Weekly market recap

Your weekly global financial market newsletter

  • The minutes from the September meeting of the ECB showed that not all policymakers were clearly convinced of a rapid rate cut. However, recent announcements by some ECB officials have put these doubts to rest, and it looks like the ECB will accelerate its pace of rate cuts as inflation declines.
  • Indeed, according to the governor of the Greek central bank, even two 0.25% cuts will result in rates being at 3%, which is still quite a lot. So a rate cut in October is more or less certain, and further cuts are likely. Ultimately, the question is whether there will be many more of these cuts, or whether the ECB will proceed with a cut of more than 0.25%.

Indices

US stocks continued to rise last week, with the DJIA and S&P 500 indexes hitting new all-time highs on Friday. Inflation data in particular helped equities during the week, while surprise results from major banks JPMorgan Chase and Wells Fargo helped the indices at the end of the week. The tech Nasdaq was hurt by a drop in Tesla shares after a sceptical reaction to the expected introduction of new “robotaxis” and “robovans”, but Nvidia shares did well again, so that technology also gained significantly in the end.

Stocks in Europe benefited from the positive sentiment in the US, as well as expectations that the ECB will move to cut interest rates further in the new week and continue to do so. Large industrial companies, banks and insurance companies in particular did well. The pan-European STOXX Europe 600 ended 0.66% higher, Germany’s DAX gained 1.32%, France’s CAC 40 added 0.48%, and the UK’s FTSE 100 lost 0.33%.

US30
+1.21%
US100
+1.18%
US500
+1.11%
GER30
+1.32%

Commodities

Oil has strengthened again in the past week, and the price of black gold has already gained more than 11.5% in the past month. The main factor helping to drive up the oil price is geopolitical instability in the Middle East, compounded by Hurricane Milton in the past week, which is leading to a short-term increase in demand for fuel in Florida, although the long-term effects of the storm could dampen demand. The oil price is also helped by the fact that China, the largest oil importer, has introduced a bill to support private sector growth.

On the other hand, US Natural Gas has seen a significant drop, losing more than 27% year-on-year despite a price increase in the last month. After hitting the $3/MMBtu mark at the end of the previous week, the price has fallen to the $2.6/MMBtu mark in the last week, ending the week down almost 8%. This was mainly due to higher supply and a drop in demand as a result of the hurricane in Florida. According to EIA data, natural gas inventories rose by 82 billion cubic feet in the week ending October 4, the most since March and well above market expectations, which predicted a 71 billion cubic foot increase.

Gold
+0.16%
Silver
-2.03%
BRENT
+1.27%
NATGAS
-7.78%

Forex

The US dollar continues to strengthen and has already reached its two-month highs, helped in particular by the change in the US Fed’s outlook for interest rates. This is mainly due to the inflation data, which fell year-on-year, but less than expected and core inflation rose above expectations. The Fed is thus unlikely to have enough room to cut interest rates at the pace investors had imagined, especially next year. Atlanta Fed President Raphael Bostic is even considering leaving rates unchanged depending on economic conditions.

On the other hand, the Japanese yen continues to fall against the US dollar, losing almost 5.5% against the USD over the past month and hitting a low of 149.5 per dollar during the week, the worst since early August. Thus, the combination of the Fed’s more cautious approach to rate cuts and, conversely, comments by Prime Minister Shigeru Ishiba about the unjustifiability of further rate hikes in Japan are creating the conditions for further Yen weakness.

EUR/USD
-0.36%
USD/JPY
+0.29%
GBP/USD
-0.41%
USD/CAD
+1.39%

Macro

Last week was relatively poor in terms of strong data. The market focused mainly on US inflation, whose growth rate declined less than expected. On a year-on-year basis, there was a drop to 2.4% (August estimate 2.3%, 2.5%), but month-on-month inflation remained the same as in August (0.2%, estimate 0.1%) and core YoY inflation even rose slightly to 3.3% (estimate 3.2%, August estimate 3.2%).

The British economy rebounded in August, expanding 0.2% sequentially after stagnating in the previous two months. The final German inflation data confirmed the preliminary reading of a fall in annual inflation to 1.6% after 1.9% in August.

What to watch out for this week

  • The main news of the new week will be the European Central Bank's decision on interest rates. The deposit rate and the main interest rate should fall by 0.25%, but the subsequent press conference will be important again.
  • A couple of hours before the rate decision, we will see confirmation of inflation data in Europe, which according to preliminary data should fall to its lowest level since April 2021, falling below the ECB's 2% target for the first time in three years. However, the ECB expects inflation in the EU to rise slightly again towards the end of the year.
  • In Germany, the ZEW economic sentiment indicator is expected to show a slight improvement in September from the lowest level since October 2023.
  • In the UK, the inflation rate should fall to 1.9% from 2.2% in August, the lowest since July 2021. The core inflation rate should also fall, but at a slower pace to 3.5% from 3.6%. The unemployment rate should remain stable at 4.1%.
  • In the US, investors should be interested in retail sales data, which are expected to rise by 0.3% in September compared to 0.1% growth in August. On the other hand, industrial production is likely to have fallen by 0.1% after a strong 0.8% increase in August.
  • In other data of interest on Thursday, it will be the regular weekly report on the number of new and continuing claims for unemployment benefits and the Philadelphia Fed Manufacturing Index. Then on Friday, data on building permits issued and housing starts will arrive.

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