Highlights
U.S. equity markets finished the week with mixed performances. Large-cap growth and artificial intelligence (AI) stocks surrendered gains made earlier in the week, ending lower as investors reassessed the outlook for technology spending. Smaller companies and value-oriented shares performed more strongly. The Russell 2000 and S&P Mid-Cap 400 gained 1.30% and 1.26%, respectively, while the Nasdaq Composite declined 2.00%, and the S&P 500 shed 0.57%. Large-cap value stocks outperformed growth stocks for the fourth consecutive week. AI-related equities initially recovered from the previous week’s weakness. Positive corporate earnings, announcements of new funding arrangements, and encouraging management commentary helped restore confidence in the sector’s demand outlook and investment prospects. However, sentiment deteriorated toward the end of the week. Results from several major technology companies, including Alphabet and Amazon, renewed questions about whether the substantial capital being committed to AI infrastructure would generate sufficient returns over time. Oil markets remained volatile as investors weighed the possibility of diplomatic progress between the U.S. and Iran against reports of potential further attacks. Concerns also persisted that military activity could intensify following the November 3 U.S. midterm elections. On the macro front, as widely anticipated, the Federal Reserve maintained its federal funds target range at 3.75%–4.00% following its October policy meeting. Ten of the 12 voting policymakers supported the decision to hold rates steady, while the remaining two preferred another quarter-point increase. Nevertheless, policymakers continued to describe inflation as elevated and stressed that future decisions would depend on incoming economic information. Further, on Thursday, the Bureau of Economic Analysis (BEA) reported that U.S. gross domestic product (GDP) grew at an annualized rate of 3.4% in the third quarter. Stronger business investment and consumer spending were important contributors to the improvement. Inflation data, however, remained less encouraging. The BEA’s personal consumption expenditures (PCE) price index increased by 0.5% month over month in September and was 3.6% higher than a year earlier. Moving across to Europe, the pan European Euro STOXX 600 advanced 1.39% over the week. The prospect of disruption to energy supplies remained a particular concern for Europe, where higher energy costs could add to inflationary pressures and weigh on economic activity. The third-quarter reporting season continued, with company results varying considerably across industries. Energy companies generally delivered particularly strong earnings. Financial-sector results were more mixed, however, as some banks experienced pressure from weaker net interest income and changing funding-cost trends. Separately, the European Central Bank decided to leave its main refinancing rate unchanged at 2.65% and its deposit facility rate at 2.50%. Moreover, economic growth across the eurozone was stronger than anticipated in the third quarter. Regional GDP expanded by 0.4% quarter over quarter, double the 0.2% growth forecast. In Asia, Japanese equity markets produced mixed results over the week. The Nikkei 225 Index advanced 0.95%, while the broader TOPIX Index edged down 0.02%. Notably, the BoJ maintained its policy interest rate at approximately 1.25%. The central bank assessed that underlying inflation was generally consistent with its 2% target.
Data Highlights
CAD BoC Interest Rate Decision rose +25bps, from 2.25% to 2.5%, in line with expectations. USD New Home Sales (Sep) fell less than expected, from 0.68M to 0.676M, consensus expected a larger to 0.65M. EUR ECB Interest Rate Decision remained unchanged at 2.65% as expected. EUR Unemployment Rate (Sep) stayed the same at 2.5%; consensus wrongly expected a decrease to 2.4%. EUR GDP Growth Rate YoY (Q3) rose +10bps, from 1.2% to 1.3%, analysts had wrongly anticipated a -10bps decrease to 1.1%. CHF Retail Sales YoY (Sep) fell more than expected, from 3.2% to 1.6%, against expectations of a drop to 3%. JPY Unemployment Rate (Sep) fell -10bps, from 2.5% to 2.4%, consensus expected an unchanged print. JPY BoJ Interest Rate Decision stayed the same at 1.25%, as anticipated. NZD RBNZ Interest Rate Decision was unchanged at 2.75%, consensus wrongly assumed a +25bps increase to 3%.
Week Ahead
EUR Retail Sales YoY (Sep), USD ISM Manufacturing PMI (Oct) – Monday | USD Midterm Elections, CHF Inflation Rate YoY (Oct) – Tuesday | NZD Unemployment Rate (Q3), EUR Inflation Rate YoY (Oct), USD ADP Employment Change (Oct), USD ISM Services PMI (Oct) – Wednesday | AUD Balance of Trade (Sep), CHF Unemployment Rate (Oct), GBP BoE Interest Rate Decision – Thursday | EUR Retail Sales YoY (Sep), CAD Unemployment Rate (Oct), USD Non-Farm Payrolls (Oct) – Friday
