US equities running out of steam?

Friday’s US jobs report suggested an employment market in rude health, as almost 100,000 more jobs were created last month than the market forecast, along with upward revisions of the last two months’ data. As a result, the S&P 500 dragged itself back into positive territory for the week. The Vix index finished the week higher, just below 20, indicating investors may be getting a little cautious ahead of the US election and Q3 earnings season, which starts with JP Morgan at the end of this week. It was another lacklustre week for UK indexes as both the FTSE 100 and the 250 ended the week in the red.

The ongoing tensions in the Middle East finally affected oil, as the price of crude rose 8% on the week. According to the FT, it’s the biggest weekly rise in almost two years after Joe Biden revealed that Israel was considering targeting Iran’s oil fields. The gold price, which has been hitting record highs this year, was essentially unchanged in the past five days, drifting back from recent highs. The stronger employment data and the increase in uncertainty in the Middle East saw a rise in the dollar. The pound, which a few days ago hit 1.34 to the US dollar, closed the week back at 1.31, as Andrew Bailey talked about the possibility that the Bank of England could be a “bit more aggressive” at cutting borrowing costs, depending on the inflation rate. Market speculators have reined in the idea of another 50 basis point Fed cut before the year-end. The market expects the Fed to deliver on two more 25 basis point cuts at their two final meetings in October and December.

The release of the latest monthly Consumer Price Index report will be a key focus of the week ahead, as will earnings and the minutes from the Fed meeting that approved the 50 basis point cut. The annual inflation rate is expected to have slowed to 2.3% in September, marking a new low since February 2021. Other things to watch for are the preliminary figures for the Michigan consumer sentiment, trade balance, and NFIB Business Optimism Index. As for the UK, it’s mostly a quiet week until Friday, when we get the monthly GDP report and the latest industrial and manufacturing reports. The economy feels like it has been in limbo whilst we all wait for the new government’s first budget at the end of the month. Rachael Reeves keeps referring to wanting to introduce changes that stimulate the economy, whilst much of the speculation of what will come out on the 30^th could have the opposite effect. Equity markets in Europe are starting the week on a mildly positive note, while the US looks flat to slightly down.