation down to the 2% target and were willing to keep rates 'higher for longer'. This is consistent with the ECB's messaging since and markets expect no further rate hikes.

This week, focus is set to be on global activity data ranging from US retail sales and industrial production (tomorrow) to China's GDP (Wednesday). This, along with the Fed's Beige book detailing regional economic conditions and numerous central bank speakers, including Fed Chair Powell on Thursday, should give guidance on expected growth and policy direction.