Market Update

04.11.2024

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What happened last week?

Europe

The UK government unveiled a new plan to increase taxes and borrowing.

US

Five members of the Magnificent Seven dropped quarterly updates that mostly lived up to the name.
The US economy continued growing at a resilient pace, but job creation stumbled in October.

Why It Matters

The UK government’s latest budget sparked a selloff in UK bonds and set investors on edge. The plan includes £70 billion ($91 billion) in spending on education, housing, infrastructure, and healthcare – and further spending on major big-ticket items like transport and construction. Since much of the spending would be financed by increased borrowing, that sent government bond (or gilt) prices sharply lower and pushed the yield on the 10-year note to its highest level all year. (Bond yields fall as their prices rise).

Alphabet, Apple, Microsoft, Meta, and Amazon all “magnificently” beat analyst expectations in their latest quarterly updates. But the market didn’t show them a lot of spectacular love in return. Investor scrutiny has grown increasingly intense over the amount of money the tech giants are spending on AI, with not enough sales or profit to show for it so far. The tech-heavy Nasdaq Composite fell 2.8% on Thursday, and the S&P 500 slumped 1.9% – in what was their worst day in almost two months.

The US economy had a some-good, some-bad kind of week. It grew at an annualised 2.8% in the third quarter, just a smidgen slower than expected, helped by the dependable, resilient American consumer. And the US job market added a paltry 12,000 new jobs in October to the economy, far fewer than the 113,000 forecast – a worse-than-expected result blamed mostly on a pair of devastating hurricanes and an ongoing strike at Boeing. The unemployment rate, however, held steady at 4.1%, hinting that there’s still considerable strength in the labour market.

The Focus This Week: Election-week jitters

Americans will officially cast their votes in the US presidential election on Tuesday – and there’s no doubt the results will make for the biggest headlines of the week. But investors also have another important event on their calendars: the next interest rate decision from the Federal Reserve (Fed).

To be sure, at any other time, an interest rate announcement from the Fed would take top billing. But not this week. Traders are expecting a jarring few days across asset classes – with benchmarks that measure potential volatility in stocks, bonds, and currency markets already on the up. This is a good reminder: when markets become more volatile, it’s important to keep your long-term investment goals in mind and avoid making sudden, emotional decisions.

Now, the Fed is expected to make its big announcement on Thursday and is widely expected to cut interest rates for the second time since 2020. The market sees the central bank trimming its key rate by just a quarter of a percentage point this time around – about half as deep as the slash it made back in September. Two months ago, policymakers were looking to balance their new inflation confidence against hints about a potentially slowing labour market. This time around, not much has changed: the US economy has continued on its mostly steady growth path: consumer spending has been strong, inflation has been subdued, and wages have been generally rising. That combination makes for an easier task for the Fed – and could even ease investors’ election-week jitters.

Closer to home, the recent budget put the expected Bank of England rate cut in doubt. Although the odds are still high that a cut is on the cards this Thursday, the pound’s weakening stance against major currencies, alongside elevated inflation forecasts spurred by proposed wage hikes and new tax policies, raises questions about the UK's economic resilience.

The Week Ahead

Monday: US factory orders (September), global manufacturing PMI (October), China services PMI (October). Earnings: Vertex, Palantir Tech.
Tuesday: US services PMI (October). US presidential election.
Wednesday: Earnings: Novo Nordisk, ARM Holdings, Mercado Libre, Qualcomm, Super Micro, Take-Two Interactive.
Thursday: UK house price index (October), eurozone retail sales (September), Bank of England interest rate announcement, US Fed interest rate announcement, US consumer credit (October), Japan household spending (October). Earnings: Barrick Gold, Arista Network, Block, Cloudflare, Rivian Auto, The Trade Desk.
Friday: US consumer sentiment (October), China consumer inflation (October), China producer inflation (October).

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