Trading room at Zurich Life Investments Ireland
Markets Update: All eyes on the US
With the US election upcoming it's a case of wait and see what the effects on the investment market will be, writes Ian Slattery.
Global Bonds saw a further sell off this week on the back of stronger economic data, particularly a solid Q3 GDP release from the UK. The market expectations of a US rate hike rose again and now stand at a roughly 75% chance of a move in December as Q3 GDP in the US grew 2.9%; beating the consensus expectation of 2.5%.
The looming rate rise and mixed earnings, in what was the busiest week for Q3 results, weighed on equity sentiment where a positive first half of the week tailed off to turn performance negative for the period.
The US election race took another turn late on Friday as the FBI announced they were reopening the investigation into Hillary Clinton's use of a private email server. Initial polls suggest that the former First Lady's lead has narrowed as a result, but the overall impact of the news, and that of the election result in general on markets, remains to be seen.
The global index slipped just over 1% last week, with most of the major markets down as a stronger euro also weighed on Irish investors. Oil fell back over 4% as expectations of OPEC's ability to agree the finer details of a production agreement faltered. Copper was up 5% over the week and moved into positive territory for the calendar year. Gold was up 0.7% for the week, as silver rose 1.2%.
Bond prices fell as the 10-year US yield (which moves inversely to price) moved from 1.73% to 1.85%. The equivalent German bond yield rose to 0.17%, its highest level since May. Irish 10-year yields closed at 0.62%, maintaining the spread over the German offering at roughly 0.45%.
As mentioned, the euro strengthened against sterling, the dollar, and the yen.
The week ahead
Wednesday 2nd November: As mentioned above, the market sees December as the date for the next US rate hike. Therefore, not much is expected from the November FOMC meeting. However, as always, the tone and sentiment of statements will be closely watched.
Thursday 3rd November: The Bank of England is also expected to leave monetary policy unchanged, with no movement in the interest rate or the 'asset purchase facility' envisaged on the back of stronger than expected economic data over the last few weeks.
Friday 4th November: US non-farm payrolls data for October is released where the consensus is for an increase of 173,000 (September: 156,000) and a small decline in the unemployment rate to 4.9%.