Emerging markets outpace developed markets and bonds
It was a challenging week for financial markets with both developed market equities and bonds struggling. However, emerging markets (+2.8%) received a big shot in the arm after the stimulus package from the Chinese Govt and PBOC continued to drive Asian equities higher. The performance of EME was also supported by weakness in the A$ (-1.6%), which came off its highs as support for the US$ rebounded as the World’s safe haven currency as events in the Middle East took another turn with increased fighting between Israel and Hezbollah in Lebanon along with further drone attacks by Iran into Israel. The resulting conflict saw oil rebound strongly (+8.5%) over the week, as concerns that Israel could strike at Iran’s oil refineries increased. While the US has pressed Israel to avoid directly targeting Iran’s oil industry this cannot be ruled out should the conflict continue to worsen.
Stronger than expected figures out of the US and a clear path forward for the Fed
In the US, the major news of the week was the stronger than f’cst jobs opening report (JOLTS), which saw an increase of 8.0mn job openings, ~400k more than market estimates. In addition, US non-farm payrolls were up 254k, ~100k higher than f’cst, which saw the US (Sep) Un rate dip by 0.1% (to 4.1%). The ongoing strength in the US labour market continues to propel the economy, and while (ISM) manufacturing activity remains muted, the service sectors of the US economy continue to expand. While the geopolitical environment remains highly fraught, with the Fed now on the path to reducing cash rates we continue to see positive momentum out of the US over the medium term, which we also expect will flow through into other markets. This week will see the market focus on CPI data (Sept), with f’cst uplift +0.1% m/m, and 2.3% y/y (-0.2% pcp). With US CPI heading well towards the Fed’s 2.0% target band we expect one further rate cut (-0.25%) in CY24. This is despite the overall strength in the US labour figures.
Australian consumer confidence figures out this week
Domestically, we have both Westpac and NAB’s consumer confidence and business surveys this week. With the RBA remaining firm in making no change to the cash rate at its last meeting, these data points will be closely watched as we head into the last quarter of the year and the beginning of Xmas festivities. We expect a subdued domestic outlook given the overall declines in household spending over the last 12 months.
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