News Recap • Week 40 2024

US markets closed their first positive September since 2019 and capped off a positive quarter despite the big sell-off in early August. This happened in an eventful week on the macroeconomic front where we got key data points out of both the US and the EU.

Furthermore, a potential crisis was averted on the East and Gulf Coasts while the geopolitical situation in the Middle East got even more tense with a significant escalation.

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Markets

• US indices all rose marginally with the S&P 500 leading with a 0.2% gain. The gains were only secured on Friday when all main indices rose between 0.8% and 1.2% on positive nonfarm payrolls numbers. The Nasdaq led the way.
• The European STOXX 600 managed to close higher on Friday but still fell 1.8% for the week as European markets struggled.
• UK’s FTSE 100 declined 0.5% as it continues to base near ATHs.
• Germany’s DAX dropped 1.8% on weak numbers, largely fueled by weak numbers from the auto industry.
• Denmark’s C25 fell another 2.3% for its third straight week of declines.
• Japan’s Nikkei 225 fell 3% but closed well off of intraweek lows after some serious volatility.
• China’s Hang Seng added another 10.2% as the stimulus-fueled optimism continues, now up 32% in three weeks. The CSI 300 rallied 8.5% on Monday for its best day since 2008 before closing for Golden Week in mainland China.
• The VIX jumped 13.3% as Iran launched an attack against Israel.
• The 10-year US treasury jumped 5.7% for its best week since October 2023, fueled by the massive nonfarm payrolls beat on Friday. The 2-year rallied even harder though, vaulting 10.2% for the week to significantly shrink the gap to the 10-year.

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US nonfarm payroll numbers handily beat expectations

The US Nonfarm Payroll Numbers released on Friday were seen as the highlight headed into the week. September was projected to show growth of 150,000 new jobs, up from 142,000 in August. The unemployment rate was expected to remain at 4.2%.

The report beat on all metrics with 254,000 new jobs and unemployment dropping to 4.1%. Furthermore, the job growth was revised upward from 142,000 to 159,000 for August, and 89,000 to 144,000 for July. Hourly wages rose 0.4% for the month and 4% from a year ago, beating estimates of 0.3% and 3.8% respectively.

Increased unemployment and recession have been the main concerns ever since the Fed (and other central banks around the world) began aggressively hiking rates to combat inflation in 2022. The positive data this week significantly eased these fears and indicates that the Fed has indeed managed to create a ‘soft landing’ for the economy.

The strong labor market also reduces the need for further rate cuts though. Fed Chair Jerome Powell already emphasized on Monday that the central bank is not in a hurry to cut rates and Friday’s data underscored this notion. The market is currently expecting a 25 bps cut in November and assigns an 80% chance of another in December.

All in all, the market took it as positive. The Nasdaq rallied 1.2% on Friday while the 10-year treasury yield soared more than 3% on Friday and 5.7% for the week.

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EU inflation drops below target

Eurozone inflation dropped to 1.8% in the latest reading on Tuesday. This was below the long-term 2% target but in line with expectations. Core inflation came in at 2.7%, slightly lower than the forecast of 2.8%. Central banks are typically more focused on core because it excludes the most volatile categories.

Despite core inflation still being above target, the low inflation rate does strengthen the case for another rate cut at the next ECB meeting on October 17. The ECB has already lowered interest rates twice this year with 25 bps cuts in May and September

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East and Gulf Coast ports shut down—and reopened

The dockworkers’ union went on strike on Tuesday, shutting down the US East- and Gulf Coast ports. On Thursday, they agreed with the United States Maritime Alliance to a tentative deal on wages and extended their existing contract through January 15. This provides the two parties with additional time to negotiate a new contract.

Despite the strike only lasting for two days, it already had an impact on supply chains. A longer shutdown could have caused serious supply constraints and been highly inflationary, potentially dealing a major blow to the Fed’s fight against inflation.

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In other news

• Chinese stocks continued to rally on Monday as the CSI 300 jumped 8.5% for its best day since 2008.
• China’s official manufacturing purchasing managers’ index came in at 49.8 for September, beating expectations for 49.5 and the prior months’ reading of 49.1, 49.4, and 49.5. The sub-50 reading means that activity is still contracting, but the data was a positive surprise nonetheless.
• Inflation in Germany dropped to 1.8% in September, lower than the 1.9% forecast. Core inflation was at 2.7%, also lower than the forecasted 2.8%.
• Stellantis issued a profit warning on Monday and plummeted 12.5%.
• AI chip maker, Cerebras, filed for IPO. The company lost $66.6 million in the first half of 2024 on $136.4 million in sales.
• Iran launched more than 200 missiles at Israel on Tuesday. Most were intercepted but some struck their targets. It was considered a big escalation of the conflict and retaliation for Israel killing Hezbollah’s leader. The financial markets reacted accordingly but did normalize as the attack subsided.
• Nike reported earnings after the bell on Tuesday. The company beat on EPS of 70 cents vs 52 cents but fell short on revenue of $11.59 billion vs $11.65 billion expected. At the same time, they withdrew full-year guidance and postponed their investor day scheduled for November. The stock (NKE 3.44%↑) dropped almost 7% on Wednesday.
• VP candidates, J.D. Vance and Tim Walz met for their first debate on Tuesday. Most commentators seemed to agree that Vance was the clear winner, although polls showed a very close call.
• Private payrolls in the US grew by 143,000 in September, beating expectations of 128,000 and the 103,000 created in August. All of the growth came from companies with more than 50 employees.
• OpenAI closed a $6.6 billion funding round at a $157 billion valuation, the largest VC round of all time. The round was led by Thrive Capital with participation from Microsoft, Nvidia, SoftBank, and others. The company expects to bring in $11.6 billion in sales next year, up from $3.7 billion in 2024, thus trading at 13.5 times next year’s revenue. OpenAI still expects to lose $5 billion this year as they invest in GPUs to train and run their LLMs. The company followed up Thursday with a $4 billion revolving credit line, providing $10 billion in liquidity.
• Tesla’s Q3 delivery numbers came out more or less in line with expectations as the company delivered 462,890 vehicles versus 463,310 expected (TSLA 1.50%↑).
• Japan PM Ishiba said on Thursday that the country is not ready for another rate hike. The statement came after he met with Bank of Japan Governor, Kazuo Ueda, on Wednesday. The Nikkei 225 jumped 2% on Thursday while the Japanese yen declined 2% against the US dollar.
• Mark Zuckerberg passed Jeff Bezos to become the world’s 2nd richest person on Friday. The flip is largely fueled by Meta stock’s 74% rally this year (META 0.58%↑) vs Amazon’s 24% (AMZN 3.57%↑).