Market Minute
Weekly analysis from the FS Investments Research team
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October 7, 2024
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Equities
U.S. markets struggled to find direction as stronger-than-expected economic data drove rates and the U.S. dollar higher. Developed markets outside the U.S. felt the brunt of the tightening in financial conditions, with the MSCI EAFE Index declining –3.74%. The surge in Chinese stocks extended into a second week, with the market now up 37% from its recent trough following the announcement of aggressive stimulus measures. In the U.S., rate-sensitive industries such as consumer durables and real estate, that had rallied over the past two months, underperformed.
Fixed income
A blockbuster payroll report sent yields higher across the curve. The 2-year yield surged 34 bps to 3.91%, the biggest one week gain since 2022. Fed rate expectations swung sharply. Markets walked back rate cut hopes of a larger move at the November 7 meeting and now expect only a 25 bps move with 50bps cuts total by end of year. Just three weeks ago, markets were pricing in over 250 bps of rate cuts by end 2025, but in the wake of the upbeat news, that has moved to only 150 bps. The 10-year ended the week at the high of 3.96%, up 35 bps from its low in mid-September.
Commodities
Crude prices surged and the WTI-Brent spread widened meaningfully after Iran attacked Israel directly with around 200 ballistic missiles. While damage was contained, the attack represented a significant escalation in Middle East tensions and raised the prospect of Israel retaliating by targeting Iranian oil infrastructure. Crude will continue to be highly sensitive to developments in the region.
Economic overview
The September jobs report blew past expectations with a 254,000 jobs gain (Cons 150,000) and strong details. The unemployment rate slid to 4.1% and average hourly earnings rose 0.4% m/m. Adding to the strong tone of the report were upward revisions to the prior two months. Other data last week were upbeat, particularly labor-related news. JOLTS job openings surprised with an 8 million reading in August, vs 7.7 mln expected. The ISM business sentiment indicators showed manufacturing still in the doldrums at 47.2 in September, but services sector sentiment improving to 54.9 vs 51.5 previously.
Source: Bloomberg Finance, as of October 4, 2024.