This week marked a significant period in the financial markets, with equities trending upwards, Treasury yields falling, crude oil prices rising, and the US dollar strengthening. The backdrop for these movements included a soft US payrolls report, potentially impacted by Hurricanes, and mixed performance from notable companies in earnings reports. Amazon impressed investors with its results, leading to a notable increase in its stock price, while Apple’s report fell short of expectations, resulting in a slight decline. Additionally, the Swiss Consumer Price Index (CPI) was weaker than anticipated, contributing to a varied economic landscape.
Looking ahead, pivotal events are on the horizon, including the US Presidential Election, Federal Reserve meeting, and central bank decisions from the Bank of England (BoE), Reserve Bank of Australia (RBA), Norges Bank, and Riksbank. Investors are particularly focused on the upcoming ISM Services PMI and Canadian employment data. The results from these events could have significant impacts on market dynamics, particularly the response from equity markets and the US dollar, as traders position themselves based on anticipated outcomes.
The market wrap revealed positive trends for US indices, which closed in the green, buoyed by lower-than-expected payroll figures and Amazon’s strong earnings. The non-farm payrolls (NFP) report showed an increase of just 12,000 jobs, sharply lower than the consensus expectation of 113,000, prompting questions regarding economic momentum. Furthermore, the ISM Manufacturing PMI indicated a contraction in the sector, though an increase in the prices paid component raised concerns about inflationary pressures. Despite the weak job numbers, the unemployment rate remained steady, and wage growth indicated some resilience, suggesting a careful balancing act for the Federal Reserve in upcoming meetings.
In terms of the election landscape, the lead-up to the November 5th Presidential Election has sparked intense speculation. Candidate Donald Trump appears to have gained momentum in recent weeks against Democratic opponent Kamala Harris. According to FiveThirtyEight’s model, there’s a narrow 52% probability for a Trump victory versus 48% for Harris, although betting markets indicate increased confidence in Trump. The outcomes in various swing states will be critical in determining the overall winner, and market participants are aligning their positions based on anticipated responses to economic policies linked to each candidate’s potential victory.
In the fixed income market, Treasury notes experienced volatility reacting to employment data and hot inflation signals from the manufacturing sector. The initial reaction to the soft NFP led to a brief rally in T-Notes, but subsequent data regarding prices resulted in a sell-off. The market anticipates a 25 basis point rate cut from the Federal Reserve in the upcoming meeting, likely informed by prevailing economic signals. The performance of UK Gilts mirrored these fluctuations amid speculation surrounding the Bank of England’s rate decisions.
Turning to crude oil, prices settled higher amidst ongoing Middle East tensions. Both WTI and Brent crude benchmarks saw price increases due to geopolitical concerns and risk premia. However, the strengthening US dollar created headwinds as traders considered the broader implications of key economic events coming up, including the US election and the Federal Open Market Committee’s decision. Additionally, the weekly Baker Hughes data indicated a slight contraction in oil rig counts, while output from Kazakhstan and Iraq reflected mixed supply trends.
Lastly, the equity landscape portrayed a mixed performance across different sectors. Consumer discretionary stocks, led by Amazon, exhibited strong growth, while technology and health sectors also reported modest gains. However, sectors such as energy and real estate faced declines as investors recalibrated their portfolios ahead of critical economic announcements. Notable earnings reports from various corporations, including Chevron and Exxon Mobil, indicated confidence in returning value to shareholders through dividends and buybacks, contrasting with underwhelming performances from some tech giants, which highlighted the shifting dynamics in investor sentiment within the current earnings season. Overall, market participants remain vigilant as they position themselves for the imminent risk events next week.
