Markets Last Week - 04/10/2024

Surprise job gains help stocks overcome Middle East worries

A late rally enabled large-cap stocks to secure a fourth consecutive weekly gain despite growing concerns about the Middle East conflict and a dockworkers' strike at Eastern seaports. Rising oil prices, driven by the tensions, benefited energy stocks, while cruise lines and consumer discretionary stocks were negatively impacted. Nike’s stock also dropped after withdrawing its full-year sales guidance.

Iran-Israel conflict impacts market sentiment

Stocks dropped sharply on Tuesday following reports of an Iranian missile strike against Israel, but markets stabilized mid-week as fears of a broader conflict eased. A walkout by the International Longshoremen’s Association threatened supply chains but was postponed by a temporary agreement.

Hiring remains strong but wage growth fuels inflation worries

September’s nonfarm payrolls report exceeded expectations with 254,000 jobs added. Wages also rose, sparking concerns about inflation. The unemployment rate ticked lower to 4.1%. However, manufacturing jobs continued to decline for the fifth consecutive month, while the services sector showed robust growth.

Bond yields rise

The stronger jobs report pushed Treasury bond yields to their highest levels in nearly two months, with the 10-year U.S. Treasury note yield spiking to 3.98%. Municipal bonds outperformed Treasuries, and demand for investment-grade corporate bonds remained strong. Geopolitical tensions weighed on high-yield bonds, leading to subdued primary market issuance.

Stock markets drop amid Middle East tensions

European stocks declined, with Italy, France, and Germany seeing significant drops as the Middle East conflict escalated. The pan-European STOXX Europe 600 Index fell 1.80%.

ECB rate cut expected as growth and inflation slow

Eurozone inflation dropped to 1.8% in September, below the European Central Bank’s (ECB) 2% target. With weakening economic growth, expectations for an October interest rate cut increased.

ECB signals policy easing

ECB officials, including President Christine Lagarde, hinted at potential rate cuts as inflation shows signs of easing. Executive Board member Isabel Schnabel also signalled a move towards lower rates, though caution remains.

Bank of England (BoE) faces mixed signals on policy easing

BoE Governor Andrew Bailey suggested more aggressive rate cuts may be possible if inflation continues to fall. However, Chief Economist Huw Pill expressed caution, particularly concerning services inflation and wage growth.

Political change impacts stock markets

Japanese stocks fell sharply following Shigeru Ishiba’s victory in the Liberal Democratic Party (LDP) leadership race, making him the new Prime Minister. Ishiba’s hawkish views initially strengthened the yen but markets rebounded slightly as he adopted a more dovish stance.

Yen weakens as bond yields rise

Despite Ishiba’s dovish signals, the yen weakened to JPY 146 against the U.S. dollar, while the yield on Japan’s 10-year government bond increased to 0.87%, tracking U.S. Treasury yields higher.

New Prime Minister maintains economic policy continuity

Ishiba pledged to continue the economic policies of his predecessor, focusing on overcoming deflation. He also called for a stimulus package to support households and regional economies ahead of the upcoming snap election.

Stock markets surge on optimism over support measures

Chinese stocks surged during a holiday-shortened week, with the Shanghai Composite Index gaining 8.06%. Optimism around Beijing’s economic support measures outweighed disappointing data on factory activity.

Factory activity contracts for the fifth month

China’s manufacturing PMI remained below 50, signalling contraction, while the non-manufacturing PMI also fell to a 21-month low.

Real estate market struggles, but sentiment improves

Home sales by top developers fell sharply in September, but market sentiment improved after several cities relaxed homebuying restrictions, boosting expectations for increased demand.