Equities extend rally on prospects of rate cuts

US equities closed higher on Friday due to weaker-than-expected labour and ISM services data.  Nonfarm payroll gains and wage growth for October decreased, while the services sector continued to expand but at a slower rate.  The S&P 500 had a strong week, rising by over 5.5%, led by the real estate sector and small-cap shares.  Government bond yields fell, with the 10-year Treasury yield briefly dropping under 4.50%, its lowest level in nearly six weeks, possibly due to expectations of lower inflation and potential interest cuts by central banks. Elsewhere, European shares also extended gains on Friday, with the Dax and Euro Stoxx 50 both up by over 3.3% for the week. 

Summary for 06.11.2023 

• Asian markets saw a strong rise on Monday, driven by expectations that the Federal Reserve would halt its rate hikes. Technoloy-heavy indices performed well, and South Korea’s Kospi rallied, while Japan’s Nikkei reached a one-month high, with positive data and a dovish Bank of Japan stance. Additionally, Australia’s ASX 200 crossed the 7,000 level, and Chinese shares showed gains in anticipation of key trade and inflation data from China later in the week. 
• European shares are set for a quiet opening as traders consider earnings and the Fed’s rate direction, while US equity futures and Treasuries have stabilised, with the focus on yield movements and the potential for rate cuts. 
• Oil prices rose this morning as Saudi Arabia and Russia pledged to maintain their voluntary oil output cuts until the end of the year, keeping supply tight. Brent crude futures increased by 0.5% to $85.30 a barrel, while US West Texas Intermediate crude was up 0.7% to $81.05 a barrel, with a focus on potential US sanctions on Iranian oil and the demand outlook. 
• Israeli forces have encircled Gaza City, isolating the northern and southern parts of the strip, and conducting attacks on both surface and underground targets. US Secretary of State Antony Blinken made an unexpected visit to Baghdad and held meetings with Palestinian President Mahmoud Abbas in the West Bank as part of efforts to prevent the escalation of the Israel-Hamas conflict. 
• The October payroll report in the US showed a significant slowdown in job growth, with only 150,000 new nonfarm jobs added, well below the previous month’s 297,000.  The unemployment rate also rose from 3.8% to 3.9%, and average hourly earnings increased by 4.1% yoy.  The data aligns with the ADP Employment Survey earlier in the week, suggesting a deceleration in the labour market which could lead to lower future inflation and may prompt the Fed to reconsider rate hikes in favour of potential rate cuts in the future. 
• The US ISM Services PMI for October fell to 51.8, the lowest in five months and below expectations. This suggests a slowdown in the services sector, reflecting mixed sentiment among businesses. Some are optimistic about stability, while other express concerns about inflation, interest rates, and labour-related challenges, such as rising costs and shortages. 
• In September, the Euro Area’s seasonally-adjusted unemployment rate increased to 6.5%, slightly higher than market expectations of 6.4%. Germany had the lowest jobless rate at 3%, while Spain, Italy, and France reported higher rates. Youth unemployment also rose slightly to 14% in September. 
• Telecom Italia’s board on Sunday approved the multibillion euro sale of its domestic fixed-line access grid to US fund KKR, with 11 out of 14 directors voting in favour. The deal, backed by Italy’s Prime Minister Giorgia Meloni, is part of TIM CEO Pietro Labriola’s plan to rejuvenate the company. 
• Block’s shares surged by 16% on Friday to their highest level since mid-September after the company announced a sharpened focus on profitability and a $1 billion share buyback plan. This move, echoing PayPal’s commitment to becoming “leaner” for growth, helped restore investor confidence in the industry. Concerns remain about margin expansion and competition, but the profit forecast and buyback plan were well-received. 
• Expedia’s Q3 results exceeded expectations on Friday with an adjusted EPS of $5.41 and revenue of $3.93 billion, leading to a more than 17% jump in its share price. Additionally, the company announced a new $5 billion share repurchase program. 
• In the US, the week ahead will feature Federal Reserve speeches, the Michigan Consumer Sentiment Index, and earnings reports from major companies. China will focus on inflation rates, new loans, and foreign trade data, while the Reserve Bank of Australia will make a crucial interest rate decision. The UK will release Q3 GDP growth rates, and Germany will provide updates on factory orders and industrial production.