Market Developments
US equities were mixed, with the NASDAQ up 0.7% while the S&P 500 fell 0.3% and the Dow Jones fell 1.3%. Rates drove the week: the 30-year Treasury yield rose to 5.63% from 5.49%, and the 10-year closed at 5.27%, up 11bps. Inflation signals were mixed. August core PCE was unchanged at 3.0% year on year, with the three-month annualised rate slowing to 2.0%, but the ISM manufacturing prices index jumped 6.8 points to 77.9, its highest since May, which kept input-cost pressure in focus. Friday’s payrolls pointed to a softer labour market, which eased pressure on the Fed to hike. The economy added 29,000 jobs against roughly 90,000 expected, unemployment rose to 4.2% and the prior two months were revised down by 60,000 in total. As a result, market odds of an October Fed hike fell to around 21% from 64% a week earlier. Yields eased on the report but still closed the week higher, so the jobs miss reduced near-term hike pricing without reversing the rise in long-dated yields. The Fed raised rates in September, and NY Fed President Williams said another increase this year is likely but there is no need to rush.
Outside the US, equities were weaker. The Stoxx 600 fell 1.1%, the Hang Seng fell 2.2% and the SENSEX fell 2.7%, with foreign portfolio investors net selling about $3.7bn of equities in September, and a further $1.0bn on 1 October alone, ahead of Wednesday’s RBI decision. The Nikkei was the exception, rising 2.9% for the week. Most of the gain came on Thursday, when chip-related shares such as Advantest, Tokyo Electron and SoftBank Group rallied after Micron’s strong earnings outlook. Inflation data stayed firm in Europe and Japan. Euro area inflation rose to 3.8% in September from 3.2%, against 3.6% expected, led by energy, and Lagarde said on Monday that a measured response remains appropriate after the deposit rate was raised to 2.50% on 16 September. The euro fell 1.2% to 1.1255 against the dollar. In Japan, the Tankan showed large manufacturer sentiment improving for a sixth straight quarter, to +24, and Tokyo core CPI accelerated to 2.7% from 1.8%. Brent rose more than $4 on Thursday, on reports that Chinese refiners suspended October fuel exports and that a third US carrier is heading to the Gulf, then gave back part of that gain after the G7 announced a 100-million-barrel release of diesel and other emergency stocks on Friday. Brent ended the week at about $102 and WTI fell 1.4% to $91.1. Gold fell 3.4% to $4,141 and silver fell 6.1%, as higher US yields and a firmer dollar raised the cost of holding non-yielding assets despite the geopolitical backdrop.
