News & Analysis

Weekly Summary: October – The Myth

October 4, 2019

Weekly Summary

October tends to be the most volatile month of the calendar. At the moment, this week’s volatility shows that October is living up to its reputation. Global growth fears have crawled back into the markets as investors digested a slew of disappointing economic data.

US Economic Data

The US economy has remained quite resilient to the global downturn. The Federal Reserve has cut interest rates, but unlike other major central banks, it was mostly viewed as an “insurance” cut due to external risks.

ISM Manufacturing PMI

The factory activity contracted to the lowest level seen in a decade at 47.8 which marks the second consecutive month of contraction. The Manufacturing slump is the latest sign of the impact of trade tensions on the US economy.

Source: Bloomberg Terminal

ISM Non-Manufacturing PMI

The services sector also fell to the lowest level in the past few years. Even though the services sector remains in the expansionary level, the sharp fall from 56.4 to 52.6 shows the slow pace in the face of a global slowdown fuelled by fears of trade tariffs.

Jobs Data

ADP Employment Change

Ahead of the Nonfarm payrolls, the ADP Employment Change came slightly below expectations at 135K. However, the downward revision from 157K to 135K for September shows that the private sector employment is not growing in the US.

Jobless Claims

Another sign of weakness in the labour market was the Jobless Claims report. Initial Jobless Claims rose by 4,000 in the week ended September 28.

Nonfarm Payrolls

The labour market has been a strong spot for the US economy. This week figures are showing that probably the slowdown in the manufacturing sector has spread in the labour market. Nonfarm payrolls will be of utmost importance this week for investors to reassess their expectations from the Fed.

Major currencies were mostly stronger against the US dollar. The Nonfarm payrolls will be key in determining a direction for the greenback.

More Easing

Reserve Bank of Australia (RBA)

The RBA made its third rate cut this week as widely expected. However, the dovish stance from the Governor who expressed concerns about jobs growth and stated that it was reasonable to expect an extended period of low rates was strong an indication that about more rate cuts.

The Federal Reserve (Fed)

The economic data released so far this week have raised expectations of a rate cut this month. The nonfarm payrolls will be closely monitored for more insights on the labour market and the US economy.

Brexit

Across the week, Brexit news was quite positive as the Prime Minister submitted its new plan for Brexit which did not appear to have been rejected at first glance. The new Brexit proposal will see Northern Ireland stay in the European single market for goods, but leave the customs union.

However, as the week comes to an end, the European Leader dubbed the new plan as “unconvincing” while the Irish Prime Minister stated that the deal fell short in a number of aspects. Investors will monitor developments as the UK Prime Minister is expected to attempt to convince Brussels and Ireland on Friday and over the weekend.

Stock Market

The Myth of October saw global equities tumbled at the start of the week. On Thursday, the prospects of further easing policies as investors eyed the deteriorating manufacturing activity, and slowing job growth in the US, investors pushed equities higher which helped major US equity indices to climb higher.

Source: Bloomberg Terminal

Monday, 07 October 2019 Indicative Index Dividends ^{Dividends are in Points}
ASX200	WS30	US500	US2000	NDX100	CAC40	STOXX50
0	0	0.01	0.022	0	0	0
ESP35	ITA40	FTSE100	DAX30	HK50	JP225	INDIA50
0	0	0	0	0	0	0

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