Weekly Insight October 28
Markets remain optimistic over potential easing in the fed monetary tightening, global markets continued to rebound, with the 3 major indices in the US gaining 1.68-5.60% over the past 5 days ending Thursday. Earnings season continued with 227 of S&P 500 constituents reported Q3 earnings, where 74% of the companies have managed to beat market estimates. However, the much anticipated Big Tech had a poor showing. Apple was the only one which met market expectations and continued to offer a positive guidance. Microsoft indicated slowing earnings growth and decreasing margins, Google’s parent company Alphabet reported a 27% fall in earnings, Amazon earnings fell and offered weaker than expected Q4 guidance. Meta’s net income fell 52% and the stock fell nearly 25% after the announcement. The gloomy data weighted on the tech sector, markets will be paying attention to whether the disappointing figures were indicative of further economic weakness.
Apart from the earnings, markets were optimistic over a possible slowdown in the rate hikes from fed, as it was reported that some Fed members were concerned over a possible sharp slowdown in the economy. According to Bloomberg Fed fund futures data, markets have fully priced in a 75 bps hike for the November meeting next week, and a high probability of a 50 bps hike in December. For fundamentals, PMI data in October were disappointing, with Markit data on manufacturing and services both in the contraction zone, missing expectations and the previous month figure. The Consumer Board Consumer Confidence came in at 102.5, which was also lower than market consensus of 106.5 and the September figure of 107.8. The much anticipated Q3 GDP came at a surprise of 2.6% QoQ, which was higher than the expected 2.4%. Next week, US will be releasing the October data on ISM PMIs, non-farm payrolls, and unemployment, the US Fed will also hold their November interest rate meeting.
European equities continued the rebound as sentiment remains positive. The UK, French, and German indices were up 1.87-3.48% over the past 5 days ending Thursday. The UK political fiasco have seemingly ended, as the former Chancellor Rishi Sunak has secured the top position in UK politics, markets expect more tax raises and spending cuts down the line. Over in the EU, the ECB raised interest rates by 75 bps as expected. The bank admits that inflation remains too high and the interest rate normalisation will continue. However, the bank refused to offer guidance on the next steps, stating that it will be ‘data-dependent’, there is also no concrete timetable for quantitative tightening. On the economic front, the Eurozone manufacturing and services PMIs for October came in at 46.6 and 48.2, with the former missing market expectations, and both were lower than the September figure. Next week, the Eurozone will release the October CPI, Germany will release the September factory orders, and the Bank of England will hold their interest rate meeting.
China
Market sentiment remained weaker, the CSI 300 index was down 5.39% over the week. The Hang Seng Index on the other hand was down by 8.51%, closing below the 15,000 mark for the first time this year, which was a new low since April 2009. China released slew of economic data this week, the Q3 GDP grew 3.9% QoQ, which was higher than the expected 3.5%, and a big rebound from Q2’s 2.7% contraction. Exports in September grew 5.7% YoY, better than expected, industrial production also recorded a 6.3% growth YoY beating. However, retail sales disappointed, growing 2.5% YoY in September, which was lower than both market estimates of 3.3% and the August figure of 5.4%. Fixed asset investment was lower than expected. Premier Li Keqiang instructed further deployment of supportive policies to stabilise the economy. Next week, China will release October figures for Manufacturing and Non-manufacturing PMIs, as well as Caixin PMIs.
