United States
The major stock market indices had a mixed performance during the week, with the S&P 500 Index coming close to matching its longest winning streak in nearly two decades. On Wednesday, the S&P 500 notched its eighth consecutive gain, and the Nasdaq Composite Index marked its ninth. However, the market’s strength was notably narrow. An equally weighted version of the S&P 500 Index lagged behind its market-weighted counterpart by 1.90%, and the Russell 1000 Value Index trailed its growth counterpart by 4.04%—the widest margin since March.
The week was marked by the final major third-quarter corporate earnings releases, with some technology-oriented companies delivering upside surprises supporting the growth indexes. High-valuation software stocks received a boost, thanks in part to cloud monitoring and security firm Datadog, which saw a 28% surge on Tuesday following better-than-expected earnings and guidance.
U.S. Treasury debt auctions played an unusual role in influencing sentiment in both the equity and bond markets during the week. Favorably received auctions of three-year Treasury notes on Tuesday and 10-year notes on Wednesday appeared to boost market sentiment. However, the turning point in ending the winning streaks of the major indices appeared to be Thursday’s $24 billion auction of 30-year U.S. Treasury bonds, which experienced the weakest demand in two years. Investors closely monitored whether demand could keep up with the government’s elevated borrowing needs, especially after the temporary lifting of the federal debt ceiling.
There were few economic data releases during the week and most met expectations. An exception was the University of Michigan’s preliminary gauge of consumer sentiment, released on Friday, which unexpectedly fell to its lowest level in six months. The survey’s chief researcher attributed this decline to concerns about higher interest rates stemming from the wars in Gaza and Ukraine. Long-run inflation expectations also reached 3.2%, the highest level in the survey since 2011.
Treasury yields initially decreased through mid-week but rose on Thursday due to the weak 30-year Treasury auction. The tax-free municipal market was impacted by higher yields but benefited from strong demand for many new deals. The investment-grade corporate bond market saw heavy new issuance and healthy demand. In the high-yield bond asset class, buyers appeared somewhat more selective, while higher-quality bank loans continued to enjoy solid demand.
Europe
In terms of local currency, the pan-European STOXX Europe 600 Index closed 0.21% lower as optimism regarding a potential peak in interest rates waned. Major stock indices had mixed results: France’s CAC 40 Index remained relatively unchanged, Germany’s DAX gained 0.30%, and Italy’s FTSE MIB saw a decline of 0.59%. The UK’s FTSE 100 Index experienced a 0.77% decrease.
European government bond yields saw a general increase as the markets grappled with the idea of interest rates remaining “higher for a longer duration,” prompted by hawkish comments from policymakers. European Central Bank (ECB) President Christine Lagarde stated that it would take more than “the next couple of quarters” for the ECB to consider rate cuts. Germany’s 10-year government bond yield surpassed 2.7%, and Italian bond yields also increased. The UK bond yields experienced a turbulent ride after data indicated that the economy had stagnated in the third quarter.
At a central bank conference in Ireland, Bank of England (BoE) Governor Andrew Bailey mentioned that it was “premature” to discuss reducing interest rates. This statement followed BoE Chief Economist Huw Pill’s remarks, which led to a significant drop in short-dated government bond yields, as he suggested that the pricing of financial markets anticipating an initial rate cut in August of the following year “doesn’t appear entirely unreasonable.”
In the third quarter, the UK’s gross domestic product (GDP) aligned with the BoE’s projection for zero growth, following a 0.2% expansion in the prior three months. Monthly GDP in September exceeded expectations, with a 0.2% increase. However, GDP growth in August was revised down to 0.1% from 0.2%. The Office for National Statistics attributed the growth to expansion in engineering, healthcare sales, and machinery leasing, which offset declines in health, management consultancy, and commercial property rental.
Continuing to highlight a weak European economy, retail sales in the Eurozone decreased by 0.3% in September, following a 0.7% drop in August. The economic sentiment index, compiled by Sentix consultancy, improved to -18.6 in November from the previous month’s -21.9. In Germany, industrial production contracted by 1.4% sequentially in September after remaining flat in August, while manufacturing orders increased by a modest 0.2%, significantly lower than the 1.9% growth recorded in the previous month. Industrial output remained stagnant in September compared to August in France and Italy.
Portugal is set to hold a snap election in March 2024, prompted by the resignation of Prime Minister Antonio Costa following the initiation of a corruption probe into his Socialist administration.
Japan
During the week, Japan’s stock markets experienced gains, with the Nikkei 225 Index rising by 1.9% and the broader TOPIX Index increasing by 0.6%. These positive movements were fueled by robust corporate earnings, the government’s commitment to additional economic stimulus, and continued support from favourable currency dynamics. Notably, the yen depreciated against the U.S. dollar, crossing the 151 level, down from around 149 the previous week, marking its lowest value in approximately 33 years. However, investor risk appetite waned towards the end of the week due to hawkish statements from Federal Reserve Chair Jerome Powell, who emphasised the willingness of the U.S. central bank to take further measures to curb inflation, leading to expectations of prolonged higher interest rates.
In contrast, Bank of Japan (BoJ) Governor Kazuo Ueda cautioned that normalising short-term interest rates would pose a significant challenge, as it could impact financial institutions, borrowers, and overall demand. Speaking at a conference organised by the Financial Times news organisation, he mentioned that it is too early to determine the central bank’s specific actions when it normalises its policy stance. He also noted that the bank is progressing towards achieving its 2% inflation target.
The yield on the 10-year Japanese government bond (JGB) decreased to 0.85% from 0.91% at the end of the previous week. JGB yields remained relatively elevated following the BoJ’s adjustment of its yield curve control policy in October, marking the second modification in three months. This adjustment allowed yields to rise more freely, with the central bank now considering its 1.0% ceiling for 10-year JGB yields as a reference rather than a strict cap on interest rates. Nonetheless, Governor Ueda has consistently stated that the 10-year JGB yield is unlikely to surpass 1.0% significantly.
Japan’s cabinet approved an additional budget to support Prime Minister Fumio Kishida’s latest economic stimulus package, valued at over USD 110 billion. These measures encompass reductions in income and residential taxes, as well as cash grants to low-income earners to alleviate the impact of inflation on households and reinforce wage growth. In September, Japan experienced a decline in inflation-adjusted real wages and a drop in consumer spending, reflecting the financial pressure on individuals and contributing to public dissatisfaction.
China
Chinese stocks increased as investors largely shrugged off data revealing a return to deflationary pressures, with consumer prices contracting. The Shanghai Composite Index advanced by 0.27%, and the blue-chip CSI 300 increased by 0.07%. However, according to FactSet, the Hang Seng Index in Hong Kong dipped by 2.61%.
In October, the consumer price index experienced a 0.2% decline compared to the previous year, following an unchanged reading in September, primarily due to reduced pork prices affecting food costs. Meanwhile, the producer price index continued its 13-month decline streak, falling by 2.6% year-on-year.
Trade data provided a mixed view of China’s economy. Overseas exports declined by 6.4% in October compared to the previous year, surpassing the 6.2% drop seen in September, driven by weaker global demand. In an unexpected turn, imports recorded a 3% growth, reversing the 6.2% contraction seen in September and marking the first year-on-year growth since September 2022. The overall trade surplus decreased to a lower-than-expected USD 56.5 billion, down from September’s USD 77.71 billion.
These recent indicators underscored the fragile nature of China’s economy and raised concerns that the bottom of the growth slowdown has not been reached. Despite Beijing’s recent attempts to stimulate demand, many economists anticipate that the government will implement additional measures to combat deflationary pressures.
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