Today’s markets: A big week at the end of a bad month

Stocks are trading higher this morning after a bruising month, with the FTSE 100 adding three-quarters of a per cent and the Dax up more than half a per cent in early trading. October has seen the S&P 500 dip into correction territory – down almost 2.5 per cent last week and more than 10 per cent below its record high. It’s down 4 per cent for October and on track for a third straight monthly decline. Major European indices are down 3-4 per cent for the month so far. Asian indices trade about 2-4 per cent lower. Jamie Dimon is selling JPM stock for the first time – tin hats time.

Fighting in the Middle East continues, and nobody is sure if it is going to escalate – markets are not showing a huge degree of stress this morning: the dollar is steady, oil is down within the range of the last week, and gold is pulling back from Friday’s nudge above $2,000. The 10-year Treasury yield is closer to 4.8 per cent than 5 per cent this morning.

This week we will see who’s going to blink: The Bank of Canada and European Central Bank left rates unchanged last week and the focus shifts to when to cut. The ECB is now seen cutting perhaps in April – for me, this looks a little ambitious. Governing Council member Peter Kažimír said this morning that bets on rate cuts in 1H 2024 were “entirely misplaced”. 

The Bank of England is expected to leave rates on hold at 5.25 per cent again and signal it’s done with tightening for now. It paused the two-year hiking cycle in September and there seems little to recommend changing course for now. It’s scaled Table Mountain and is happy to enjoy the view before descending the cable car. Three hawks who voted for rates to rise last time to 5.5 per cent may still vote this way – and it would be likely that the committee would reiterate forward guidance suggesting it could raise rates again if required. As per the others, it’s now a case of how long the BoE keep rates at these levels rather than how high it goes.

The Federal Reserve is a slam dunk to leave rates unchanged at this week’s meeting. It has left the door open for another hike this year, but markets have firmly priced out the chance it happening this week. There seems to be a bit of uncertainty around Q4 growth and inflation trends remain encouraging – the Fed has already signalled it’s more about how long it leaves rates this restrictive than worrying too much about another hike.

So, the question reverts to ‘when cut?’. The Fed is now seen cutting by June…again this looks to be optimistic. The data would need to see a big deceleration from here to make that probable. The thumping Q3 GDP print is backwards-looking but still shows the underlying fizziness in the economy.

The non-farm payrolls report is the big-ticket item for the dollar on Friday – remember the duration for rates to stay as restrictive is dependent on the labour market. A month ago, the jobs report came in 336,000 higher compared with 170,000 expected: the 33rd month of jobs gains and revisions turned higher after multiple months of downward revisions. Revisions added 119,000 to July and August. Wage growth was the softest monthly increase since Feb ‘22 and the smallest year-over-year gain since June 2021 – good news for the Fed. Since then, few signs of cracks have emerged with weekly unemployment claims hovering at nine-month lows. Jolts job openings are due on Wednesday – these were a good indicator for the non-farms last time.

For more on all the economic news this week, click here

The Trader is written by Neil Wilson, chief market analyst at Finalto