2025 Weekly Update

Market update

The S&P 500 closed the week at 6,728.8, -1.63% lower. The Dow Jones closed at 46,987.1, -1.21%, with the Nasdaq lower by -3.04%. The volatility index VIX closed the week at 19.08, up from 17.44. The Euro Stoxx 600 fell -1.24%. 

The 10-year UST closed at 4.10%, up from 4.08% a week before. The yield curve is upward sloping with the yield spread between the 3-month and 10-year UST at 24bps. US Corporate Bond spreads: Investment Grade spreads widened +4bps at 83bps and High Yield spreads widened +17bps at 359bps. German 10-year Bunds yield closed at 2.67% up from 2.63% a week before. In Europe, Corporate Investment Grade spreads widened +6bps at 91bps and High Yield widened +10bps at 313bps.

The US Dollar Index (DXY) depreciated -0.20% last week and closed at 99.6. The Euro closed at 1.1566 (+0.25%); the Yen appreciated +0.37%, closing at 153.42 and the Swiss Franc depreciated -0.07%, closing at 0.8052. Gold closed at $4,001.26, depreciating -0.04%. Oil was lower, Brent closed at $63.63 (-2.21%) and WTI at $59.75 (-2.02%).

Macroeconomy

Govt. shutdown

Late on Sunday night in the Senate, there was a 60-40 procedural vote to advance a bill that would end the shutdown. Just about enough moderate Democrats have broken ranks with party leadership to progress a bill that would fund Agriculture, Veterans Affairs and the operations of Congress for the full year, even if other agencies would only be funded through to January 30th. It seems to persuade the moderate Democrats to support the bill, a vote has been promised in December in extending the Affordable Care Act (ACA) subsidies that run out at year-end. Polymarket is pricing a reopening by November 15th (this Saturday) with 94% probability.

US data

The ISM Services index for Oct. rose more than expected to 52.4 (vs. 50.8 expected). Positively, the new orders subcomponent rose to a 12-month high of 56.2 (vs. 51.0 expected). The ISM Manufacturing fell back to 48.7 in Oct. (vs. 49.5 expected and 49.1 previous). Subcomponents for employment (46.0) and new orders (49.4) did see a tick up but also remained in contractionary territory. The University of Michigan’s consumer sentiment index fell -3.3pts to 50.3, its lowest level in three years, while confidence in government economic policy dropped to the lowest point in the series’ 50-year history. In labor data, due to the lack of official data, investors are turning to alternative releases. The Challenger, Gray & Christmas report showed Oct. job cuts up +175.3% y-o-y, totaling 153,074 — the highest Oct. figure since 2003. Revelio Labs’ payroll estimate dropped -9.1k, driven largely by -22.2k losses in government employment. Also, the ADP’s report of private payrolls showed private payrolls were up by +42k in Oct. (vs. +30k expected), which was a clear rebound from the -29k contraction in Sept.

Fedspeak

Chicago Fed President Goolsbee noted labor market stability and expressed caution about further rate cuts given the lack of inflation data due to the shutdown. Also, he added that he was “not decided” about the December meeting, and that he was “nervous about the inflation side of the ledger, where you’ve seen inflation above the target for four and a half years and it’s trending the wrong way”. Cleveland Fed President Hammack again struck a hawkish tone, focusing on inflation risks and suggesting that the Fed’s stance was “barely restrictive”. St Louis Fed President Musalem similarly said the policy was now "somewhere between modestly restrictive and neutral”. San Francisco Fed Daly said that they should "keep an open mind" ahead of the December FOMC. Fed Governor Cook did say that downside risks to employment were higher than upside risks to inflation but stopped short of endorsing a cut for December’s “live meeting”. So, all this added to Powell’s comments last week that brought a December cut into question.

Tariffs

After the oral arguments at the Supreme Court, it looks increasingly likely the IEEPA (International Emergency Economic Powers Act) tariffs could be struck down. They make up more than half of total tariff revenue YTD and include both the fentanyl and migration related tariffs on China/Mexico/Canada, and the reciprocal tariffs. If the Supreme Court upholds the earlier decisions, it will impact many of the tariffs imposed this year, with implications for government revenue, though the administration may look to replace these using other statutes.

Bank of England

As expected, the Bank of England decided to hold rates steady, maintaining the policy rate at 4%. The decision was once again narrowly split at 5-4, leaning dovish. Governor Bailey cast the deciding vote, emphasizing the Bank's need for further evidence of disinflation, despite recent encouraging data, suggesting a wait-and-see approach in the decision. The Bank now views inflation risks as more balanced (previously to the upside), citing more signs of weakness in the labor market and demand. The bank rate remains on a "gradual downward path," but the term "careful" has been removed from the core guidance. Given the overall dovish tone of this meeting, the likelihood of a rate cut in December has increased, contingent on supportive data and the scale of potential tax hikes announced in the budget, particularly if they are larger than expected and have a non-inflationary/disinflationary impact.

Other central banks

RBA (Reserve Bank of Australia) left interest rates unchanged at 3.6% last week as a surge in inflation, firmer consumer demand and a revival in the housing market saw policymakers turn more cautious about further easing after three rate cuts this year. Sweden Riksbank kept the interest rates unchanged at 1.75%. Central bank Governor Thedeen said that the Riksbank was still vigilant regarding developments: "we are expecting the policy rate to remain at this level for some time to come". Flash figures from the statistics office showed that consumer prices in Sweden rose faster than expected in Oct., increasing 0.4% from Sept. and 3.1% y-o-y. In Norway, Norges Bank kept its policy rate unchanged at 4%, following a 25bps cut in Sept. The bank noted that the economic outlook hasn't changed significantly since Sept., but further reductions are likely if the economy develops as projected. The decision reflects that while inflation is falling, it remains above the 2% target, and a restrictive monetary policy is still needed to bring it fully under control.

China data

Chinese inflation surprised to the upside in Oct. rising +0.2% m-o-m against expectations of -0.1% m-o-m and a -0.3% m-o-m decline in Sept. Y-o-y PPI edged a tenth stronger than expected at -2.1%, up a couple of tenths from Sept. The anti-involution campaign that has been aimed at reducing prices wars across the economy seems to be having some impact but much of this month's increase can be attributed to seasonals, some of it around Golden Week spending.

Highlights

On rates

Treasury yields experienced volatility but ultimately ended with minor week-over-week changes. These movements followed the release of private data. The 2-year yield slipped by 1.2bps, while the 10-year yield rose by 2.0bps to 4.10%, and the 30-year yield increased by 4.7bps to 4.69%. The market initially reacted to a positive ADP employment report on Wednesday, followed by better-than-expected ISM data, which triggered a sharp sell-off in yields. However, this reversed on Thursday after another private report highlighted the weakest U.S. job cuts data for October. The probability of a December rate cut now at 70%. Looking further ahead to 2026 horizon, the number of rate cuts priced by December of next year increased by 8.2bps to 85bps. In Europe, sovereign yields rose, with the 10-year Bund yield climbing by 3.3bps, the French OAT increasing by 4.2bps to 3.46%, and the Italian BTP rising by 4.9bps to 3.43%. In Asia, minutes from the Bank of Japan’s October meeting indicated that the nine-member board is leaning towards a near-term rate hike - aligning with the expectations of many market participants and is consistent with recent comments from Governor Kazuo Ueda.

Earnings

As we are behind the peak of the Q3 earnings season, 91% of S&P 500 companies have reported their results. Of these, 82% have reported EPS above estimates, which exceeds the 5-year and 10-year averages of 78% and 75%, respectively. If this holds, it will mark the highest share of companies reporting positive EPS surprises for a quarter since Q3 2021. Earnings growth currently stands at 13.1%. This would mark the fourth consecutive quarter of double-digit y-o-y earnings growth for the index. Eight of the eleven sectors are reporting y-o-y earnings growth, led by Information Technology, Financials, Utilities, Materials, and Industrials. On the other hand, three sectors are reporting y-o-y declines in earnings, with Communication Services leading the declines. In terms of revenues, 77% of S&P 500 companies have reported actual revenues above estimates. The forward 12-month P/E ratio is 22.7, which is above the 5-year average (20.0) and the 10-year average (18.6). This week, 11 S&P 500 companies are set to report, including Cisco, Walt Disney, and Applied Materials. In Europe, 54% of Stoxx 600 companies that have reported so far have beaten EPS estimates. Q3 EPS growth stands at +1% y-o-y, representing a positive surprise of 2%. Excluding the Discretionary and Energy sectors, European EPS growth rises to +6% y-o-y. On the revenue side, 41% of companies have beaten sales estimates. Revenue growth is at -1% y-o-y, with 7 out of 11 sectors flat or declining. European companies reporting this week include Siemens, Enel, Richemont or Swiss Re. In Asia, major names such as Tencent, JD.com, SoftBank, and Sony are set to report.

Credit Market

US high yield spreads widened by 19bps driven by a general risk-off mood in the market and the prospects of a slower pace of Fed’s rate cuts. As one could expect, CCC-rated bonds led the spread widening. Investment grade spreads widened slightly in the US thanks to recent bond issuances that have had to be digested by the market as well as the prospect of future bond issuance to finance AI-related CapEx. Companies such as Alphabet, Meta, and Oracle all came to the market over the last 2 months, issuing bonds that pushed spreads higher. As a result, the Tech, Media, and Telecoms sectors saw the largest spread widening in the US, a phenomenon not seen in the EU as most of the issuance was in USD and not EUR. Even though there was strong demand for these new issuances, bond investors have grown concerned about future borrowing as well as future deals that may bring operating leases onto Tech companies’ balance sheets (as was the case with Oracle). This led to higher credit default swaps (CDS) spreads on Microsoft and Amazon even though those companies have not come to the market with their own bonds these last few months. On the private credit side, we saw a short-lived rebound in private credit in October. And for private companies, the cost of funding for small- and mid-sized companies has not yet come down meaningfully, suggesting that the recent Fed rate cuts have not lowered borrowing costs for these companies. The credit sell-off came even as the Fed’s latest quarterly Senior Loan Officer Opinion Survey (SLOOS) suggested that earlier tightness in bank credit conditions was easing. Banks’ willingness to extend consumer loans inched up to its highest since 2022 (+7 net vs +5 previous), while demand for mortgages grew for the first time since 2021.

What to watch

• Monday: no major announcements
• Tuesday: US NFIB Small Business Optimism; Germany ZEW Survey; South Korea November Exports
• Wednesday: Japan Machine Tool Orders
• Thursday: US Initial Jobless Claims, CPI, Hourly Earnings; UK GDP; Eurozone Industrial Production; Australia Employment; Japan PPI
• Friday: US Retail Sales, PPI; Eurozone Q3 GDP; China October Macro; HK Q3 GDP; India Exports

*Most US federal data releases are expected to be delayed due to Government Shutdown