Markets falter amidst rate concerns and geopolitical risk

Although of trivial importance in comparison to the wellbeing of people in the region, market sentiment weakened following news of escalation. The ‘risk-off’ atmosphere in markets persisted throughout the week as bond yields rose. The benchmark 10 Year US Treasury yield approached 5% towards the end of the week, a level not seen since 2007.

Comments from Federal Reserve Chairman Jerome Powell, also saw markets pull back further as he stated that growth remains persistently above trend and that tightness in the labour market is no longer easing. This prompted many investors to expect higher interest rates for longer.

The remarks were complemented by US macro data releases such as US retail sales which were released on Tuesday. The figures showed that Sales rose 0.7% last month, above expectations of a 0.3% figure portraying continued consumer strength in the world's largest economy.

On Thursday, the US Initial Jobless claims showed that the number of US citizens filing new claims for unemployment benefits fell to a nine-month low decreasing by 13,000 to a figure of 198,000.

In Europe, stocks declined -3.6% largely due to the increased level of geopolitical risk. Many commentators voiced concern over the prospect of rising oil prices contributing to inflationary pressures amidst a rise in geopolitical tensions.

The Benchmark German 10 Year Bund yield rose to 2.94% as a result, approaching its recent 12 year high. A number of poor earnings releases contributed to the downward push for equities. Companies such as the Finnish telecoms company Nokia and French auto maker Renault were examples of companies that missed expectations for Quarter 3 sales, driving down share prices.

In China, the country’s largest property developer, Country Garden, missed the deadline to make an offshore coupon payment of USD15.4 million, effectively putting the company in default. The news brought renewed distrust of the Chinese real estate market which has continued to be a factor in the country’s slow growth.

Equities

Global stocks were down last week by -3.6% in euro terms and up slightly by -3.3% in local terms. Year-to-date global markets are up 9.6% in euro terms and 8.7% in local terms. The US market, the largest in the world, finished up -3.8% in euro terms and -3.5% in local terms.

Fixed Income & FX

The US 10-year yield finished at 4.99% last week. The German equivalent finished at 2.94%. The Irish 10-year bond yield finished at 3.37%. The Euro/US Dollar exchange rate finished at 1.06, whilst Euro/GBP finished at 0.87.

Commodities

Oil finished the week at $87 per barrel and is up 9.8% year-to-date in euro terms. Gold finished the week at $1,976 per troy ounce and is up 9.6% year to-date in euro terms. Copper finished the week at $7,880 per tonne.

The week ahead

Tuesday 24^th October

US Manufacturing & Services PMIs are released.

Thursday 26^th October

European Central Bank Interest Rate decision.

Friday 27^th October

US Core PCE Price Index goes to print.