Weekly market recap

Your weekly global financial market newsletter

  • The European Central Bank did not surprise last week and cut interest rates by 0.25% as expected. It did so for the third time this year and in the face of persistently falling inflation, which has fallen below the ECB's 2% inflation target for the first time since 2021.
  • According to the ECB president Christine Lagarde, the next steps will only depend on incoming data, but even so, the subsequent press conference sounded rather dovish and markets are basically clear that the central bank will cut rates at its next meeting as well. Lagarde refused to rule out that a 50bps cut is being discussed, but she did admit that economic activity is lagging expectations and there are risks that could have a negative impact on future growth, such as geopolitical risks associated with the war in Ukraine and the conflict in the Middle East.

Indices

US stocks have had another week of gains, with the DJIA and S&P 500 once again surpassing their all-time highs. This marks the sixth straight week of gains for both indices, the longest winning streak this year. This is due, among other things, to a good start to earnings season, with up to 80% of companies reporting results so far beating expectations. However, the uncertain geopolitical situation and perhaps the US presidential election around the corner may be a drag on the next few days.

European equities also rode the wave of good results, helped of course by the ECB’s interest rate cut, the third time this year that the ECB has done so. The pan-European STOXX Europe 600 ended 0.58% higher, Germany’s DAX added 1.46%, France’s CAC 40 tacked on 0.46% and the UK’s FTSE 100 advanced 1.27%.

US30
+0.96%
US100
+0.26%
US500
+0.85%
GER30
+1.46%

Commodities

Oil saw a drop of more than 7.5% last week, its worst weekly result since early September. The price of oil has been falling significantly since the beginning of the week, as markets reacted negatively to a drop in September inflation in China, as well as a report from the Chinese Ministry of Finance that lacked significant new fiscal stimulus. Another reason for the price decline was the downgraded demand forecasts for 2024 and 2025 by OPEC and the IEA. In addition, US oil production hit another record last week, Chinese refinery output fell for the sixth month in a row due to weak fuel demand, and tensions in the Middle East eased.

US Natural gas also had a second significant losing week, losing more than 14% last week and falling to $2.25/MMBtu, the lowest since September 10. The main reason for this has been a reduction in gas demand due to widespread power outages following Hurricane Milton in Florida, and the forecast for mild weather in the near term is also a big factor in the further decline in demand.

Another new record was again set by gold, whose price broke the USD 2 700 mark for the first time in history. The market is driven up by, among other things, growing demand for safe assets due to concerns about geopolitical developments and expectations of further interest rate cuts by central banks.

Gold
+2.42%
Silver
+6.90%
BRENT
-7.57%
NATGAS
-14.21%

Forex

The euro posted its third consecutive weekly decline against the dollar, hitting a 10-week low against the US currency. In addition to the 0.25% rate cut itself, the ECB chief’s comments that economic activity in the Eurozone is worse than expected and that there are still factors that could lead to further inflation cuts also put pressure on the euro. Thus, markets are pricing in another rate cut at the ECB’s December meeting, with bets also growing that the central bank may cut rates by as much as 0.50%.

The US Dollar is in a diametrically opposed position as strong macroeconomic data, unlike the ECB, reduces the likelihood of an aggressive Fed approach to interest rate cuts. The dollar index thus strengthened for the third week in a row, as the risk of a recession in the US has receded significantly. In addition, there is the possibility of Donald Trump winning the election, which also supports the US dollar.

EUR/USD
-0.63%
USD/JPY
+0.28%
GBP/USD
-0.13%
USD/CAD
+0.26%

Macro

As expected, the European Central Bank cut its Deposit Facility Rate by 0.25% to 3.25, making borrowing costs the lowest since May 2023. Similarly, the ECB cut its key interest rate to 3.40%. 

Before the rates, the final Eurozone inflation numbers were announced. The annual inflation rate was revised lower to 1.7% in September 2024, compared to initial estimates of 1.8% and 2.2% in August. The inflation rate thus fell below the ECB’s 2% inflation target for the first time since 2021. Month-on-month inflation fell 0.1%, marking the first decline since December 2023.

The ZEW economic sentiment indicator for Germany climbed to 13.1 points in October 2024 from 3.6 points in September, the lowest reading since October 2023, beating forecasts of 10 points.

The UK unemployment rate fell to 4.0% between June and August from 4.1% in the previous three-month period, in line with market estimates. This is the lowest level since the three months ending in January, with the number of unemployed persons falling by 141,000 to a seven-month low of 1.39 million.

The annual inflation rate in the UK fell to 1.7% from 2.2% in the previous month. The fall in inflation was more significant than analysts had expected, taking inflation to its lowest level since April 2021 and dropping below the central bank’s 2% target. Core inflation, which excludes energy, food, alcohol and tobacco prices, fell to 3.2 percent in September from 3.6 percent in August.

In the US, regular data on initial jobless claims was released on Thursday, which fell from 260K (revised from 258K) to 241K, which was also expected by the markets. Retail sales, on the other hand, rose above expectations, rising 0.4% month-on-month in September, following a 0.1% rise in August. Core retail sales, i.e. excluding car sales, rose by up to 0.5%, while 0.1% growth was expected after a 0.2% rise in August (revised from 0.1%).

Building permits in the United States fell by 2.9% to a seasonally adjusted annual rate of 1.428 million in September 2024, below market expectations of 1.46 million. Housing starts in the United States eased by 0.5% from the previous month to an annualized rate of 1.354 million units in September 2024, in line with market expectations, trimming the downwardly revised 7.8% increase in August.

What to watch out for this week

  • Next week will be relatively poor in macro data. Preliminary PMI data will be released in Europe, the UK and the US. After the rather poor figures, especially as regards the manufacturing sector, no significant improvement is expected. In Europe, this means that if the flash numbers are disappointing again, it will be quite a blow to the euro.
  • In the UK, both the manufacturing and services PMIs stayed above the 50-point threshold last month, falling below this line dividing expansion and contraction is not expected in October either.
  • In the US, the situation is similar to that in Europe, but a significant deterioration from last month's figures is also not expected.
  • In addition, investors will also be watching the housing market news regarding existing home sales, new home sales and the final number on building permits. Of course, the regular weekly Initial Jobless Claims report will be of interest.

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