The week ahead

What happened last week? Bonds rallied, and US stocks continued to fall as market speculators seemed to believe the strong US GDP report would be as good as it gets for the US economy for now. The other economic news at the end of the week was the confirmation that the core PCE index came in line with expectations at 3.7%. What was possibly noteworthy as both the S&P 500 and the Nasdaq Index fell back into correction territory, was that the Vix actually fell in the past 5 days. Considering the unsettling headlines we wake up to every day that could be considered a little surprising but may also suggest that sentiment, which has been very negative, is turning a tad more positive. The US dollar also gave up some of the gains from earlier in the week. All the technical indicators suggest that markets are oversold. October, aside from 1987, and apparently 2023, is generally a positive one for stocks.

Earnings season has not been a good one for most of the Magnificent 7, as 400 billion dollars has been written down by the market, between Alphabet Meta and Tesla, despite the numbers themselves really being no worse than expectations. Almost 50% of the S&P 500 has reported earnings. So far the blended year-over-year growth rate is 2.7%, the first quarter-over-quarter increase since this time last year. Comfortably beating expectations for a small decline, according to FactSet. This will be another busy week Caterpillar, Apple, AMD, Pfizer MacDonalds and Starbucks to mention some household names.

As the ECB met last week, leaving interest rates where they are, this week the focus will be the meeting of the Federal Reserve on Tuesday and Wednesday. We will also get the monthly Purchasing Manager Surveys from around the globe. The Fed are likely to leave rates where they are, what, as always, will be more important is the accompanying statement. One will then look for the reaction from the bond market, could 2-year US treasury yields fall below 5%? This could suggest bond markets are now starting to focus on when the first US rate cut comes. This week we also got the latest job opening report. Job openings have been declining steadily for over a year now and that should at some point be reflected in a rise in the unemployment rate.

Closer to the shore we get euro area inflation which is forecast to have fallen to 3.4% in October, way below our 6.7%. The euro area GDP report for the region will continue to suggest an economy that is shrinking. It is also worth pointing out that the euro area economy has not grown in 15 years since the crash. That would mean in real terms it’s smaller. The Fed are not the only central bank meeting this week, the Bank of England also get together and will most likely leave interest rates where they are.  The BoE will also update its quarterly forecasts.