Market Watch: October 13

Renewed conflict over the weekend in the Middle East had a surprisingly muted effect on equity markets at the start of trading Monday and throughout the week. While there were some moves towards safe-haven assets in response, markets largely stayed steady throughout the week eking out minimal gains. The most tangible reaction was seen in the energy sector, with both West Texas Intermediate and Brent Crude moving higher Friday, rising 5.98% and 7.50%, respectively. The rise in energy prices reignited inflationary concerns, causing markets to dip on Friday but not enough to erase gains incurred earlier in the week.

Highlights:

U.S. markets closed 0.47% higher for the week despite higher-than-expected Consumer Price Index (CPI) and Producer Price Index (PPI) readings, both of which were mainly attributable to higher energy prices.

Canadian markets rose 1.70% for the week amid the uptick in energy prices. The energy sector was by a significant margin the largest contributor to returns, rising 5.84%throughout the week.

European stocks were 1.42% higher even as the effects of tighter monetary policy continue to emerge across the region.

Even as fund flows out of emerging markets picked up largely on risk concerns the region still managed to return 0.61% for the week.

Longer-dated bond yields track slightly lower amid move to safe-haven assets

Treasury yields were lower across most maturities for the week as fund flows into safe-haven assets ticked higher. U.S. Treasury yields moved slightly higher on Friday but remained lower for the week following the latest U.S. inflation reading, which was somewhat higher than expected. Credit spreads were also steady despite the active bond issuance throughout the week’s trading sessions. On credit action, both S&P and Moody’s returned to pessimistic territory, according to Bloomberg.

Highlights:

The 2-year U.S. Treasury yield rose 5 basis points (bps) while the 10-year yield was down 2 bps. In Canada, the 2-year yield was up 3 bps and 10-year yields 10 bps.

Upgrade-to-downgrade ratios moved lower in August to 1.6x and 1.4x for Moody’s and S&P, respectively, the lowest since May.

Moody’s was the most negative, with reviews for downgrade making up 59% of total actions last month. About half of the downgrades were regional banks, as the agency sees lingering systemic risks.

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Statistics Canada reports value of building permits up 3.4% in August to $11.9-billion

Statistics Canada (StatCan) reported the total monthly value of building permits in Canada rose 3.4% in August to $11.9-billion, as gains in the non-residential sector offset modest declines in residential construction plans. The increase came as permits were issued for hospital renovations in Toronto and North Vancouver, B.C., a new university building in Kelowna, B.C., a new correctional facility in Thunder Bay, Ont. and a new arena in Whitby, Ont. The indicator comes as politicians across the country look for ways to increase the pace of new home construction in a bid to help alleviate the housing shortage in Canada.

Highlights:

The total monthly value of non-residential permits rose 14.8% to $ 5.0-billion in August.

On the residential side, the total monthly value of permits issued fell 3.7% to $6.8-billion in August as the value for permits for multi-unit construction intentions fell 9.5% to$3.9-billion. However, the value of single-family home permits rose 5.5% to $2.9-billion, marking the fourth consecutive monthly increase.

On a constant dollar basis, the total value of building permits was up 4.3% in August.

Wholesale inflation in U.S. rises 2.2% in September, biggest year-over-year gain since April

U.S. wholesale prices rose last month at the fastest pace since April, suggesting that inflationary pressures remain despite a year and a half of higher interest rates. The U.S.Labor Department reported that its producer price index, which measures inflation before it hits consumers, climbed 2.2% from a year earlier, up from a 2% uptick in August.Wholesale prices have been rising more slowly than consumer prices, raising hopes that inflation may continue to ease as producer costs make their way to the consumer. But these latest numbers, driven by an increase in the price of goods, came in higher last month than economists had expected.

Highlights:

On a month-to-month basis, producer prices rose 0.5% from August to September, down from 0.7% from July to August.

Excluding volatile food and energy prices, so-called core inflation rose 2.7% in September from a year earlier and 0.3% from August.

Wholesale energy prices surged 3.3% from August to September, and food prices rose 0.9% after tumbling 0.5% from July to August.

U.K. economy grew by 0.2% in August, but recession concerns remain

The U.K. economy returned to growth in August, as activity picked up after a worse-than-expected slump in July. A modest 0.2% rise in gross domestic product (GDP) in August was driven by a jump in business services output that offset a downturn in manufacturing and the negative impact of the U.S. film and TV writers’ strike, which has closed down large parts of the British film industry. Despite the modest growth in August, concerns are rising that the U.K. economy is heading into recession as higher interest rates weigh on demand.

Highlights:

According to the Office for National Statistics, the main driver of growth in August was the services sector, which grew 0.4%. The arts, entertainment and recreation sector fell 7.4% after a 6.8% expansion in July.

A return to more normal levels of school attendance across the education sector was another boost for GDP, while both computer programmers and engineers had strong months.

Growth was restricted by the manufacturing sector, which had a setback in August after a strong June and July spurred by a rise in car factory output. The construction sector slipped 0.4% in August after a 0.5% fall in July.

In the news: Microsoft completes lengthy acquisition of Activision Blizzard, furthering industry consolidation

In a move that proves big tech can, in fact, get bigger, Microsoft has completed the more than 20-month long acquisition of popular game developer Activision Blizzard. The deal, which was initially announced in January 2022, faced regulatory scrutiny over antitrust concerns. With its largest acquisition to date, Microsoft has acquired significant gaming franchises and further diversified its business offering in the video game space. The past couple of years have seen a wave of consolidation in the video game industry including Sony’s acquisition of Bungie and Take-Two’s acquisition of mobile gaming giant Zynga.

Behind the headline:

Microsoft’s $69bn USD acquisition of Activision Blizzard is its largest deal ever, bringing popular franchises like Call of Duty, Diablo, and Warcraft under its umbrella.Activision Blizzard reported $7.5bn USD in revenue during its most recent fiscal year.

To address regulatory concerns, Microsoft agreed to grant European consumers free streaming licenses and ensure console rivals like Sony and Nintendo have access to games like Call of Duty for the next decade.

Major players such as Microsoft and Sony – both of which produce their own gaming consoles and exclusive games – continue to jockey for supremacy in the lucrative industry, which is expected to surpass $300bn USD in revenue by 2026, according to PricewaterhouseCoopers.

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Market Watch: October 13

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