Global stocks rallied sharply over the week, boosted by better-than-expected quarterly earnings reports

UK

The FTSE 100 advanced 2.0% over the week.

UK GDP grew 0.4% in August. The growth was slightly below expectations, and a 0.1% expansion in July was revised to a 0.1% contraction. The IMF warned that the UK would be the hardest hit by the pandemic in the G7, forecasting that the economy would still be three per cent smaller in 2024 than before the crisis.

The odds of the Bank of England soon raising rates are shortening. Markets are pricing a rise to 0.25% in the base rate by December, with a further increase to 0.5% by March next year.

Testing was suspended at one of the UK’s key PCR labs after thousands of people were given the wrong results. Since early September, up to 43,000 people may have been incorrectly told they did not have COVID-19.

The EU offered to scarp most checks on goods entering Northern Ireland from mainland GB, but Lord David Frost, the Brexit minister, insisted that any agreement must remove the European Court of Justice from its role in policing the Brexit deal in Northern Ireland.

US

The S&P 500 rallied 1.6% over the week, while the tech-heavy Nasdaq gained 1.9%, as strong corporate earnings offset concerns over inflation.

President Joe Biden, meanwhile, has secured agreements from large US businesses to extend working hours to try to ease supply chain bottlenecks.

Minutes from the Federal Open Market Committee’s latest meeting, published on Wednesday, showed US policymakers were poised to cut the Federal Reserve’s $120bn of monthly bond purchases.

Headline US consumer prices rose 5.4% year on year in September, up slightly from August’s reading of 5.3% and the same 13-year high reached in July and June.

US retail sales rose 0.7% in September, accelerating speculation that the Federal Reserve would soon withdraw some of its crisis-era support for the world’s largest economy.

Goldman Sachs said it was on-track for record full-year profits, JPMorgan Chase reported a 50% rise in earnings, while Citigroup and Bank of America also posted quarterly earnings that beat analysts’ estimates as US banks released funds from bad loan reserves in a sign of growing confidence in borrowers’ abilities to repay.

Europe

The FTSEurofirst 300 rose 2.7% over the week.

Germany moved closer to a SPD-led coalition with the Greens and liberal Free Democrats.

Eurozone industrial output fell 1.6% over the month of August, taking output back below pre-pandemic levels as supply chain bottlenecks restricted production of many products, raising concerns that the bloc’s economic rebound may run out of steam.

German manufacturing output dropped 4.1% in August as several carmakers were forced to idle production and put thousands of workers back on furlough due to shortages of materials, particularly semiconductors.

Germany’s top economic research institute, the Halle Institute for Economic Research, has cut their growth forecasts for Europe’s largest economy this year to 2.4% from 3.7% due to supply bottlenecks in manufacturing and the lingering impact of the pandemic on services.

French president Emmanuel Macron has outlined a five-year, €30bn investment plan to boost the country’s high-tech industries and reduce dependence on imported raw materials and electronic components such as microchips.

Hungary’s nationalist government has given its full backing to Poland over a confrontation with Brussels over the rule of law, saying Warsaw is the victim of a “political witch-hunt” and that the EU has “no business” interfering in how member states exercise control over their judiciary.

Luxury goods group LVMH said earlier in the week that Chinese demand had held up through a manufacturing slowdown and government crackdown on property speculation.

ArcelorMittal temporarily paused production at some of its plants at peak times as soaring energy costs hit Europe’s largest steelmaker.

Japan

The Nikkei 225 surged 3.6% over the week. Exporters were boosted by the weak yen, which is close to its lowest level against the dollar since November 2018.

Fumio Kishida, Japan’s new prime minister, pledged to move the country away from a focus on deregulation, privatisation and labour market reform as he lambasted his own party’s failure to deliver broad-based growth under the Abenomics programme that defined the economy for almost a decade. Instead, he will focus on narrowing the gap between the rich and poor.

Pacific Basin ex Japan

Chinese producer prices surged 10.7% in September, the fastest increase in 25 years after record coal prices pushed manufacturers’ costs higher.

Chinese utilities shares dropped amid an electricity shortage driven by a lack of adequate coal supplies.

The People’s Bank of China said the spill-over from the Evergrande crisis was controllable – the real estate developer has now missed at least five bond interest payments during the past month.

Taiwan Semiconductor Manufacturing posted a better than expected 14% rise in profits for the third quarter from the same period last year.

Emerging Markets

President Recep Tayyip Erdogan removed two deputy governors at Turkey’s central bank. At least one of them was rumoured to have opposed the central bank’s decision to lower interest rates in September.

Bonds

The yield on the 10-year US Treasury closed the week at 1.57%, a drop of 3bps over the week. The yield on the two-year US Treasury note touched 0.4%, a level last seen in early 2020. The five-year note yield breached 1.1%, its highest level since February last year.

The yield on the 10-year German Bund closed the week at -0.17%, 2bps lower than its yield at the end of the previous week.

Commodities

Brent crude touched a three-year high of almost $85 a barrel. Meanwhile, West Texas Intermediate, the US crude benchmark, hit a high of more than $82 a barrel, its highest level since 2014.

Industrial metals prices rallied amid growing concerns that the global energy crunch would hit production. Copper prices closed the week near a 10-year high, while zinc hit a near 15-year high and aluminium traded at levels last seen during the 2008 financial crisis.

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