Last week US equities broadly retraced over half of the previous week’s losses with the S&P 500 closing up 2.4% at 2,723; US 10-year Treasury yields rose nearly 14 basis points to 3.21; but Emerging Markets were the most obvious winners with the MSCI EM Index up 6.1% on the week, breaking the run of five consecutive negative weeks’ of performance.
Last week began with results from elections in Brazil where far-right candidate Jair Bolsonaro was voted in as the next Brazilian President securing 55.1% of the vote. The US began the week with more warnings from Trump of further tariffs for China but ended on a more positive tone. The middle of last week marked the end of what was the worst performing month for global equities in over six years with the MSCI EM index down almost -9% and the S&P 500 down almost -7%.
The week closed out with October non-farm payroll release showing 250,000 jobs added which was above expectations of 200,000 jobs created, although the previous month’s figure was revised down by 16,000 to 118,000 from 134,000. The unemployment rate held at 3.7% and the participation rate rose marginally to 62.9% from 62.7%. But the standout news was the 3.1% yoy surge in average hourly earnings, which is the largest annual jump in pay since 2009 (when it was as high as 3.6% just before slumping to under 2% for most of the next three years). The large rise in wages was in-line with forecasts, which had expected October’s figure to beat the previous month’s year-on-year rise of 2.8%. This along with earlier comments from Trump that trade talks with China “went well” is what pushed Treasury yields back up; however further equities gains on this news failed to hold after already strong performance earlier in the week.
This week US midterm election on Tuesday might see Democrats retake the House which would create a hurdle to further tax reform and de-regulation. Also, on Thursday the FOMC meet to decide on rates, but are unlikely to blindside markets with a fourth hike before the December’s meeting: which is when 75% of forecasts expect the next rate rise. Back in Europe hopes have again resurfaced for an imminent breakthrough for the elusive Brexit negotiations. On the economic calendar ahead we have US ISM on Monday along with UK’s services PMI; euro-area services PMIs on Tuesday; EIA crude oil inventories, German industrial production and China’s FX reserve data on Wednesday; along with the FOMC rate decision on Thursday the BOJ will publish notes from their last policy meeting and the European Commission also release their quarterly economic forecasts; and UK publish industrial production and third quarter GDP estimates on Friday.