At the close of business on Friday, global equities were lower on the week amid mixed earnings news. The yield on the US 10-year Treasury note edged lower, to 4.87%, but not before posting a 16-year high of 5.01% on Monday. The price of a barrel of West Texas Intermediate crude oil fell to $84.75 from above $90 a week ago. Volatility, as measured by the Cboe Volatility Index (VIX), was little changed at 20.3.

 

MACRO NEWS

Israel has now begun its ground invasion of Gaza, a move that many fear could trigger a wider regional conflict. Israel continues to launch airstrikes and the United States has positioned air-defense systems to protect its forces in the region. US bases continue to be harassed by Iranian proxies, with several dozen US soldiers in Iraq and Syria reportedly injured by drone and rocket attacks since the outbreak of hostilities on October 7th. Thursday night, US forces launched strikes against Iranian-supported bases in Syria that were intended to send a message to Iran and militia groups in the region. Late this week, the Pentagon announced that it is sending 900 troops from the US to the US Central Command area of operations. Central Command is responsible for defending US interests in the Middle East. This past week, the Wall Street Journal reported that as many as 500 Hamas members trained in Iran in September leading up to the attacks of October 7. We will continue to monitor developments closely.

On another note, I referred to a tipping point in last week’s newsletter and in conversations with your fund managers, it appears they are building up more defensive positions and moving some assets from growth to value. This past week the Nasdaq lost 3 percent despite very strong earnings from the Big 5.

As of Friday, the Nasdaq 100 Index had fallen more than 10% from its mid-July peak while the S&P 500 Index has narrowly avoided slipping into a correction.

 

CANADIAN ECONOMIC NEWS

On Wednesday, the Bank of Canada held rates steady at 5% while retaining a tightening bias, but it also acknowledged the lagged effects of monetary policy in holding back economic activity and moderating price pressures.

US ECONOMIC NEWS

With just under half the constituents of the S&P 500 Index having reported for Q3 2023, blended earnings per share shows that earnings rose 2.5% compared with the same quarter a year ago. Sales growth is up 2% year over year.

Flash purchasing managers’ indices for October showed that activity picked up modestly in the United States as the composite PMI rose to 51 from 50.2.

US Secretary of the Treasury Janet Yellen said the US is experiencing what looks like a soft landing as the labour force participation rate has risen, consumer spending remains strong and inflation is decelerating.

A preliminary growth reading shows that the US economy expanded at a 4.9% annual pace in the third quarter, more than doubling the Q2 tempo. Consumer spending was robust, as were government outlays, but business spending was flat. Most welcomed by investors was news that the core personal consumption expenditure deflator (the US Federal Reserve’s preferred inflation measure) was lower than expected, at 2.4%.

The core personal consumption expenditure deflator rose 0.3% month over month in September, a four-month high. From a year ago, the price measure edged down to 3.7% last month from 3.8% the month prior. Personal income rose 0.3% in September while spending rose 0.7%, showing that consumers continue to spend.

While US initial jobless claims remain low, at 210,000, continuing claims have risen 118,000 over the past month to 1,790,000, the highest level since May. This suggests that the unemployed are finding it increasingly difficult to land new jobs and that the labour market is cooling.

 

EUROPEAN ECONOMIC NEWS

In the United Kingdom, the purchasing managers index stagnated at 48.6 for a third month while in the euro zone, the composite fell to 46.5 from 47.2, a post pandemic low.

The European Central Bank held rates steady at 4% on Thursday, as expected. Past rate hikes continue to be transmitted forcefully, and underlying inflation measures continue to ease, the ECB said. ECB President Christine Lagarde said the euro zone economy remains weak and will probably remain so for the rest of the year. With the labour market is strong but weakening, futures markets expect the ECB to maintain rates at their current level until mid-2024, when a cut is expected.

 

CHINA, EMERGING MARKETS and JAPAN ECONOMIC NEWS

China experienced an estimated $75 billion of capital outflows in September, the largest net outflow since 2016, according to a report from Goldman Sachs. The country adjusted its fiscal deficit ratio to 3.8% of GDP from 3% in order to provide its economy with more stimulus. They have adjusted the ratio on only two other occasions: during the 1998 Asian financial crisis and during the 2008 global financial crisis.

Chinese property developer Country Garden was deemed to be in default on its US dollar debt this week, triggering credit default swaps.

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