2024 Weekly Update

Market update

The S&P 500 closed the week at 5,808.12, -0.96% lower. The Dow Jones closed at 42,114.4, -2.68%, with the Nasdaq higher by +0.16%. The volatility index VIX closed the week at 20.33, up from 18.03. The Euro Stoxx 600 fell -1.18%.

The 10-year UST closed at 4.24%, up from 4.08% a week before. The yield curve is inverted with the yield spread between the 3-month and 10-year UST at -41 bps. US Corporate Bond spreads: Investment Grade spreads widened +5bps at 162bps and High Yield spreads widened +2bps at 327bps. German 10-year Bunds yield closed at +2.29% up from+2.18% a week before. In Europe, Corporate Investment Grade spreads narrowed -1 bp at 117bps and High Yield widened +1bp at 358bps.

The US Dollar Index (DXY) appreciated +0.74% last week and closed at 104.26. The Euro closed at 1.0796 (-0.65%); the Yen depreciated -1.86%, closing at 152.31 and the Swiss Franc depreciated -0.23%, closing at 0.8668. Gold closed at $2,747.56, appreciating +0.96%. Oil was higher, Brent closed at $76.05 (+4.09%) and WTI at $71.78 (+3.70%).

Macroeconomy

PMIs

Oct. preliminary euro zone Composite PMI nudged up to 49.7 from Sept. 49.6 but remained below 50 signaling contraction for a second straight month. Even the more resilient services sector was experiencing a weakening of new orders. The composite new business index barely increased from Sept. eight-month low of 47.7, coming in at 47.8. The new export business reading, which includes trade among euro zone members, was also sub-50. Business activity in Germany shrank in Oct. but less steeply than in September. In France, the dominant services sector contracted at its sharpest rate in seven months, dragged down by sluggish new orders. In the US, the Composite PMI rose to 54.3 in Oct. from a final reading of 54.0 in Sept. US business activity increased amid strong demand, and firms raised prices for goods and services at the slowest pace in nearly 4.5 years - prices charged by businesses for goods and services fell to 51.6, the lowest reading since May 2020, from 54.6 in September. Retail sales data has suggested that economic growth gathered more speed in the third quarter. With price pressures ebbing, demand is picking up. New orders received by private businesses jumped to 54.2 from 52.5 in Sept. Though employment levels remained depressed, S&P Global noted that the decline in service jobs was "often linked to the non-replacement of leavers rather than layoffs". The flash manufacturing PMI edged up to 47.8 from 47.3. Flash services PMI rose to 55.3 from 55.2 in Sept. In Asia, Oct. flash PMIs now, and Japan’s composite PMI was down to 49.4, which is the weakest reading since November 2022. Moreover, both the manufacturing (49.0) and services (49.3) prints were also beneath 50. In South Korea, Q3 GDP growth came in softer-than-expected, at just +0.1% (vs. +0.4% expected), after contracting by -0.2% in Q2.

US data 

Weekly initial jobless claims fell back to 227k (vs. 242k expected) over the week ending October 19, moving back down to their levels before the recent hurricanes impacted the figures. The new home sales data for September came in at an annualized rate of 738k (vs. 720k expected), the highest in over a year. Lastly, the Atlanta Federal Reserve is currently estimating GDP increasing at a 3.4% annualized rate last quarter. The economy grew at a 3.0% pace in the April-June quarter. The government is scheduled to publish its advance estimate of third-quarter GDP next Wednesday.

European rates 

Investors continued to speculate that the ECB might speed up their rate cuts, not least as both the Fed and the Bank of Canada have now done so. Indeed, a larger 50bps cut at the ECB’s next meeting in December was priced in as a 42%probability on Friday. Moreover, comments from several officials seemed to leave that open as an option, with Latvia’s Kazaks saying that “everything should be on the table”. From the dovish side of the Governing Council, Portugal’s Centeno said that “we need to consider the possibility of moving in bigger steps”, while from the hawkish side Austria’s Holzmann said that a 50bps cut is “unlikely though not impossible”. In the same lines, ECB President Lagarde said they were “rather satisfied” with how inflation has moved lower. Bundesbank President Nagel said that “we keep our flexibility in every direction”. Italy’s Panetta commented that “I would not take for granted, given the weakness of the economy, that we have to stop at the neutral rate”, echoing the tone of a Reuters report early in the day that some ECB policymakers have begun to debate whether rates will have to go below neutral.

IMF 

The IMF modestly downgraded their growth forecasts relative to July. At a global level, 2025 was revised down a tenth to 3.2%, and there were some notable downgrades in Europe, with Germany’s growth revised down half a point to 0.8%. The US was a notable exception however, as their 2025 forecast was upgraded by three-tenths to 2.2%. Also, the IMF pointed out in their Fiscal Monitor that global public debt is forecast to exceed $100trn this year, and rise further in the medium-term.

Bank of Canada 

The Bank of Canada, delivered their first 50bps cut of this cycle, taking their policy rate down to 3.75%. In the press conference, Governor Macklem said that their focus was “to maintain low, stable inflation. We need to stick the landing. ”Moreover, he said that they “anticipate cutting our policy rate further to support demand and keep inflation on target”.

Highlights

Q3 earnings

In the US, 181 S&P500 companies have reported earnings and 79% of them have posted results above consensus. This compares to a long-term average of ~67%. On the revenue side, roughly 60% of companies reported numbers above expectations vs. a long-term average of 62.2%. In aggregate, earnings are coming in 6.1% above estimates while sales are printing 1.6% above expectations. In Q3, earnings and sales are expected to grow 4.4% y-o-y. Excluding the energy sector, earnings and sales are expected to grow 7.0% and 5.3% respectively. This week, 169 companies (about 30% of the S&P500 market cap) are expected to report their earnings. The main focus will be on Alphabet, Amazon, Apple, Meta, and Microsoft. These 5 companies plus Nvidia are expected to outgrow the market with an EPS growth of 19.1%. Other major releases include AMD, McDonald’s, Eli Lilly, Caterpillar, Starbucks, Chipotle, Mastercard and Uber. Results coming from Europe have been weaker than expected. Less than 40% of companies beat earnings expectations vs. 54% for a typical quarter and profit warnings have been plentiful (42 so far this season). 107 companies of the STOXX 600 will report this week and major reports include BP, Adidas, Volkswagen or Airbus.

On rates

Treasuries sold off last week on the back of solid economic data which led investors to dial back their rate cuts expectations as well as growing concerns about the looming US fiscal deficit. The 10yr Treasury yield ended the week up +15.7bps to 4.24%, its highest level in almost three months. The 2yr yield rose +15.8bps over the week closing at 4.11%. The market is still pricing in 43bps worth of rate cuts over the final two meetings of the year but Fed funds futures for end-2025 are up to 3.53%, having priced out three 25bps cuts over the past six weeks. Similarly, European sovereign bonds lost ground during the week. The bond selloff was aggressive early in the week as investors pared back their expectations for a larger 50bps rate cut at the ECB’s December meeting. Bonds later recovered following dovish comments from ECB officials but yields on 10yr bunds still ended the week up +10.8bps.

What to watch

• Monday: Japan General elections
• Tuesday: Japan Jobless rate (Sept.); US Wholesale Invent. (Sept), Cons. Confidence (Oct.)
• Wednesday: GDP France, Germany, Euro area, US (3Q); Germany CPI (Oct.); US Core PCE & Consumption (3Q)
• Thursday: CPI France, Italy, Euro area (Oct.); US Pers. Income & Spending (Sept.) & Jobless claims
• Friday: US durable goods orders (Sept.)