Q4, how did we get there so quickly
Stock market porridge is tasting just right; Friday’s US PCE index, as any journalist cannot fail to add, “the Fed’s preferred measure of inflation,” came in line with expectations, sending American shorter-term interest rates lower as investors come even more confident the Fed will cut by another 50 basis points before the year. Additionally, inflation rates in Europe are falling across the board as that economy continues to struggle; yields on 2-year German bonds are now just 2%, as the market expects the ECB to cut interest rates at their next meeting. Then there is China, whose authorities gave investors the latest adrenalin rush to riskier assets this week. Is this a sugar rush for Chinese equities or a more sustained attempt to support a flagging economy?
On the back of all this, US equities hit another all-time high this week. This month’s winners are consumer discretionary, lower rates, in theory, encourage spending, and high-yielding utilities become more attractive as rates fall. Consumer stocks helped after a positive Michigan Consumer sentiment report. Oil stocks still struggle as the price of oil remains around its lows of $70 a barrel despite the continued tensions in the Middle East. Global equities, having struggled once again at the start of the month, look like they are finishing the month in the blue. The FTSE 100 has recovered some of its losses from the start of the month, but it looks like it will finish September again, underperforming global markets. Sterling remains in demand as speculators continue to price in the Bank of England remaining more reluctant to cut rates as fast as some other developed countries.
Looking ahead, it’s another data-filled week in America. The jobs report is forecast to show that nonfarm payrolls increased by 145K in September. The employment rate remains at 4.2%, as wage growth is expected to slow. Confirmation of the monthly flash global PMI results will be released this week. Traders will also monitor comments from various Fed officials, including Chair Powell’s appearance at the National Association for Business Economics in Nashville. In the United Kingdom, the final Q2 GDP will likely confirm a growth of 0.6%, following a 0.7% rise in Q1.
What is perhaps noteworthy, as we look like ending the month on a positive note, is that the Vix fear index rose last Friday despite the reassuring economic data. And it looks like finishing the month higher than when it started it. The price of gold sold off on Friday despite the increased expectation of lower US interest rates. The last two months have seen equities wobble at the start on mixed economic data; the question is, will October be the same? On top of the macro data, we have Q3 earnings season starting in the coming weeks. Then we will be fast approaching the US election. Equity markets are starting the last day of the month largely unchanged.