The Bulls fought back last week as equity markets around the globe, particularly those in Asia, rose. The S&P 500 gaining 2.5% on the week, as did the FTSE 100. The pound recovered towards the end of the week on hopes that we are coming closer to a Brexit deal. Chinese equities rallied sharply on Friday, having had a very torrid year after Donald Trump offered something of an olive branch on trade negotiations. The Vix index closed the week below 20, and mid-cap stocks outperformed larger ones. Fortunes for the S&P 500 did a reverse on Friday as strong employment and earnings data led to a rise in bond yields. Equity investors don’t like uncertainty and after such a strong couple of years have now to decide what impact they think the combination of a slowing economic growth, partly as a result of trade tensions, alongside rising US interest rates, will have on company earnings.
This week the US midterm elections will focus investors minds, a large article in Saturdays Financial Times states those who ignore the midterms do so at their peril. Historically equities selloff ahead of the midterms and then rally almost irrespective of the result. Current perceived wisdom is that the Democrats take control of the House of Representatives and the Republicans keep the Senate. Should the Democrats take control of both Houses the fear is that the threat of impeachment increases. Should the Republicans keep both that could cause a knee-jerk bounce in risk assets.
As investors concern themselves with a slowdown in the global economy there is plenty of data this week to catch their attention. The Federal Reserve will be announcing their monthly rate decision this week. The next change in monetary policy is expected in December. As always what will be more important will be the comments coming from Jerome Powell post the announcement. The start of the month always sees the release of the previous months Purchasing Manager Surveys. As this data is considered a window on future growth it is always eagerly anticipated.
For the UK economy we get estimates for third quarter GDP growth and business investment. We also get Industrial and Manufacturing production for September. Brexit will also not be far from the front page. China will also be in focus with trade balance, inflation and Caixin services Purchasing Managers.
Still plenty to keep investors on their toes in November and one would imagine that volatility will remain a feature. Investors will keep their close eye on US bond markets, a further selloff in bond markets is likely to be reflected in equity prices.