Weekly Overview 21. – 27. 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: This week European markets were impacted by a number of negative news. The rating outlook for France was cut by Moody’s to negative on fiscal deterioration concerns that increase the risks for the euro area’s second-largest economy. Additionally, Scope Ratings has cut the country’s rating as well. The PMI indicators showed only slight improvements, with the manufacturing sectors in Germany and the Eurozone as a whole remaining in contraction territory. Yields on government bonds rose, with the German 10y increasing by 10bp. While the ECB consumer confidence indicator was in line with expectations, it stayed stuck in the negative zone. Data on gas prices showed that due to a number of external factors (such as outages in Norway, delays in LNG supplies including from the US, and the end of the Russia-Ukraine transit deal), European costs are now rising to the highest levels since the end of 2023, which fuels concerns about re-acceleration of inflation during the winter period. The majority of the main country and pan-European stock indices declined by about 0.8-1.5% this week as a result. Data from the UK show that business activity is also slowing compared to previous months and that consumer confidence is once again in decline. 10y UK government bond yields rose by 19bp. Both the euro and the pound sterling depreciated against the US dollar week-on-week.

– UNITED STATES: The S&P 500 and the Dow both ended the week lower, while the Nasdaq gained a bit. Once again, there are signals that high concentration in the Magnificent 7 could be a cause for headaches and lower returns going forward, meaning that US treasuries could potentially outperform over the next 10 years. Furthermore, due to the rally in US tech stocks, many US asset managers are reaching the portfolio concentration limits set by the IRS, forcing them to offload shares from their investment funds. US Treasury yields (10y) went up another 16bp this week, with some analysts predicting that they have even more room to run, with the potential to even reach 5% within 6 months on deteriorating fiscal balance and higher Treasury issuance in the US. According to BofA data, last month saw the largest flow into gold since July 2020, as gold prices have remained above the 200-DMA for 265 consecutive trading days. What is notable is that even with such stellar performance this year, gold is still a rather absent asset from most investment portfolios.

– ASIA-PACIFIC: The yen weakened this week against the USD, reaching a rate of over 152 per dollar as investors now expect the Fed to be less aggressive with rate cuts, while inflation in the Tokyo area was more than expected in October, but below 2% thanks to the government energy subsidies. Stocks declined, with the Nikkei 225 and the TOPIX both down week-on-week. On the other hand, China’s stock markets reacted positively to a further stimulus push implemented by the PBoC. Prime loan rates were cut further and another RMB 700bn was injected via the medium-term lending facility into the banking system. The central bank also signaled that another cut in reserve requirements is on the way. All of this comes as defaults and warnings of repayment risks hit record numbers in the Chinese local debt market, and industrial profits kept plummeting.

– BITCOIN: BTC fluctuated repeatedly around the $67k level this week, likely affected by the global macroeconomic news and the US election expectations. There was significant liquidation in crypto derivatives after the Wall Street Journal published claims that Tether was allegedly facing a probe by US authorities, impacting Bitcoin as well (out of the liquidated long positions, $34m were BTC long trades, while $33.92m came from ether (ETH) longs, according to Bitcoin.com News). From a technical perspective, so far BTC is holding the support area of around the $65-66k level well and depending on the outcome of the US election (which will likely have major consequences on the regulatory stance of the US government in the crypto space), we could see some major move up or down.