2023 – Week 40
Alessandro Hor
Investment Manager | Fund Management | Compliance & AML | Capital Transactions | Asset Management | Risk Management
Markets’ overview:
In the realm of global equity markets, the past week bore witness to a diversified performance across different regions. The United States indexes displayed resilience, charting a positive trajectory. The #S&P500 exhibited a commendable increase of 0.48%, while the #NASDAQ outperformed with an impressive ascent of 1.60%.
However, on the other side of the Atlantic and in the Far East, markets encountered substantial challenges. The #Stoxx600, representing Europe, endured a difficult period, recording a notable decline of -1.18%. Meanwhile, the #Nikkei index in Japan faced adversity yet again, experiencing a significant downturn of 2.61%, rendering it the week's poorest performer amongst our regular market assessments. Not to be outdone, the #HangSeng index in Hong Kong also succumbed to prevailing pessimism, concluding the week with a noteworthy contraction of 1.99%.
Turning our attention to indicators of market sentiment, the #VIX experienced a modest decrease from 17.52 to 17.45, constituting a marginal decline of -0.40%. This movement is attributable to the favorable performance of the S&P500, which temporarily allayed market apprehensions.
Concurrently, the #SKEW index displayed a more pronounced retreat, retreating to 129.36, representing a substantial decline of 3.82%. This index, in its penchant for deviation, has chosen to step back from the limelight.
US
In September, the S&P global manufacturing PMI came in at 49.8, tantalizingly close to the threshold of expansion. In stark contrast, the ISM manufacturing index found itself entrenched in contraction territory for the eleventh consecutive month.
Shifting our focus to the U.S. job market, August witnessed minimal change in the Job Openings and Labor Turnover Survey (JOLTs). Job openings surged to 9.61 million, while the rates of quits and layoffs held steady. The job openings-to-available workers ratio remained unaltered at a 1.5:1 ratio.
The September ADP employment report painted a picture of modest job growth, with just 89,000 positions added, falling short of the expected 160,000. The service sector played a pivotal role in contributing to this tally, as the labor market continued to tread cautiously. In parallel, ISM and PMI data signaled a sustained, albeit dwindling, expansion in the U.S. service sector.
Jobless claims in the U.S. experienced a slight uptick last week, yet lingered near historically low levels. August's U.S. trade deficit was the slimmest since September 2020, fueled by a 1.6% rise in exports, aided by the surge in crude oil and travel, while imports decreased by 0.7%, reflecting weakening demand for consumer electronics and household goods.
Surprisingly, the U.S. job market showcased unexpected resilience in September, defying the odds of rising interest rates, labor disputes, and political discord in Washington. Nonfarm payrolls swelled by 336,000 during the month, surpassing the Dow Jones consensus estimate of 170,000 and exceeding the previous month's figures by more than 100,000. The unemployment rate settled at 3.8%, contrasting with the forecasted 3.7%.
However, the story of wage growth unfolded differently, with average hourly earnings inching up by 0.2% on a monthly basis and 4.2% on a yearly basis. Both figures fell shy of expectations by ten basis points, marking a continuation of the downward trend.
Europe
In the Eurozone, the manufacturing sector continues to grapple with a deep and extensive downturn, as illustrated by a recent survey. This survey, released on Monday, paints a gloomy picture, revealing that demand has been shrinking at a rate rarely witnessed since data collection began in 1997.
The final Eurozone Manufacturing Purchasing Managers' Index (PMI) compiled by HCOB and S&P Global registered a figure of 43.4 in September, a marginal dip from August's 43.5, in line with a preliminary estimate. It's crucial to note that any reading below the 50-point threshold signifies a contraction in economic activity, underscoring the manufacturing sector's challenges in the Eurozone.
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Furthermore, a survey suggests that the Eurozone's economy may have contracted in the preceding quarter. This economic downturn is attributed to a significant decline in demand in September, marking the most rapid decrease in nearly three years. This drop is linked to consumers dealing with debt, adopting a more cautious approach to spending due to rising borrowing costs and heightened prices.
Turning our gaze to the broader economic landscape, the HCOB's final Composite Purchasing Managers' Index (PMI), regarded as a reliable gauge of overall economic well-being, showed a slight improvement, reaching 47.2 in September, up from August's 46.7. While challenges persist, this index hints at a faint glimmer of improvement on the horizon.
Collectively, these economic indicators offer a sobering yet informative view of the ongoing economic difficulties facing the Eurozone.
China
The World Bank has recently adjusted its growth predictions for the developing East Asia and Pacific region, and the reasons behind this revision are quite telling. The World Bank has pointed to several key factors, including a sluggish performance by China and global demand, all amidst the backdrop of persistently high interest rates and subdued trade.
According to the World Bank's October report released in Asia, the growth forecast for developing economies in East Asia and the Pacific for 2023 has been slightly trimmed to 5%, compared to the previous estimate of 5.1% made in April. Looking ahead to 2024, the Washington-based multilateral institution has revised its growth outlook for the region to 4.5%, down from the previous forecast of 4.8% made earlier this year.
In the case of China, the World Bank has maintained its economic growth projection for 2023 at 5.1%, but it has adjusted its expectations for 2024 downward to 4.4%, compared to the earlier projection of 4.8%. This recalibration is attributed to various factors, including "longer-term structural factors," elevated levels of debt within the world's second-largest economy, and vulnerabilities in its property sector, all of which have prompted the revision.
These adjustments in growth forecasts provide valuable insights into the complex economic dynamics at play in the East Asia and Pacific region, offering a sobering assessment of the current challenges and expectations for the future.
The past week marked the celebration of the "Mid-Autumn Festival and National Day," a significant holiday in China known as the "golden week." The President of China Tourism Academy anticipates that this particular "golden week" holiday is poised to be the most bustling and vibrant ever. The institute predicts that the nation will witness a staggering number of over 100 million passenger trips each day during this festive period.
Definition
ADP employment
The ADP Employment Report is a monthly economic indicator published by the Automatic Data Processing, Inc. (ADP). It provides an estimate of the number of nonfarm private sector jobs added or lost in the United States during the previous month, excluding government employment. This report is often considered a precursor to the official government's employment figures, such as the nonfarm payrolls report, which is released by the U.S. Bureau of Labor Statistics. The ADP Employment Report is used to gauge the health of the job market and can influence financial markets and economic decision-making.
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