Weekly Market Commentary

Last week sees a mixed performance in equity markets, but oil price rises on Middle East risks

Last week saw a somewhat mixed performance in equity markets globally, with stronger-than-expected US employment data competing against the latest rise in Middle East geopolitical fears. Taking last Friday in isolation, it was a decent end to the week-long sentiment tug-of-war, with Friday seeing the US S&P500 equity index up +0.90% and the pan-European STOXX600 equity index up +0.44%, both in local currency price return terms. Over the week as a whole, the oil price was a notable gainer, with Brent crude oil up +8.43% on the week, to close out on Friday at US$78.05, its strongest weekly gain since January last year.

A knock-out US employment report floors market bear fears of US economic recession

Friday saw a knock-out US employment report, flooring those bears in the market who had been hitherto continuing to worry about the risk of the US economy tipping into recession. In terms of the numbers, the September report for the US non-farm payrolls saw a headline gain of +254,000 jobs added, which was massively above expectations from a Reuters survey that had been looking for +140,000, and the strongest job growth in six months. As well as upward revisions to jobs added across both July and August, the unemployment rate fell to 4.1% in September, versus an expectation for an unchanged 4.2% reading.

Earnings season comes around again for investors, as latest corporate Q3 results kick off this week

Despite our global approach to investment strategy and asset allocation, some weeks it can feel almost as if all the big news for markets is dominated by the US – this is probably one of those weeks. Later this week, the highlight is likely to be the latest US Consumer Price Index (CPI) inflation report for September due on Thursday, followed by the US Producer Price Index (PPI) inflation report a day later on Friday. Finally, this week also sees the start of the latest quarter earnings results season kick off, for calendar Q3, with several US banks due to report on Friday including bellwether JP Morgan.

A stronger US dollar is the flipside of better US economic data and rising geopolitical risks

The flipside of a better US employment report, and thereby diminished expectations for super-sized interest rate cuts out from the US Federal Reserve (Fed) going forward, is a stronger US dollar – the Bloomberg Dollar Spot Index during Friday’s trading surged to its highest levels since mid-August. That is quite a sea-change of outlook – for context, it is worth remembering that around two weeks ago, the same US dollar index had nearly erased its gains for the year. All in all, coupled with the recent escalation in geopolitical risk arising from the Middle East in particular, a buoyed US dollar backdrop is another factor for investors to have to reflect on.