We are now in the last quarter of the calendar year, hopes will be for this quarter to be less eventful than the last. The week ended on a positive note, and this resulted in developed markets finishing the week close to where they started them. The Vix index covered its recent trading range in the space of 5 days. Encouragingly it finished the week on the lows trading just above 20. The third quarter saw the largest ever fall in the value of global stocks ever recorded in one quarter. The third quarter falls were driven by concerns that the weakness in emerging economies will lead to a recession in the global economy. Comparisons have been made to 1998 and 2011 after corresponding falls in the third quarter on similar concerns. In those instances the worst fears were not realized and equity prices recovered, in the case of 1998, equity markets recovered by just over 20%.
On Friday we had the September employment report for the US economy. Jobs were created at the slowest pace for the second month in a row since 2012. The unemployment rate stayed steady at 5.1%. Equity prices fell initially, and then recovered as the day went on. The reaction in the bond market was to push out expectations for the rate rise from the end of the year until March 2016. Ten year US treasury yields, which have remained remarkably stable in the past quarter, fell back below 2%. We have commented that despite the Federal Reserve’s desire to move on rates, we remain skeptical that they will.
The week ahead is a busy one for US economic data. Starting on Monday we see the results of September’s Markit Purchasing Managers Survey’s. As well as the Markit PMI reports we get the results of the Institute for Supply Management service sector PMI. These reports should give further insights into the strength of the US economy. On Thursday the release of the Federal Open Market Committee minutes. These are the minutes from the meeting that the Fed were expected to raise rates and in the end held back. The minutes may reveal how close the Fed came to pulling the trigger, and why they believe December will be the month they will move in.
The start of the month is always a busy one for economic data and this month is no difference. After Christine Largarde highlighted the strength of the UK economy in a speech in the past week, on Wednesday we get August’s manufacturing and industrial production data. On Thursday we get the latest interest rate decision as well as the minutes of the last meeting of the Bank’s monetary policy committee meeting.
Friday’s late rally in the US has encouraged equities in Europe to start on a positive note. October, has in the past been a notorious month for equity prices, the earnings season starts this week with Alcoa reporting on Thursday. The outcome of the season may go some way to deciding the markets fate in October.