Weekly recap
What happened in markets
The Australian sharemarket started the week off strong, before closing lower on Friday, however, still managed to climb 0.8% over the week. Disappointing data out of China was a catalyst for the sell-off on Friday, after stimulus measures were perceived as not enough for China’s struggling economy. As a result, iron ore prices fell and BHP, Rio Tinto and Fortescue Metals all retreated by 3.2%, 2.2% and 0.9% respectively last week. On the other hand, banks were a standout, attributed to positive earnings announcements and rising bond yields, which saw Bank of Queensland (13.8%), Westpac (4.3%) and ANZ (3.5%) all rise. Stronger than expected labour data caused bond yields to climb late in the week, delaying consensus estimates for the Reserve Bank of Australia’s (RBA) first rate cut.
US sharemarkets were positive for the sixth consecutive week, primarily led higher by big tech and bank stocks. The banks were boosted by positive company reports, which kicked-off in earnest last week, Morgan Stanley the standout, increasing 9.0%. We expect that earnings results over the next few weeks will drive sharemarket performance along with any news out of the US political landscape.
Economically, data was mostly positive last week. September retail sales grew 0.4% and jobless claims fell further than expected to 241,000, while the Industrial and Manufacturing Production Indexes both surprised on the downside. While mixed, this data supported the market’s base case for inflation returning to target without a major recession, which kept investor spirits high.
European sharemarkets also shared in the positive performance, gaining for the second week in a row. Sentiment was largely driven by expectations of continued easing in monetary policy, after comments from policymakers moved away from inflation risk to growth risk, following a 0.25% rate cut by the European Central Bank on Thursday. In the UK, headline inflation fell to 1.7%, which is the first time inflation has been below the Bank of England’s target since April 2021. Consumer Discretionary stocks struggled throughout the week, following weak reports from some of the luxury names. Louis Vuitton (-4.4%) reported a 3% fall in sales for the third quarter, while Christian Dior’s (-3.8%) revenue was down by 4%.
Stock & sector movements
What caught our eye
Another week, another strong employment print! This time it was Australia’s turn, following strong data in the US during the previous week.
On Thursday, the Australian Bureau of Statistics (ABS) published the latest labour force data for September. In terms of headline figures, the report showed an increase in the number of employed people of 64,100 in September, compared with expectations for an increase of only 15,000. This remarkably strong result followed an increase of 42,600 employed people in August.
Digging a little deeper reveals that hiring continued at strong pace during September, thanks in large part (~70%) to jobs growth in the non-market or government-funded sectors such as health, education, and public service. Still, there is no evidence that any weakness in private demand growth, as opposed to public demand growth, has led to job losses in any discernible way.
Together with a slight increase in the participation rate, from 67.1% to a record (peacetime) high of 67.2%, the unemployment rate remained unchanged at 4.1% in September, compared with expectations of an increase to 4.3%.
The strength in employment data during August and September came as a surprise to many because it contrasts with the weak growth the economy was able to generate in the June quarter, at just 0.2% in real or inflation-adjusted terms.
In situations like this, we can’t help but wonder, did Michele Bullock, Governor of the Reserve Bank of Australia, know something when she declared the Board does not expect to be in a position to cut rates in the near term, if the economy evolves broadly as anticipated? Perhaps. Or perhaps it was just luck.
One thing we do know for certain is that, much to the disappointment of mortgage-holders across Australia, interest rate markets adjusted following the news, pushing out expectations for the first 0.25% rate cut from February 2025 to April 2025.
From here, the market will carefully scrutinise inflation data for the September quarter, due to be released on 30 October. However, considering the labour market strength in August and September, a rate cut during 2024 is now all but ruled out.
The week ahead
In Australia this week the Purchasing Managers Index (PMI) will show if the manufacturing and services sectors remain at an 8-month low. We will also get a look into the stability of the labour market, though the detailed labour force report on Thursday.
Overseas, China is expected to cut their 5-year loan prime rate by 0.20% today. The US has several economic reports this week including, the manufacturing index, existing and new home sales, PMI and consumer sentiment.
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