Friday's Markets Update (October 25, 2024)

26 Oct 2024 by rate3

On Friday, stocks closed in the red after the Nasdaq reached an ATH but then retreated, even as Michigan consumer sentiment hit its highest level in six months. Declines in banks overshadowed gains in technology, with Microsoft and Apple rising 1-2% ahead of earnings. For the week, the S&P and Dow fell, while the Nasdaq gained slightly. EU inflation expectations decreased. China's FDI improved marginally but is still down 30% YoY. BTC (67K) and ETH (2.5K) finished slightly in the red, remaining volatile within narrow ranges.

Details

In October, the University of Michigan's consumer sentiment index rose to 70.5, up from a preliminary 68.9, marking the highest level in six months. Both economic conditions and expectations improved, driven by better buying conditions for durable goods due to lower interest rates. Concerns about the upcoming election affected consumer views, with those anticipating a Harris presidency dropping from 63% to 57%. Inflation expectations remained steady at 2.7%, while five-year expectations fell to 3%. 1Y trend: "Up"(Umich)
In September, new orders for manufactured durable goods fell by $2.2B (0.8%) to $284.8B, following a similar decline in August. The drop was mainly due to a $3.1B (3.1%) decrease in transportation equipment. Orders for machinery, computers, and capital goods also declined. However, excluding transportation, new orders rose by 0.4%, while non-defense capital goods orders excluding aircraft increased by 0.5%, exceeding market expectations. 1Y trend: "Side" (Census)

Crypto

Demand for spot BTC ETFs has surged to its highest level since the BTC halving in April, while interest in futures trading appears to be declining. According to a Glassnode report, daily trading volumes for futures contracts are about $35B, significantly lower than the $80B seen after BTC hit its ATH of $73,679 in March, indicating a lack of significant activity among futures traders. (source)

World Markets

In September, median inflation expectations in the Euro Area fell to 2.4%, marking a new low since September 2021, down from 2.7% in August. Three-year inflation expectations also declined to 2.1%, the lowest since February 2022. Income growth expectations rose to 1.3%, while nominal spending growth remained steady at 3.2%. Economic growth projections stayed at -0.9%, but the expected unemployment rate increased slightly to 10.6%. 1Y trend: "Down" (EU)
Foreign direct investment (FDI) in China fell by 30.4% to CNY 640.6B in the first three quarters of 2024, showing a slight improvement from the 31.5% decline recorded in the first eight months. 1Y trend: "Down" (CN)
In October, Germany's Ifo Business Climate indicator rose to 86.5, its first increase in five months, surpassing expectations. The current conditions sub-index improved to 85.7, while business expectations climbed to 87.3. Despite brighter expectations, skepticism remains as the economy shows signs of stability. In manufacturing, optimism increased, although the current situation is still viewed negatively, with order shortages persisting. Conversely, the service sector saw improvement, particularly in logistics, tourism, and IT. 1Y trend: "Down" (Ifo)
In September, France's Initial Jobless Claims rose to 42.20K, up from -12.70K in August 2024. Historically, claims have averaged -0.80K from 1996 to 2024, peaking at 807.30K in April 2020 and hitting a low of -190.50K in June 2020.
Spain's Q3 unemployment rate dropped to 11.21%, the lowest since Q2 2008, aligning with market expectations. Unemployment fell by 1,200 to 2.754M, while employment rose by 138,300 to 21.823M. 1Y trend: "Down" (INE)
The Bank of Russia unexpectedly raised its key interest rate by 200bps to 21%, exceeding the anticipated 100bps increase. This is the highest rate on record, surpassing the 20% hike following the 2022 ruble crash. The central bank highlighted persistent inflation driven by strong domestic demand, limited economic capacity due to Western sanctions, and a labor shortage. Deteriorating trade conditions and an expansive 2024 Federal Budget further exacerbated inflation expectations. 1Y trend: "Up" (CBR)

Week 44, will be eventful as investors await Q3 GDP growth estimates, non-farm payroll data, the unemployment rate, and JOLTS job openings. Key reports will also include ISM Manufacturing PMI, consumer confidence, and PCE inflation. Major companies like Microsoft, Alphabet, and Apple will announce their Q3 earnings. In Europe, inflation and GDP data will be released by several countries, while Asia will see China's PMIs and Japan's interest rate decision.

Comment: What's Up With The World Markets?

Overall, markets appear to be entering a plateau, buoyed by slightly improved economic indicators but weighed down by uncertainties in geopolitics. The risks of entering a global stagflation scenario are increasing, as central banks worldwide exhibit weakness and hesitation in their easing policies, failing to act decisively to promote job creation and manufacturing growth.

Furthermore, the widening divide between the Global North and South—highlighted during the recent BRICS summit in Kazan—suggests that artificial political barriers, such as tariffs, are likely to further slow down the global economy in the near future. In this context, easing monetary policies by central banks have become a necessity; however, inertia and the outdated charters of these institutions hinder timely responses to the macroeconomic situation. Compounding this issue is the rapidly developing military sector, which will significantly increase government expenditures globally, inevitably leading to higher taxes that could suppress business productivity even more.

In addition, politically driven border closure policies between the North and South will likely exacerbate inflationary pressures, as industrial production from the North becomes more expensive for Southern economies, while energy and food costs rise for the North. Consequently, this could trigger inflation on both sides of the increasing divide. Rising inflation will, in turn, limit the ability of central banks to pursue active easing policies.

Taken together, these factors create an environment conducive to the onset of global stagflation.