A strong end to the week for global equities. The TPP weekend update

Stocks march on.

London stocks closed higher on Friday, as investors digested the latest UK GDP figures, while also looking ahead to potential stimulus measures from China, set to be announced over the weekend.

The FTSE 100 index rose 0.19% to 8,253.65 points, and the FTSE 250 closed up 0.27% at 20,764.93 points.

In currency markets, sterling was last up 0.11% on the dollar to trade at $1.3074, as it gained 0.01% against the euro to trade at €1.1943.

“A rebound in the UK economy, unexpected drop in Canada unemployment, slowing US producer price inflation and JPMorgan third quarter earnings beating estimates gave stocks on both sides of the Atlantic a boost,” said IG analyst Axel Rudolph.

“The US 10-year yield rose to 4.11%, a two-month high, as the US third quarter earnings season kicked off in earnest.

Earnings will provide volatility and market guidance in the coming weeks.

In economic news, the UK economy showed signs of recovery in August, with GDP growing by 0.2%, according to the Office for National Statistics.

That followed flat performance in June and July, meeting economists' expectations.

The services sector, a key driver of the economy, expanded by 0.1% for the second consecutive month.

Production output increased by 0.5%, reversing a 0.7% decline in July, while construction output rose 0.4%, recovering from a previous 0.4% dip.

“All main sectors of the economy grew in August, but the broader picture is one of slowing growth in recent months, compared to the first half of the year,” said ONS director of economic statistics Liz McKeown.

In August, accountancy, retail and many manufacturers had strong months, while construction also recovered from July's contraction.

Europe

The STOXX Europe 600 Index ended 0.66% higher amid hopes that the European Central Bank could cut interest rates more quickly and that China could increase its economic stimulus.

Major stock indexes rose with Italy’s FTSE MIB increasing by 2.13%, Germany’s DAX gaining1.32%, and France’s CAC 40 Index gaining 0.48%.

German inflation continued to ease, dropping to 1.6% in September from 1.9% in August. The decline was largely driven by falling energy costs, which offset slight increases in food prices.

Core inflation, which excludes volatile items like food and energy, fell to 2.7%, the lowest level since January 2022. On a month-to-month basis, consumer prices remained flat after a slight drop in August.

The EU-harmonised inflation rate also dipped to 1.8%, marking a continued decline in price pressures across the bloc.

Germany’s Federal Ministry for Economic Affairs and Climate Action forecast that the economy would contract 0.2% this year, a meaningful downward adjustment from its previous estimate for a 0.3% expansion. The ministry also called for stronger consumption to fuel a resumption of economic growth early in 2025.

Factory orders dropped by 5.8% sequentially in August, a sharper downdraft than the consensus forecast for a decline of 2.0%. Industrial production surprised to the upside, increasing 2.9% as automotive industry output rebounded.

The ECB reiterated that it expects inflation to slow toward the 2% target by year-end, according to the minutes from the September meeting. The central bank suggested that a gradual reduction of borrowing costs would be appropriate if incoming inflation data points align with its projections. Still, policymakers said they would not pre-commit to a particular rate path.

Recent comments from ECB officials, however, appeared to align with the market’s view that the pace of policy easing could quicken as inflation slows and the economy weakens. Greek central bank governor Yannis Stournaras told the Financial Times newspaper: "Even if we have one cut of 25 basis points now and another one in December, we will be back to just 3%—still in highly restrictive territory." Banque de France Governor Francois Villeroy de Galhau said in a France Info interview that another reduction was “very likely” in October and that there would probably be more. In addition, the Bundesbank’s Joachim Nagel appeared to soften his hawkishness and said he was open to a move lower in October.

The US

The S&P 500 Index, Dow Jones Industrial Average, and S&P MidCap 400 Index all moved to record highs over the week, helped by some upside surprises to kick off earnings season. Shares in JPMorgan Chase and Wells Fargo rose on Friday after the banking giants reported smaller-than-feared declines in third-quarter profits, while the former managed a small increase in revenues.

A solid rise in NVIDIA shares helped growth stocks outperform value stocks and compensate for a decline in Google parent Alphabet, following reports that the Justice Department was considering asking a federal judge to order a breakup of the company. Tesla was also weak following a sceptical response to the company’s highly anticipated unveiling of its new “robotaxis” and “robovans.”

The earnings focus arguably offset several disappointing economic reports over the week. On Thursday, the Labor Department reported modest upside surprises in headline and core (less food and energy) inflation, which rose in September by 0.2% and 0.3%, respectively, both a tick above expectations.

On a year-over-year basis, core prices increased 3.3% in September versus 3.2% in August, marking the first increase since March 2023. Sharp increases in the seasonally adjusted prices of medical care (up 0.7%) and transportation (up 1.4%) services offset a 1.9% decline in energy prices.

Also on Thursday, the Labor Department reported a surprise jump in weekly jobless claims to 258,000, the highest level in 14 months. While disruptions from Hurricane Helene were partly to blame, Michigan also recorded substantial job losses. Continuing claims also rose to their highest level (1.86 million) since late July. Relatedly, perhaps, the University of Michigan’s preliminary gauge of consumer sentiment in October fell back unexpectedly as those surveyed expressed more caution about their personal finances.

The upside consumer inflation surprise led to a significant change in expectations for the Federal Reserve’s next policy meeting in November, with futures markets ending the week pricing in a decent (14.1%) chance of the Fed keeping rates steady, according to the CME FedWatch Tool. Minutes from the Fed’s last policy meeting, released Wednesday, also revealed that several members preferred only a 25-basis-point (0.25 percentage points) rate cut as opposed to the 50-basis-point cut announced despite only one member officially dissenting.

Asia

Japan’s stock markets rose over the week, with the Nikkei 225 Index gaining 2.45% and the broader TOPIX Index up 0.45%. Yen weakness provided a favourable backdrop, boosting the profit outlook for Japan’s exporters. The Japanese currency hovered in the high-JPY 148 range against the U.S. dollar, close to its lowest levels since August, having come under pressure earlier in the month as Japan’s new prime minister, Shigeru Ishiba, cautioned that the environment is not ready for an additional interest rate hike.

In the fixed income markets, 10-year Japanese government bond yields followed US Treasury yields higher, as investors tempered expectations around the likelihood of another aggressive (50-basis-point) rate cut by the Federal Reserve in November. The yield on the 10-year JGB rose to 0.94% from 0.87% at the end of the previous week.

On the economic data front, Japan’s real (inflation-adjusted) wages fell 0.6% year on year in August. The first decline in three months was partly due to the fading impact of higher summer bonuses paid in the prior two months. However, sluggishness in pay trends could lend some support to the view that the Bank of Japan (BoJ) may hold off on raising interest rates again anytime soon, as the positive cycle in which rising wages boost consumer spending has not yet come into view. While household spending fell 1.9% year on year in August, the drop was less than the consensus forecast for a 2.6% decline.

Chinese equities fell over a holiday-shortened week as optimism about Beijing’s stimulus measures waned. The Shanghai Composite Index lost 3.56%, while the blue-chip CSI 300 gave up 3.25%. In Hong Kong, the benchmark Hang Seng Index fell 6.53%, according to FactSet. Markets in mainland China were closed Monday for the National Day holiday, which started on Tuesday, October 1.

The National Development and Reform Commission, the country’s economic planning agency, announced at a press conference on Tuesday that China would speed up countercyclical measures to support growth. The speech largely reiterated plans to boost investment and increase direct support to low-income groups and new graduates. Officials also stated that the central government will continue issuing ultra-long special sovereign bonds in 2025 to fund major projects and invest RMB 100 billion in strategic areas.

The People’s Bank of China launched a RMB 500 billion swap facility to provide liquidity to institutional investors to buy stocks, Bloomberg reported. Under the mechanism, the central bank will accept applications from nonbank financial institutions such as securities firms, funds, and insurers to obtain highly liquid assets, such as government bonds and central bank bills, if they provide certain collateral. The facility was part of a sweeping stimulus package announced by the central bank in late September that included interest rate cuts and other measures aimed at jumpstarting China’s economy.

The Week Ahead

Inflation figures for September are set to dominate macroeconomic headlines next week, with analysts expecting price rises to have hit a trough in the UK.

Unemployment figures are also due from this side of the Atlantic, while retail sales and building permits data mark the big releases in the US.

According to Deutsche Bank analysts, inflation is expected to have subsided from August’s reading of 2.2%, to 1.8% in September.

This “cyclical low” would come as money markets weigh up the scope for another rate cut by the Bank of England next month, with the figures due from the Office for National Statistics on Wednesday.

UK unemployment data for August is due before this on Tuesday, which will also add to the picture around the UK’s economic strength ahead of the Bank of England’s next meeting in November.

Following July’s 4.1% rate, expectations are for unemployment to have ticked up to 4.6% in August, according to Trading Economics.

Across the Atlantic, figures on Thursday are expected to show a 0.3% uptick in retail sales through September, after August’s 0.1% rise, before building permits data on Friday.

Thursday will also bring a decision on interest rates from the European Central Bank after September’s cut.

Third-quarter earnings season ramps up next week. Whitbread, St James's Place, Bellway and Rentokil are among companies set to report in London next week, as US third-quarter earnings season also gets into full flow.

A quiet Monday will be followed by Bellway's update on Tuesday after rival Vistry hit housing market sentiment earlier in October with a warning over profits for the coming years.

Whitbread then features on Wednesday as tough market conditions threaten the Premier Inn owner.

Thursday will see AJ Bell reporting alongside St James's Place and Rentokil, with the latter's update coming hot on the heels of a profit warning.

In the US nearly 1-in-10 S&P 500 companies scheduled to report. Bank of America, Citigroup, Goldman Sachs Group, Johnson & Johnson, United Airlines Holdings, UnitedHealth Group, and Walgreens Boots Alliance all release earnings on Tuesday. ASML Holding, Morgan Stanley, and Prologis publish quarterly results on Wednesday.

Thursday's earnings highlights include Intuitive Surgical, Netflix, and Taiwan Semiconductor Manufacturing, then American Express and Procter & Gamble close the week on Friday.

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On our platform:

An interesting week on the TPP platform with a bit of activity on some of our strategies.

Our trackers were tracking and enjoying a strong end to the week. However, earlier in the week, both our 'long or flats' and 'active strategies' took the opportunity to add some BUY exposure as markets dipped.

There was a slither of profit-taking late in the US session on Friday Evening, but most held these positions coming into the weekend. Hopefully, this should set them up for a solid start to this week.

Enjoy the rest of your weekend.

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