Weekly Overview 14. – 20. Oct 2024

The content of this post does not constitute financial advice. It is intended for information and education purposes only.

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The Week in Global Markets

Financial markets summary:

– EUROPE: The ECB rate cut by another 25bp was likely the most significant factor influencing investors in European stocks this week, as the broad index STOXX 600 and most of the country benchmark indices advanced. Expectations are that due to the positive development of inflation, which is now within the target range, and the slowdown in many sectors, another rate cut is also likely before the end of 2024. Germany remains a significant concern, as economic sentiment does not appear to recover as quickly as hoped. The ZEW economic sentiment indicator shows that expectations are higher for both the EU and Germany, but the current economic assessment for the latter continues to deteriorate, nearing all-time lows. In the UK, both wage growth and inflation figures show further deceleration, although services inflation remains quite elevated. Both UK and German 10y government yields declined this week, while the euro and the pound depreciated against the US dollar.

– UNITED STATES: Two of the major US stock indices – the S&P 500 and the Dow Jones Industrial Average – reached new all-time highs this week, supported by gains in the utilities and real estate sectors. Although some AI and tech stocks had taken a hit the week before, the positive quarterly earnings results by TSMC (the Taiwan Semiconductor Manufacturing Company) appeared to have a notably favorable impact on the sector, helping many of the Nasdaq-listed companies. On the macro front, the jobless claims data came in with a positive development as initial claims surprisingly declined during the second week of October, and the retail sales rose broadly, signaling once again resilient US consumer spending. Nevertheless, industrial production surprised to the downside in September and the August result was also unexpectedly revised downward.

– ASIA-PACIFIC: Both the Nikkei 225 and TOPIX indices fell this week as the yen weakened to over 150 against the US dollar and the expectations for the next step of the Bank of Japan shifted. The probability for another rate hike is now lower given the positive development of inflation, which slowed down further. The 10y JGB yield rose further and closer to the 1% mark. In China, there has been some criticism and negative reaction by investors concerning the recently announced stimulus measures which some analysts and economists now see as insufficient to resolve the deficient domestic demand problem. However, the central bank proposed more support and economic growth figures surprised to the upside, likely supporting the positive stock market development. Industrial production and retail sales figures showed growth that was higher than expected.

– BITCOIN: BTC gained more against fiat currencies this week, rising to around $68.5k as of the time of writing. Analysts point to a price action that is set to match the performance of US equities, similar to what happened 3 years ago. There could be a potential for a breakout as investors seem more confident and excited about the price moves and the resistance levels are being retested. Investor inflows also point in a positive direction: spot Bitcoin ETFs in the US saw their most significant 1-day inflows in over 120 days on Oct. 14 at $556 million. This could be the result of the political discourse in the country, as both the democratic and republican candidates have been making positive statements regarding crypto, and thanks to the macroeconomic optimism. Hedge fund participation in digital assets has also been increasing steadily due to more regulatory clarity and the launch of spot crypto ETFs globally, as reported by CoinTelegraph.

policy rate overview

As expected, the European Central Bank (ECB) lowered its policy rates by another 25bp this week, with the new levels effective from 23 Oct 2024: the deposit facility rate down to 3.25%; the main refinancing operations rate at 3.40%; and the marginal lending facility rate falling to 3.65%. Per the official statement, the incoming information on inflation shows that the disinflationary process is considered to be on track. The inflation outlook is also affected by recent downside surprises in indicators of economic activity. Meanwhile, financing conditions remain restrictive. Inflation is expected to rise in the coming months, before declining to target in the course of 2025. Domestic inflation remains high, as wages are still rising at an elevated pace. At the same time, labor cost pressures are set to continue easing gradually, with profits partially buffering their impact on inflation.