Equity markets finished the week on a high note on Friday, as US markets rallied after forecast-beating non-farm payrolls and unemployment data. The creation of more than 250,000 new jobs in September and a drop in the unemployment rate could have been double-edged swords, as the stronger the US economy is, the less the US Federal Reserve needs to cut interest rates. In fact, Friday’s numbers were so good that some commentators questioned whether September’s 50-basis-point cut was necessary.
However, equity markets looked through the issue and took comfort from the US economy’s ongoing strength. The S&P 500 added 0.9% on the day, the Nasdaq 100 1.2% and the Dow Jones 0.8%. The Italian MIB was up by 1.3%, the DAX added 1% and the CAC 40 put on 0.9%. Despite these gains, major European indices finished down on the week, such as the Euro Stoxx 50 losing 2.2% over the previous five trading days.
At a sector level, the S&P 500 financials sector was Friday’s best performer, up by 1.64%. The sector was driven by gains at banks and credit card providers, who typically enjoy better margins when interest rates are higher or not falling. The banks kick off Q3 earnings season later this week, which will show if these gains were justified. Real estate was the biggest loser on Friday among the S&P sectors down by 0.65%. The sector has rallied by more than 14% over the last six months on hopes of lower rates in the US, so Friday’s data gave traders pause for thought.
In Europe, travel and leisure, basic resources and banks were Friday’s best-performing sectors. The banking sector benefited from comments by the EU’s banking commissioner indicating that she was in favour of cross-border mergers in the sector, boosting UniCredit’s chances of acquiring Commerzbank in the minds of traders.
Crude oil is trading modestly lower in Europe this morning, though WTI and Brent boasted 8% gains over the last week. Gold is marginally lower, silver has lost just over 1% this morning, and copper is flat on the day. On the foreign exchanges the yen has weakened and fallen back to ¥148.46 versus the US dollar, with the greenback adding 3% against the yen in the last week. The dollar index is testing back towards 102.50, though for now at least GBP/USD and EUR/USD are both largely unchanged this morning. US 10-year bond yields are edging ever closer to 4%, while US 10-year yields rose by 0.2% last week.
UK house prices rose for the third time in a row over September to reach their highest rates since November 2022, according to the Halifax house price index released this morning, with average property prices in the UK now standing at just under £293,400. The data could influence the Bank of England’s (BoE) views on rate cuts, as lenders have reduced mortgage rates and raised lending multiples in recent weeks. The BoE’s monetary policy committee now needs to consider if aggressive rate cuts could stoke a return of inflation in the UK.
