Read the 10 stories to remember from the week which ended October 16.
Story #1: Narrow gains by U.S equity indices
Large-caps U.S. stock indexes climbed for the third week in a row, but at a far slower pace than in the previous two weeks, as the indexes’ weekly gains were less than 1%. Performance was choppy, as a big rally on Monday was offset by a comparably sized decline the next day. Small-cap shares lagged slightly after a recent streak of outperformance. Within the S&P 500 Index, industrials and utilities shares outperformed, while financials recorded losses as investors gave a lukewarm reception to bank earnings reports. Apple shares recorded solid gains ahead of the company’s unveiling of new iPhones on Tuesday, and Amazon.com shares were also strong in advance of its annual Prime Day.
Story #2: Earnings season kick-off
The week marked the unofficial start of earnings season, with 31 S&P 500 companies expected to report third-quarter results, according to Refinitiv. Analysts polled by FactSet and Refinitiv currently expect overall third-quarter earnings for the S&P 500 to fall over 20% on a year-over-year basis. Several of the major U.S. banks that opened quarterly earnings season reported that their third-quarter results were boosted by strong trading and investment banking revenue, and some banks set aside less money than in previous quarters to prepare for loan losses.
Story #3: Rising Global Covid cases
Coronavirus worries also seemed to dampen sentiment during much of the week. Globally, cases rose to 38.9 million, and COVID-19 deaths climbed to nearly 1.1 million. Investors appeared concerned by the continued rise in cases in the U.S. and Europe, and Wednesday brought news of pauses in trials of both Johnson & Johnson’s vaccine and Eli Lilly’s antibody treatment due to possible adverse reactions. On Friday, however, markets appeared to get a lift from news that Pfizer was preparing to seek emergency use authorization (EUA) from the Food and Drug Administration (FDA) for its vaccine as soon as November.
Story #4: Diminishing prospects of a congressional deal
Risk assets were under pressure at midweek as the prospects of a relief package being passed before the election seemed to dim further. On Tuesday, a Republican Senate leader said he was only prepared to bring a USD 500 billion package to a vote—far below the USD 2.2 trillion that House Democrats were demanding. President Donald Trump immediately criticized the Senate package as much too small. On Wednesday, however, Treasury Secretary Steven Mnuchin remarked that he and House Speaker Nancy Pelosi remained far apart on some issues.
Story #5: U.S Retail beat but Industrial production plunged
U.S. retail sales rose by a better-than-expected 1.9% in September. The latest gain marks the fifth consecutive monthly increase—a string that has returned retail sales to pre-pandemic levels and then some. Core retail sales—excluding purchases at auto dealerships, gas stations, home centers, and food services suppliers—rose 1.4% in September, easily reversing a downwardly revised 0.3% drop in August. Meanwhile, U.S. industrial production fell 0.6% in September, snapping a four-month string of gains and posting the weakest result since last spring. The latest result reflected weakness in production of motor vehicles and electronics.
Story #6: U.S Labor pains
The number of people filing new applications for unemployment benefits has remained stubbornly high, despite recent months’ progress in reducing the U.S. unemployment rate. The latest weekly report showed that unemployment claims climbed to a higher-than-expected 898,000, the most since late August. Continuing claims again offered a more hopeful picture, however, falling from a revised 11.2 million to 10.1 million.
Story #7: E.U equity fell, Bund yield at the lowest level since March
The pan-European STOXX Europe 600 Index ended the week 0.78% lower on Brexit-related uncertainty (see below), the dissipating prospects of U.S. fiscal stimulus before the presidential elections and rising coronavirus infections. European governments imposed stricter targeted measures to contain the accelerating spread of the coronavirus. The UK implemented a three-tiered system of localized lockdowns across England and offered business subsidies to the worst-affected areas. France imposed a night-time curfew in Paris and eight other cities, while Germany began to impose restrictions on socializing in areas worst hit by the virus, such as Berlin. In Fixed Income, a rally in German debt pushed yields on these haven securities to the lowest level since the market swoon in March.
Story #8: Brexit on the brink
Prime Minister Boris Johnson said on Friday that the United Kingdom will prepare to leave the European Union’s single market at year end without a Brexit trade agreement in place, in response to Brussels’ demands for more unilateral concessions. However, Johnson kept the door open for more talks, saying he would listen to proposals based on a “fundamental change of approach.” The EU said before the announcement that it was ready to continue talking.
Story #9: China stocks rallied while China’s 10-year yield rose
Chinese stocks rallied after investors returned from the national Golden Week holiday. The Shanghai Composite Index rose 2.0% in its third weekly gain. In fixed income markets, the yield on China’s 10-year sovereign bond yield rose four basis points to 3.25%, as strong September trade data reinforced hopes for a sustained recovery. At a monthly press conference, People’s Bank of China (PBOC) officials appeared to show little appetite for cutting interest rates.
Story #10: U.S 10 Year Treasury yields ended lower on the week
U.S Treasury yields found support at 70 basis points and rose after the retail sales report but decreased through most of the week, driven in part by the Federal Reserve’s purchases of U.S. government debt, concerns surrounding vaccine trials, and softness in key components of the latest U.S consumer price index data.
