United States
Stocks fell after the Federal Reserve shattered market expectations of a monetary policy pivot in the form of a pause or slower pace of rate hikes. The Nasdaq Composite Index, which is heavily weighted toward technology, was particularly hard hit, as growth stocks fell more than value stocks. The Dow Jones Industrial Average fared much better, extending its October relative outperformance.
The fallout from a largely disappointing earnings season for bellwethers such as Facebook parent Meta Platforms, Amazon.com, and Microsoft continued to weigh on tech stocks. Amazon.com announced late last week that it was halting corporate workforce hiring, further dampening sentiment. Despite the fact that it is now a private company, deep job cuts at Twitter under new owner Elon Musk have added to the sector’s malaise.
Stocks fell on Friday after the October employment report painted a mixed picture of the labour market. According to the Labor Department report, employers added 261,000 jobs to nonfarm payrolls, exceeding consensus estimates, and revised its September jobs figure higher. However, the unemployment rate increased to 3.7% from 3.5% in September, as labour-force participation fell slightly.
Treasury yields increased throughout the week, with short-term rates climbing more than yields on long-term maturity bonds. The two-year US treasury note reached a 15year high above 4.75% last week. As for Municipal bonds, they released positive gains for the vast majority of the week, although industry outflows continued to hinder market performance.
Investment-grade corporate bonds continued to benefit from the Federal Reserve’s dovish stance. According to reports, the banking and corporate sectors outperformed, and demand for long-term debt increased. However, following the FOMC meeting, corporate sector performance fell, as high-yield corporate bonds in the media, telecommunications, and mining sectors fell.
Europe
The European stock market rose for the third week in a row as central banks signalled that they may slow the pace of rate hikes. Investor sentiment was boosted by hopes that China would reverse its zero-COVID policies. European government bond yields retreated to 11-year highs after October’s record inflation data kept the European Central Bank under pressure to raise interest rates aggressively.
In the United Kingdom, Gilt yields increased significantly as borrowing costs increased. The Bank of England raised interest rates by 75 basis points, bringing them to 3.00%, their highest level since 2008. This was done to control inflation. The Bank of England also warned that the UK is in for a “very difficult” two-year slump, predicting that inflation will remain above 10% for the next six months and above 5% in 2023. In light of this, the central bank predicts that unemployment will rise to 6.5% by 2025. In addition, UK Finance Minister Jeremy Hunt intends to raise tax rates on dividends and profits from oil and gas companies.
Separately, Norway’s central bank raised its key interest rate by 0.25 percentage points to 2.50% and said it was likely to increase it again in December to curb inflation, which is running at 5.0%. The benchmark rate was increased by 0.5 percentage points at the central bank’s two previous meetings.
Japan
Equity market returns in Japan were positive for the week, with the Nikkei 225 Index gaining 0.35% and the broader TOPIX Index up 0.86%. The sentiment was supported by data showing expansion in Japan’s services sector in October and some speculation about China’s reopening.
The yield on the 10-year Japanese government bond rose to 0.25%, up from 0.23% at the end of the previous week. The Bank of Japan (BoJ) reiterated its commitment to ultra-loose monetary policy, but BoJ Governor Haruhiko Kuroda suggested that the central bank may reassess its policy of yield curve control with a view to fighting inflation. Should inflation continue to exceed the BoJ’s 2% target and wages rise, it could become necessary to tweak monetary policy, he added.
The depreciated to around JYP 148.0 against the Unite states Dollar as opposed to the previous week. The currency has come under some pressure due to the federal reserves’ continuous revision of its interest rate policy tightening. In the service sector, the purchasing manager index expanded at a stronger rate in October.
Minutes of the BoJ’s September Monetary Policy Meeting suggested that Japan’s economy had picked up as activity had resumed and public health had been protected from COVID-19, although rising commodity prices continued to have a negative effect. While supply-side constraints have lessened, leading to an increasing trend in exports and industrial production, the outlook remains clouded by the slowdowns in overseas economies. There were some signs that private consumption had returned to a moderate upward path, with consumer confidence rising slightly month on month.
China
Stock markets rose on speculation that the country was planning to ease its zero-tolerance policy toward the coronavirus. According to Reuters, the broad, capitalisation-weighted Shanghai Composite Index rose 5.3%, while the blue-chip CSI 300 Index, which tracks the largest listed companies in Shanghai and Shenzhen, rose 6.4%.
Several reports surfaced last week claiming that China was preparing to abandon its zero-COVID policy, which had harmed the country’s economy. According to an unverified report widely circulated on social media, high-level officials met the previous weekend at President Xi Jinping’s request to discuss a conditional opening plan aimed at substantially opening by March 2023.
Signs of progress in a long-running auditing dispute between the United States and China boosted sentiment. US audit officials completed their first round of on-site inspections of Chinese companies ahead of schedule, with dozens of accounting inspectors set to depart Hong Kong over the weekend. The news was seen as a positive development in the year-long standoff over the audit inspections of publicly traded companies in the US that threatened to kick off hundreds of Chinese companies listed on US exchanges.
Foreign investors accelerated their sales of Chinese bonds in September, marking the eighth consecutive month of outflows caused by the weak yuan and US monetary tightening, according to central bank data. According to Dow Jones, the 10-year Chinese government bond yield increased to 2.721% last Friday from 2.691% the previous week.
In economic news, official PMI readings for manufacturing and non-manufacturing activity in October both fell short of expectations and fell below the 50-point threshold that separates growth from contraction. Although the manufacturing PMI rose slightly last month, the private Caixin PMI readings remained in contractionary territory. Taken together, the data revealed the economic impact of China’s protracted coronavirus restrictions.
Market indices
| IN POUNDS | IN LOCAL | |||
| Index | Last week | YTD | Last week | YTD |
| UK | ||||
| FTSE 100 Index | 4.08% | 2.51% | 4.08% | 2.51% |
| US | ||||
| S&P 500 Index | -0.65% | -4.12% | -3.32% | -20.15% |
| Europe | ||||
| Euro Stoxx 50 Index | 4.39% | -8.17% | 2.14% | -12.11% |
| Asia | ||||
| Nikkei 225 Index | 3.31% | -11.60% | 0.35% | -5.53% |
| Heng Seng | 11.73% | -14.42% | 8.74% | -28.65% |
| MSCI Emerging Markets Index | 7.57% | -11.56% | 4.20% | -19.95% |
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