Stocks pull back as sentiment shifts

Concerns from both a monetary and fiscal perspective in the US were evident. US treasury yields rose as the policy path of the US Federal Reserve is seen as increasingly hawkish – albeit from a very loose base.

From a fiscal perspective Treasury Secretary Yellen once again warned that the debt ceiling would have to be raised for the US government to meet its obligations, and Biden’s infrastructure plan faltered once more as an approval vote was delayed. Concerns were somewhat eased on Thursday as 15 Republican Senators joined Democrats to avert a government shutdown, in a separate issue to the debt ceiling.

In US data, PCE (the Fed’s preferred measure of inflation) came in at a consensus annualised rate of 3.6% whilst durable goods orders rose 1.8% in August, well above a consensus estimate of 0.7%. Both measures suggest that an economic expansion is continuing, although newswires are littered with consistent reports of supply chain blockages affecting individual company prospects.

Chinese PMI data was mixed, as the services measure rose back above 50 in September whilst the manufacturing figure dropped to 57.5 (albeit still in expansion territory).

Eurozone equities and bonds took their lead from the US last week, with both major asset classes posting negative returns. Inflation rose to 3.4% in September, with the German component rising to a 29-year high. EU Finance Ministers meet this morning with the item certain to be top of the agenda.

Equities

Global stocks were down last week by -1.4% in euro terms and -2.3% in local terms. Year-to-date global markets are up 19.9% in euro terms and 13.7% in local terms. The US market, the largest in the world, was down -1.1% in euro terms and -2.0% in local terms.

Fixed Income & FX

The US 10-year yield finished at 1.49% last week. The German equivalent finished at -0.22%. The Irish 10-year bond yield finished at 0.15%to remain in positive territory. The Euro/US Dollar exchange rate finished at 1.16, whilst Euro/GBP finished at 0.86.

Commodities

Oil finished the week at $76 per barrel and is up 64.6% year-to-date in euro terms. Gold finished the week at $1,752per troy ounce and is down-2.9% year to-date in euro terms. Copper finished the week at $9,135 per tonne.

The week ahead

Monday 4^th October

OPEC meets to discuss additional oil output.

Tuesday 5^th October

Eurozone and UK PMIs for September go to print.

Friday 8^th October

The closely watched US non-farm payrolls data is published.