2024 Weekly Update

Market update

The S&P 500 closed the week at 5,728.8, -1.37% lower. The Dow Jones closed at 42,052.19, -0.15%, with the Nasdaq lower by -1.50%. The volatility index VIX closed the week at 21.88, up from 20.33. The Euro Stoxx 600 fell -1.52%.

The 10-year UST closed at 4.38%, up from 4.24% a week before. The yield curve is inverted with the yield spread between the 3-month and 10-year UST at -15bps. US Corporate Bond spreads: Investment Grade spreads widened +3bps at 165bps and High Yield spreads narrowed -7bps at 320bps. German 10-year Bunds yield closed at 2.40% up from 2.29% a week before. In Europe, Corporate Investment Grade spreads remained at 117bps and High Yield narrowed -20 bps at 338bps.

The US Dollar Index (DXY) appreciated +0.02% last week and closed at 104.28. The Euro closed at 1.0834 (+0.35%); the Yen depreciated -0.46%, closing at 153.01 and the Swiss Franc depreciated -0.37%, closing at 0.87. Gold closed at $2,736.53, depreciating -0.40%. Oil was lower, Brent closed at $73.1 (-3.88%) and WTI at $69.49 (-3.19%).

Macroeconomy

US jobs

The US economy added just 12k jobs according to the Establishment Survey, far below the consensus forecast of +100k and down from +223k in Sept. (which was revised down from +254k). Private payrolls were negative 28k, below the Street’s +70k forecast and down from +192k in Sept (the +192k was revised down from 223k). And -28k is much weaker than ADP’s +233k number published on Wednesday. Manufacturing jobs were neg. 46k (worse than the -30K forecast); the BLS says there was a 44k headwind in this category from strike activity. Establishment survey revisions were negative, with employment in Aug. and Sept. combined now 112k lower than before. The Household survey showed a large 368k drop in the number of employed people in Oct. The unemployment rate was unchanged m-o-m and in line with the Street at 4.1%. The participation rate dipped 10bps m-o-m to 62.6% and came in below the 62.7% forecast. The workweek length was 34.3 hours, a bit above the 34.2 forecast. Wages were in line at +4% y-o-y.

Other US data

We had additional labor data. ADP employment survey surprised to the upside (+233k vs +111k expected). Weekly initial jobless claims were down to 216k in the week ending Oct. 26 (vs. 230k expected), their lowest level since May. Job openings fell to their lowest level since January 2021, at 7.443m (vs. 8m expected). The report also showed the quits rate of those voluntarily leaving their roles decline from 2.0% to 1.9%, the lowest since mid-2015 excluding the Covid months of March-June 2020. The Conference Board’s consumer confidence indicator surged to its highest level since Jan., at 108.7 (vs. 99.5 expected). Q3 GDP came in a touch beneath expectations (+2.8% vs +2.9% expected) but with strong growth in personal consumption (+3.7% vs +3.3% expected). Sept. PCE inflation, the measure that the Fed officially targets showed m-o-m core PCE was up to a 5-month high of +0.25%, and the y-o-y rate remained at +2.7% (vs. +2.6% expected). But headline PCE was down to just +2.1% y-o-y, which is the lowest rate since February 2021. Sept. pending home sales saw the strongest monthly jump since the first post-Covid lockdown rebound in summer 2020 (+7.4% vs. +1.9% expected).

UK budget

In her 2024 Autumn Budget, Chancellor Reeves revealed significant changes to UK fiscal policy, including a boost in spending, taxes and borrowing, aimed at "fixing the foundations" of the country. Total spending is expected to rise by approx. £70bn, with two-thirds allocated to day-to-day expenditures. The tax increases, amounting to approximately £40bn, will primarily come from a rise in employer National Insurance Contributions and capital gains taxes. Additional borrowings will amount £32bn. The budget introduced a new fiscal framework with the goal of balancing the current budget deficit by 2029-30, potentially achieving this as early as 2027-28. Additionally, it aims to reduce the debt-to-GDP ratio by 2029-30. An alternate debt measure, compared to the 2024 Spring Budget, has been adopted, allowing for greater borrowing capacity for capital spending. The front-loaded fiscal loosening is expected to boost GDP in 2025-26 due to increased demand, posing an upside risk to inflation and potentially challenging the Bank of England's rate-cutting cycle.

European data

Euro area GDP (flash) grew by 0.4% q-o-q in Q3, following a 0.2% q-o-q increase in Q2, beating consensus expectations (+0.2). Country-wise, the data were mixed. There was a one-off boost from the Olympics in France (+0.4% q-o-q after +0.2%), while Spain (+0.8% q-o-q after +0.8%) continued to outperform. Germany avoided a technical recession with GDP growing by +0.2% q-o-q, beating consensus. However, Q2 GDP growth was revised down from -0.1% to -0.3%. Finally, Italy disappointed with flat growth in Q3, after a +0.2% q-o-q increase in Q2. Looking ahead, surveys are consistent with a slowdown in Q4 and early next year. After two months of sizable drops, Euro area headline HICP bounced back to 2.0% y-o-y in Oct., after 1.7% in Sept., slightly above expectations. Base effects in energy pushed prices higher. Core inflation remained unchanged at 2.7% in Oct., driven by a marginal acceleration in core goods inflation (0.5% after 0.4%) while services inflation was broadly stable at 3.9%. Oct. print is still below the ECB’s headline and core inflation projections.

Swiss inflation

Oct. Swiss CPI inflation surprised to the downside again, decreasing to 0.6% y-o-y. (consensus at 0.8%) from 0.8% the previous month. Oct. print was the lowest since June 2021. The fall in headline inflation was mainly driven by imported inflation, but domestic inflation eased as well (first time in 6 months). Both core and services inflation softened in Oct. Oct. print is below the Swiss National Bank (SNB)’s conditional inflation forecasts, putting increasing pressure on the SNB to act forcefully in December. A 40pbs cut is currently priced in. The outcome of the December meeting is not yet sealed, but fears of a trade war could tip the balance toward a 50bps cut in December. Alternatively, the SNB could also decide to intervene more actively in the FX market to lower the CHF. However, they are probably waiting for the US election outcome.

Highlights

Q3 earnings

More than half of S&P500 companies have reported and 75% have beaten EPS estimates. EPS growth is coming at +9% y-o-y, surprising positively by 8%. Cyclical sectors like Energy, Materials and Industrials are coming in weak, while Tech, Communication Services and Healthcare are more robust. On topline, 53% of companies are beating estimates and sales growth is at +5% y-o-y, ahead of consensus by 1%. Last week, 5 of the 6 largest tech companies reported earnings, beating expectations by 10.4% in aggregate. In Europe, 49% of EuroStoxx companies have reported, and 63% of them have beaten EPS estimates. Growth is down -3% y-o-y, a positive surprise of 3% vs. consensus. Energy and Discretionary are particularly weak, with Tech and Communication Services also recording negative EPS growth. On revenues, 36% of companies are beating estimates, and sales growth is flat y-o-y. 4 out of 11 sectors are seeing positive sales growth.

On rates

It was a volatile week with the MOVE index reaching new highs in over a year. 10yr US yields hit another 4-month high and closed the week at 4.38%, rising +14.4bps. The pickup in US yields followed the release of strong economic data. This led investors to continue dialing back expectations for rate cuts despite the weak Oct. jobs report. The rate priced in for Dec. 2025 moved up to 3.54% (from the 2.78% in mid-Sept. lows). Growing concerns over the fiscal outlook also came into play. In Europe, yields rose after an upside surprise in inflation print raised doubts as to how quickly the ECB would be able to cut rates. Yields on 10yr bunds were up +11.4bps to 2.40%, highest since July. There were notable losses on UK gilts after significant changes to UK fiscal policy. Yields were up +21.2bps over the week to 4.45%, highest level in a year.

What to watch

• Monday: US durable goods orders (Aug.)
• Tuesday: China Caixin services PMI (Oct.); US ISM services (Oct.), presidential election night
• Wednesday: Germany factory orders (Sept.); US ADP (Sept.)
• Thursday: China trade balance (Oct.); Sweden rate decision (Nov.); UK BoE rate decision (Nov.); US jobless claims, FOMC decision (Nov.)
• Friday: US Univ. of Michigan survey (Nov.)