Developed equity markets around the globe held onto recent gains over the past five days. The FTSE 100 once again stalling at the top end of its year-long trading range. The NASDAQ composite index hitting new all-time highs. What is worth commenting on is the continued robust performance of the FTSE 250 index. The constituents of this index are less focused on the global economy and sterling and more exposed to the UK domestic economy. That index has held up well and continues to make new highs, suggesting at least some underlying confidence in the economy.
The quarterly earnings season began this week, the headlines were made by some of the leading banks, JP Morgan and Citi particularly of note. A small sample of companies from other industries cited the hurricane season as the biggest negative impact to earnings, according to Factset.
Despite the Federal Reserve looking to raise interest rates in December as the US economy continues to be on a robust footing and the year on year inflation rate climbed above the 2% mark in September, according to data released on Friday. The gap between the 30-year US treasury bond and the two-year closed on Friday close to a low last seen in 2007. The gap between the two and ten year also slipped. This would continue to suggest the bond market is not as bullish on the US economy as the equity market might be. This flattening of the yield curve came despite the US Treasury Secretary Steve Mnuchin stating his commitment to overhauling the US tax system and having a bill for the president to sign by December. We live in unique times, equity markets around the globe appear in demand and at the same time, Austria can raise money a few weeks ago priced at a yield of 2.12% maturing in 100 years’ time.
The main event of the week ahead will be the start of the of the 19th National Congress of the Chinese Communist party. Mr Xi will be installed as party chief for the next five years and the meeting could reveal the party’s aims for the next five years. There will be a raft of economic data from the region, including 3rd quarter GDP as well during the week. One would assume at this time that the party would want the data to continue to report the Chinese economy remains on a robust footing.
US earnings will continue to dominate the market as companies from a broad church such as Netflix, United, Verizon and Alcoa group report earnings. On the macro front there are, as always, a few data points for example Industrial and Manufacturing production for September, but nothing that may move the Fed needle in a major direction one way or the other.
As for the UK economy on Tuesday we get a raft of inflation data and on Wednesday the unemployment rate and average earnings followed on Thursday by retail sales for September. This data will most likely further influence the markets to view on what the Bank of England will do to interest rates before the year-end.