The Davy Digest - 7th October 2024

Last week was mixed in markets amidst rising geopolitical tensions and positive macroeconomic data. In the US, there were several data points relating to ongoing health in the labour market, including the Job Openings and Labor Turnover Survey (JOLTS), ADP’s employment report, and Challenger’s job cuts data. Friday’s Nonfarm Payrolls data and employment report were the most important of these however, and both surprised positively, with the unemployment rate falling to 4.1% along with an above-consensus 254,000 jobs added in September. This pushed equity markets and US Treasury yields higher on Friday afternoon. In Europe, a preliminary inflation print for September came in lower than expected at 1.8%, compounding upon hopes of another rate cut at the European Central Bank’s October meeting. In the United Kingdom, Q2 Gross Domestic Product was revised to 0.5%, slightly lower than previously thought. In Asia, Chinese markets were closed for their Golden Week holiday after experiencing a strong rebound in recent weeks. Elsewhere in the market, oil shifted higher over the week, increasing the risks of renewed inflationary pressures across the globe.

Last week's highlights

	ISM Manufacturing (01/10) and Services (03/10) – Manufacturing: 47.2 vs 47.5 expected. Services: 54.9 vs 51.7 expected.  Labour Data (04/10) – Nonfarm Payrolls increased to 254k (vs 150k expected). Unemployment rate fell to 4.1%.
	Preliminary Eurozone HICP Inflation (01/10) – 1.8% year-on-year (vs 1.9% expected). ECB expected to cut rates in October as inflation eases. Eurozone Producer Price Index (04/10) – Fell 2.3% year-on-year, in line with consensus.
	Q2 GDP Revision (30/09) – UK GDP grew 0.5% in April to June period, slightly less than previously thought.
	China Caixin PMIs (30/09) – Caixin manufacturing PMI fell to 49.3 in September vs 50.5 expected. Services PMI also fell to 50.3 in September from 51.6 in August.  Japan Industrial Production (30/09) – Fell 3.3% in August from previous month, driven by typhoon-led disruptions in motor vehicle production and weak US sales.

Next week, we will get further clarity around the economic picture in the US, with the release of September’s inflation data alongside minutes from the most recent Federal Reserve meeting. German inflation and industrial production data for last month will be released, amidst signs of an ongoing slowdown there. In addition to this we will get aggregate retail sales data for the Eurozone. In China, a panel of senior officials will hold a press conference on the implementation of stimulus policies on Tuesday. Elsewhere, the central banks of New Zealand, India, and Korea all have meetings over the week.

What's on the radar

	FOMC Minutes (09/10) US Inflation (CPI) (10/10)
	Eurozone Retail Sales (07/10) German Industrial Production (08/10) German HICP Inflation (11/10)
	BoE Monetary Policy Report Hearings (10/10)
	Japan Labour Cash Earnings (07/10) Central Bank Meetings: India, Korea and NZ

Chart of the moment

Cutting It Close (To All-Time Highs)

Source: Davy, DataStream as of 26/09/2024. Total Return Index used.

• With disinflationary trends continuing and the labour market showing signs of moderation, the Federal Reserve delivered a 50 basis point cut at their September meeting.
• In the last 40 years, this was the 12th time they had cut interest rates while the S&P 500 was within 1% of all-time highs.
• In each of these cases, the index finished higher a year later with a median return of 14.0% over the period.
• The Fed kicked off this new easing cycle despite robust economic growth and strong performance in equity markets through the first three quarters of the year.
• Since 1984, six of the S&P 500’s best ten years have occurred when the Fed was cutting rates and the US avoided recession.