United States
The major indexes experienced a week of mixed performance in the U.S. financial markets characterised by top-heavy trading. Large-cap growth stocks, especially those in the mega-cap information technology and internet sectors, significantly outperformed the broader market. Notably, an equally weighted version of the S&P 500 Index underperformed its market-weighted counterpart by the widest margin since March, highlighting the underperformance of most stocks.
Throughout the week, trading volumes remained relatively subdued as investors eagerly awaited the release of the official nonfarm payrolls report on Friday. Many hoped the report would reveal a decline in hiring, potentially dissuading Federal Reserve policymakers from pursuing another interest rate hike. However, before the equity market opened, stock futures sharply declined as the Labor Department reported that employers had added 336,000 nonfarm jobs in September, roughly double the consensus estimates.
Despite the initial shock, the job report details provided a more nuanced perspective. This information led to a market rebound shortly after the start of equity trading at 9:30 a.m. Notably, average hourly earnings increased by 0.2% for the month, reducing the year-over-year gain to 4.2%, its lowest level since June 2021. Additionally, the workforce participation rate remained steady at 62.8%, the best level since the pandemic lockdowns in February 2020. Collectively, these data points suggested that an increase in labour supply, rather than overwhelming demand, was driving the labour market, creating a more benign inflationary environment.
Throughout the week, several other economic indicators with muted signals helped alleviate concerns about a resurgence in growth and inflation. While the manufacturing sector improved in September, indicating only a slight contraction in factory activity, the larger and healthier services sector revealed a significant slowdown since August. On Wednesday, the ADP payroll processor painted a different picture of the job market, reporting a modest increase of 89,000 private sector payrolls in September, the smallest gain since January 2021.
In the bond market, the 10-year U.S. Treasury note yield surged to a 16-year high of approximately 4.89% in early Friday trading. However, it retraced somewhat as equities rallied later in the morning. As Treasury yields rose early in the week, municipal bonds outperformed, resulting in slightly lower weekly ratios. New bond issues performed well despite macroeconomic weaknesses, and weekly issuance volume was anticipated to decrease in the following week significantly.
Conversely, issuance remained light in the investment-grade corporate bond market, with a few issues being oversubscribed. Spreads widened over the week, and regional bank issues notably underperformed. High-yield bonds faced pressure early in the week due to rising rates and equity market declines. The primary market remained quiet, with issuance expectations picking up only after the current volatility subsided. Managers of collateralised loan obligations remained active buyers in the bank loan market, although they exercised greater selectivity given the prevailing macroeconomic backdrop.
Europe
Regarding the local currency, the pan-European STOXX Europe 600 Index concluded the period 1.18% lower, as concerns over an extended period of higher interest rates led to a surge in bond yields. Major stock indexes across Europe also experienced declines, with Italy’s FTSE MIB decreasing by 1.53%, Germany’s DAX declining by 1.02%, and France’s CAC 40 Index losing 1.05%. The UK’s FTSE 100 Index also saw a slide of 1.49%.
After a week marked by volatility in European bond markets, Germany’s 10-year government bond yield dipped below 3%, although it remained near a multi-decade high. French and Italian bond yields saw slight increases amid cautious market sentiment. In the UK, the yield on the benchmark 10-year UK government bond has remained unchanged since August 2008, reflecting persistent concerns about inflationary pressures.
Economic data indicated that the eurozone economy faced challenges in the third quarter. Both official and private-sector data pointed to a likely contraction during this period. The final Composite Purchasing Managers’ Index (PMI) compiled by S&P Global recorded a reading of 47.2 in September, marking the fourth consecutive month of business output contraction. (PMI readings below 50 indicate shrinking business activity.)
Furthermore, the EU’s statistics office reported that retail sales in the eurozone declined more than anticipated in August, with a sequential decrease of 1.2%. This decline was attributed to a sharp drop in gasoline sales, mail orders, and online shopping.
In Germany, industrial orders rebounded in August, with a seasonally and calendar-adjusted increase of 3.9% month-over-month, following an 11.7% drop in July. This rebound was driven by strong growth in computing, electronic, and optical products. However, exports in August fell by 1.2% sequentially, significantly more than expected, continuing a trend of weak global demand following a 1.9% decline the previous month.
Meanwhile, the UK experienced a decline in house prices for the sixth consecutive month in September, with a sequential decrease of 0.4%, as reported by mortgage lender Halifax. Another lender, Nationwide Building Society, estimated that house prices remained unchanged in the same month, following a 0.8% reduction in August. Both indexes indicated the most significant year-over-year declines since 2009.
Additionally, a rapid decline in homebuilding led to a sharp contraction in construction activity in the UK in September, as revealed by an S&P Global/CIPS survey of construction purchasing managers. This decline was the fastest recorded in over three years.
Japan
Japanese stocks experienced a decline over the week, with the Nikkei 225 Index down 2.7% and the broader TOPIX Index declining 2.6%. This drop in equities was driven by the surge in U.S. bond yields and concerns that central banks would maintain a hawkish stance for an extended period. Economic data releases in Japan for August showed a continued fall in real wages and consumer spending, further dampening market sentiment. However, the Bank of Japan’s (BoJ) latest quarterly Tankan survey indicated that Japanese companies were more optimistic due to a weaker yen, providing some support.
There was widespread speculation that Japan’s Ministry of Finance (MoF) had intervened in the foreign exchange market to halt the yen’s decline. This speculation arose after the yen briefly breached the JPY 150 level against the U.S. dollar, which many expected could trigger government action. MoF officials neither confirmed nor denied any intervention but emphasised their commitment to acting against excessive volatility, keeping all options open. As a result, the yen strengthened by the end of the week, hovering around JPY 149 against the U.S. dollar.
The yield on the 10-year Japanese government bond (JGB) reached 0.80%, a 10-year high, up from 0.76% the previous week. Despite the BoJ’s unscheduled purchases of JGBs with maturities between five and 10 years, yields rose due to the U.S. Treasury sell-off and increased expectations of the BoJ pursuing monetary policy normalisation sooner.
Regarding economic activity, the latest Purchasing Managers’ Index (PMI) data from au Jibun Bank indicated solid expansion in Japan’s services sector in September. This growth was supported by continued demand following the lifting of pandemic restrictions earlier in the year. However, the expansion moderated compared to the previous month, with the services PMI falling from 54.3 in August to 53.8 in September (levels above 50 indicate expansion). In contrast, manufacturing conditions deteriorated in September, with the manufacturing PMI declining from 49.6 the previous month to 48.5, driven by sharp declines in output and new orders.
China
Last week, China’s financial markets remained closed due to the Mid-Autumn Festival and National Day holiday, with plans to reopen on Monday, October 9. In contrast, the Hong Kong Stock Exchange resumed trading on Tuesday, with the benchmark Hang Seng Index experiencing a slight decline of 0.14% during the shortened holiday week, as reported by FactSet.
A notable positive development was observed in China’s factory activity, which returned to an expansionary mode for the first time since March, indicating a potential turnaround in the economy. The official manufacturing Purchasing Managers’ Index (PMI) increased to 50.2 in September, surpassing consensus expectations and up from 49.7 in August. Simultaneously, the nonmanufacturing PMI exceeded expectations, expanding to 51.7 from August’s 51.0. Additionally, the private Caixin/S&P Global survey revealed that both manufacturing and services activities remained in expansion, although they showed a slight easing compared to the previous month.
During the eight-day holiday period, domestic activities in China witnessed a significant uptick. Around 395 million trips were taken via various modes of transportation, including road, rail, air, and waterways, during the first four days of the holiday. According to the Ministry of Transport, this figure represented an impressive 76% increase compared to the same period the previous year. Moreover, box office sales reached RMB 1.2 billion in the initial three days, surpassing last year’s sales figures. In a related development, the offshore gambling hub of Macau saw over 160,000 visitors from mainland China and Hong Kong on a single day, marking the highest daily total since the onset of the pandemic.
China’s property sector, which has faced significant challenges, improved in September. New home sales by the top 100 developers in the country declined by 29.2% in September compared to the previous year, indicating a slight easing from the 33.9% drop observed in August, according to data from the China Real Estate Information Corp. This moderation in the month-on-month decline followed the implementation of a series of stimulus measures by Beijing aimed at supporting the property sector in August.
Market Indices
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Weekly Index |
YTD Index |
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Index |
Local Currency |
Sterling Pound |
Local Currency |
Sterling Pound |
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UK |
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FTSE 100 Index |
-1.50% |
-1.50% |
3.82% |
3.28% |
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US |
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S&P 500 Index |
0.51% |
0.64% |
13.22% |
11.74% |
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Nasdaq |
1.72% |
1.92% |
37.78% |
35.97% |
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EU |
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Euro Stoxx 50 |
-0.72% |
-1.05% |
11.79% |
8.93% |
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Asia |
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Nikkei 225 Index |
-2.71% |
-2.67% |
17.90% |
2.78% |
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MSCI Emerging Markets Index |
-1.08% |
-1.48% |
2.92% |
-1.14% |
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