Market Watch: October 4, 2024

Global stocks fluctuated throughout the week, as investors analyzed key economic data releases as well as rising geopolitical tensions in the Middle East. U.S. equity markets rose on Friday, driven by an unexpectedly strong jobs report that bolstered confidence in the economy’s health. The markets were buoyed by the Energy sector, which rallied due to an increase in oil prices. While European equities faced challenges with a contraction in business activity and confidence weighing on sentiment, automaker shares rose after the European Union on Friday voted to adopt definitive tariffs on China-made battery electric vehicles (BEVs).

Highlights:

U.S. markets closed 0.26%¹ higher for the week, driven by economic data indicating a resilient U.S. economy on the back of better-than-expected US employment data.
Canadian markets rose 0.90%² for the week, with performance influenced by gains in technology stocks and economic data indicating an improvement in manufacturing demand.
European markets returned -3.90 %³ for the week, influenced by moderating inflation expectations across the eurozone.
Emerging markets closed -3.72%⁴ for the week despite China’s stimulus program, as markets on the mainland were closed for the Golden Week holiday.

Treasury yields inch higher amidst key data releases

This week, fixed-income markets experienced fluctuations driven by economic data, shifting investor sentiment and geopolitical concerns. U.S. Treasury rose as the September nonfarm payroll significantly exceeded expectations, at 254,000 compared to the consensus of 150,000, with previous reports also revised higher. The yields also inched higher on the back of better-than-expected ADP employment data that indicated a surge in private-sector hiring. This week’s data releases pointed towards a stronger economy; it also signalled to the market that the Federal Reserve is more likely to proceed with smaller rate reductions in the near future.

Highlights:

The 2- and 10-year U.S. Treasury yields were 8 basis points (bps) and 5 bps higher, respectively, while in Canada, the 2- and 10-year yields were 7 bps and 8 bps higher, respectively.
Credit spreads were firm amid a slowdown of primary volume. Many companies are entering earnings blackout periods which could also reduce new issuance next week.
Markets are attentively awaiting next week’s key data releases, including the Federal Open Market Committee minutes on Wednesday, followed by the U.S. Consumer Price Index (CPI) on Thursday and the Producer Price Index (PPI) on Friday.

Weekly dashboard

Canadian manufacturing activity strengthened for first time in 17 months

Canadian manufacturing activity strengthened for the first time in 17 months in September as market demand improved and lower borrowing costs bolstered confidence in the economic outlook. The S&P Global Canada Manufacturing Purchasing Managers’ Index (PMI) increased to 50.4 in September from 49.5 in August, its first move above the 50.0 no-change mark since April 2023. “The latest PMI data provided some encouraging signs for the health of the manufacturing economy, with new orders, employment and confidence in the outlook all improving since August,” Paul Smith, economics director at S&P Global Market Intelligence, said in a statement.

Highlights:

The new orders index rose to 50.3 from 48.5 in August, helped by an uplift in market demand and despite continued weakness in new export orders, while the measure of future output was at 61.2, up from 60.0.
According to the report, global demand remains subdued, in part linked to geopolitical uncertainties, which continue to weigh on production and buying activity.
The input price index climbed to 56.4, its highest since April 2023 and up from 55.8 in August, but a decline in the measure of output prices signalled that manufacturers had limited pricing power to pass on higher input costs to clients.

Fed’s Powell says no need to rush rate cuts

U.S. Federal Reserve (Fed) Chair Jerome Powell said officials would continue to reduce interest rates from a two-decade high to maintain solid economic growth, but they didn’t currently see a reason to lower rates as aggressively as they did at their most recent meeting. “Overall, the economy is in solid shape; we intend to use our tools to keep it there,” Powell said at a conference in Nashville, Tennessee. Because officials have a relatively favourable economic outlook, “this is not a committee that feels like it’s in a hurry to cut rates quickly,” he added. The Fed lowered interest rates by a half-percentage point at its last meeting, dropping the central bank’s benchmark rate to a range between 4.75% and 5% and down from its highest level in two decades.

Highlights:

Powell said officials were focused on bringing rates down to a level that neither spurs nor slows economic activity.
“If the economy performs as expected, that would mean two more quarter-point cuts this year,” Powell said. Rates could move “over time” toward a more neutral stance if economic activity remained healthy.
Since their most recent meeting, multiple Fed officials have suggested that the central bank might continue to lower interest rates in more traditional, smaller quarter-point increments.

Eurozone inflation comes below target for first time in three years

Eurozone inflation fell below the European Central Bank’s (ECB) target for the first time in more than three years, suggesting a lengthy struggle to bring price rises under control is nearing an end. Consumer prices increased by 1.8% on year in September across the 20 nations that make up the eurozone, falling from a month earlier and marking the first time since June 2021 that annual inflation has stood below the ECB’s 2% target.

Highlights:

September’s figures suggest policymakers can begin to claim victory in their two-and-a-half-year battle to tame sky-high inflation that spiked with Russia’s full-scale invasion of Ukraine early in 2022.
Weaker inflation in Europe comes amid sputtering growth in the 20-member eurozone, with some economists suggesting that economic activity might now become the main area of concern for policymakers.
Recent business surveys have suggested activity in Europe’s manufacturing sector remains hobbled by high rates and sluggish demand, while the summer’s services boom has faded rapidly.

In the news: Port worker’s strike ends with a tentative wage agreement

45,000 of the 85,000 members of the International Longshoremen’s Association (ILA), North America’s largest longshoremen’s union, went on strike affecting 36 ports on the U.S. East and Gulf Coasts. The strike, the largest of its kind since 1977, was triggered by a breakdown in negotiations between the ILA and the United States Maritime Alliance (USMX) over a new six-year contract. The ILA sought for a US$5 per hour annual raise over six years and assurances to stop port automation projects that could eliminate jobs. The strike concluded as a tentative deal to increase the wages by approximately 62% over the next six years was negotiated between the dock workers and port operators.

Behind the headline:

The current agreement partially addresses the ILA’s demand for a wage increase. However, the unresolved issue of protections against port automation is expected to be negotiated before the contract extension expires on January 15.
In the lead-up to the U.S. Presidential Elections, the Biden administration expressed its support for the union and commended the successful negotiations that ended the strike and reopened the ports, ensuring the availability of critical supplies for Hurricane Helene’s recovery.
The affected ports were known to handle 35% of U.S. imports and exports, and any prolonged strike could have a significant impact on the economy and supply chain. Experts estimate it typically takes one week to clear each day of closure, with the backlog from this strike expected to take weeks to resolve.

¹ S&P 500 Index CAD
² S&P/TSX Composite Index CAD
³ Bloomberg Developed Markets ex N. America Large & Mid Cap Price Return Index CAD
⁴ Bloomberg EM Large & Mid Cap Price Return Index CAD

—

For local news delivered daily to your email inbox, subscribe for free to the rdnewsNOW newsletter by visiting rdnewsNOW.com. You can also download the rdnewsNOW mobile app on Google Play and the Apple App Store for all the latest updates on this and other stories.

by Scotia Wealth Management - The Zukiwsky Group

Market Watch: October 4, 2024

Week in review

Equity markets parse economic and geopolitical events

Treasury yields inch higher amidst key data releases

Weekly dashboard

Canadian manufacturing activity strengthened for first time in 17 months

Fed’s Powell says no need to rush rate cuts

Eurozone inflation comes below target for first time in three years

In the news: Port worker’s strike ends with a tentative wage agreement

What's Trending