Weekly Overview 28. Oct – 3. Nov 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: European stock markets retreated this week, despite the positive growth figures. Corporate earnings are disappointing in many sectors, particularly for industrials such as Germany’s auto industry. Geopolitical tensions such as those in the Middle East are also worrying investors. Surprisingly, Germany’s economy seems to have grown in Q3 according to preliminary data, while inflation in October remained at target. The Eurozone economy is also growing – and faster than in Q2 – supported by stronger-than-consensus growth in France and Spain. However, economic sentiment in the euro area remains weak and services inflation remains particularly stubborn. UK’s FTSE 100 also declined, while UK 10y government bond yields rose more than German yields after the UK government announced the budget. Public borrowing is planned to increase, as will taxes – additional spending of GBP 70bn will be added over the next 5 years, with tax increases providing around GBP 40bn of that and the rest coming from debt funding of about GBP 32bn. UK bonds sold off after the announcement. Some analysts now expect that there is a higher risk with such a budget to overshoot the 2% inflation target going forward, and therefore the Bank of England might aim to stop cutting the bank rate at above 4%.

– UNITED STATES: The S&P 500, the Dow and the Nasdaq indices all finished the week lower as the biggest tech giants released their earnings. FactSet surveys of analysts show that earnings of S&P 500 companies are expected to have risen by 5.1% in Q3-24 versus Q3-23, which is more than consensus expectations. Five of the Magnificent 7 reported their financial results, with Apple’s revenue growing 6.1% YoY, Alphabet +15.1% YoY, Microsoft +16.1% YoY, Amazon +11.0% YoY and Meta +18.9% YoY. It was announced that NVidia will be added to the Dow Jones Industrial Average, replacing Intel, which added $100bn to its market capitalization. However, Bank of America Global Research also reported that last week saw the biggest outflow by institutional investors from the stock market since September 2015, with net selling reaching ~$6bn. This has led many analysts to question whether the US stock market is not in fact overdue for a correction. US long-term bond yields kept rising this week, with the 10y reaching 4.40%, continuing to flash warning signals. This was likely also influenced by the mixed macro data, especially from the labor market where job openings falling and nonfarm payrolls came in much lower than expected at 12k. Additionally, the ISM Manufacturing PMI stayed in contraction for the 7th month in a row owing to subdued demand.

– ASIA-PACIFIC: Stock indices were up in Japan as the Bank of Japan did not adjust its policy rate. After the comments by BoJ governor Ueda, the yen recovered somewhat and it stayed around the 152 mark at the end of the week. BoJ expects that if the current growth and inflation outlooks turn out to be correct, rates will be hiked again, giving a more hawkish tone. In China, economic activity appears to be picking up according to some measures such as the manufacturing PMI and the Caixin/S&P Global survey of manufacturing activity, but stocks were still down week-on-week. However, the property sector sent its first positive signal for this year, as new home sales rose YoY for the first time in 2024. This likely indicates that some of the stimulus measures introduced by the government and the central bank recently might be starting to produce some of their desired results.

– BITCOIN: This week, BTC came within just $194 of its all-time high reached in March 2024. It hit the $73.6k mark but then declined at the end of the week, falling below $68k on Sunday. Many analysts attributed the surge to the rising odds of Donald Trump winning the US presidential election next week, and the consequent fall to the reversal of those probabilities later this week. The expectation is that if the former president wins, this could spark a major rally due to his open support for Bitcoin, decentralization and deregulation in the crypto space. From a technical perspective, the price retreat was an overbought correction, as the daily relative strength index crossed into the overbought zone over 70 on Tuesday, showing that the price jump was probably overstretched. Some crypto analysts point to a potential correction down to $55k-$58k before a renewed rally commences, likely next year.