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Ahead of the game: 21 October 2024

The S&P 500 and Dow Jones are on track for their best six-week run since 2023, while the ASX 200 reaches new records driven by bank gains.

Stock market Source: Adobe images

US indices set for historic gains

The S&P 500 and the Dow Jones are poised for a sixth week of gains, marking their best run since late 2023. The Nasdaq 100 has been a laggard in recent weeks but could play catch-up next week, with the first of the tech titans, Tesla, set to report.

ASX 200 driven by strong bank performance

Closer to home, the ASX 200 hit a fresh record high, led by the big Australian banks, which have been inspired by the stellar performance of their American counterparts this reporting season. The heavyweight materials sector held onto its recent gains despite ongoing uncertainty around the specifics of China’s fiscal stimulus package.

The week that was: highlights

  • In the US, headline retail sales in September increased by 0.4% month-on-month (MoM), while retail sales excluding autos rose by 0.5% from an upwardly revised 0.2% the previous month
  • The all-important retail control group, which feeds into gross domestic product (GDP), jumped by 0.7% MoM from 0.3% previously
  • Initial jobless claims fell by 19,000 last week to 241,000, well below the 260,000 forecast
  • In Europe, the European Central Bank (ECB) cut the deposit interest rates by 25 basis points (bps) to 3.25%, as expected
  • In the UK, the annual headline inflation rate fell to 1.7% in September from 2.2% prior. The core inflation rate decreased to 3.2% year-on-year (YoY) from 3.6%
  • The Australian economy added 64,100 jobs in September, stronger than the 25,000 gain the market had expected
  • The unemployment rate remained at 4.1%, unchanged from a downwardly revised 4.1%, despite the participation rate increasing to a record high of 67.2%
  • In New Zealand, the inflation rate eased to 2.2% in the September quarter of 2024 from 3.3% in the prior quarter
  • Crude oil fell 7% this week to $70.28 on reports that Israel's response to Iran's 1 October missile attack would not include the targeting of Iran's oil infrastructure
  • Gold gained 1.34% this week, hitting a fresh record high of $2696.00
  • Wall Street's gauge of fear, the Volatility index (VIX), fell to 19.10 from 20.45.

Key dates for the week ahead

Australia & New Zealand

  • AU: Reserve Bank of Australia (RBA) Hauser Speech (Monday, 21 October at 8.45am AEDT)
  • NZ: Balance of Trade (Tuesday, 22 October at 8.45am AEDT)

China & Japan

  • CN: Loan Prime Rate 1-year and 5-year (Monday, 21 October at 12.15pm AEDT)
  • JP: Jibun Flash Purchasing Managers' Indices (PMI) Q3 (Thursday, 24 October at 11.30am AEDT)

United States

  • US: Standard & Poor's (S&P's) Global Flash PMI (Friday, 25 October at 12.45am AEDT)
  • US: Durable Goods (Friday, 25 October at 11.30pm AEDT)
  • US: Michigan Consumer Sentiment (Saturday, 26 October at 1.00am AEDT)

Europe & United Kingdom

  • EA: Hamburg Commercial Bank (HCOB) Flash PMI (Thursday, 24 October at 7.00pm AEDT)
  • UK: S&P's Flash PMI (Thursday, 24 October at 7.30pm AEDT)
Forex Source: Adobe images
Forex Source: Adobe images
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Key events for the week ahead

  • CN

Loan prime rate 1yr and 5yr

Monday, 21 October at 12.15pm AEDT

The People’s Bank of China (PBoC) held its key lending rates steady at the September fixing, with the one-year and five-year loan prime rate (LPR) remaining at 3.35% and 3.85% respectively. However, the PBoC did lower its seven-day reverse repo rate by 0.2%, cut reserve requirement ratios (RRR) by 50 bps, and reduced existing mortgage rates.

China's policy stance is likely to stay accommodative as the country struggles to hit its 5% growth target for 2024, with economic data revealing ongoing weakness. Looking forward, the PBoC has anchored expectations for a 20-25 bp cut to the LPR next week and has reiterated that further RRR reductions might occur by the end of the year.

LPR 1yr and 5yr chart

China loan prime rate chart Source: Refinitiv
China loan prime rate chart Source: Refinitiv
  • EA

HCOB flash PMIs

Thursday, 24 October at 7.00pm AEDT

In September, the HCOB Eurozone Composite PMI was revised higher to 49.60 from 48.90, compared to 51.00 in August, as economic activity in the Eurozone fell into contractionary territory for the first time since February. Within the sub-indices, services slowed (51.40 vs 52.90), and the manufacturing contraction deepened (45.00 vs 45.80).

The slowdown in Europe's economic activity, along with easing inflation, prompted the ECB to cut interest rates by 25 bps this week. The ECB highlighted that the disinflation process "is well on track," with risks leaning towards inflation undershooting targets. The rates market is now fully pricing in another 25 bp cut from the ECB in December, with a 23% probability of a heftier 50 bp cut.

Looking ahead, the preliminary forecast for this month's HCOB Composite PMI in October is for a rise to 50.10.

EA composite PMI chart

EA composite PMI chart Source: TradingEconomics
EA composite PMI chart Source: TradingEconomics
  • US

S&P Global flash PMIs

Friday, 25 October at 12.45am AEDT

Last September, the S&P Global US composite PMI was revised lower to 54.00 from a preliminary reading of 54.40, easing from 54.60 in August. Divergent trends between the two sub-indices persisted, with growth in the service sector (55.20 vs 55.70) while the manufacturing downturn deepened (47.30 vs 47.90).

Looking ahead, the preliminary forecast for the S&P Global US composite PMI in October is for it to remain stable at 54.00. The rates market is pricing in a 90% chance of a 25 bp Federal Reserve (Fed) rate cut for November and has a cumulative 42 bps of rate cuts priced for year-end.

S&P Global flash PMI chart

S&P Global flash PMI chart Source: TradingEconomics
S&P Global flash PMI chart Source: TradingEconomics
  • JP

Tokyo CPI

Friday, 25 October at 10.30pm AEDT

Tokyo's core consumer inflation is often seen as a leading indicator of nationwide trends. It's expected to provide insights into the Bank of Japan’s (BoJ) next steps. In September, Japan's key inflation metric slowed to 2.4% from a previous 2.8% due to government utility subsidies. Yet, it still slightly exceeded the 2.3% consensus forecast.

Inflation has been above the BoJ’s 2% target for the 30th consecutive month. While further policy normalisation seems likely, the timing and extent of additional interest rate hikes are main concerns for the markets. As of today (18 October), there is a 66% probability of a 10 bp rate hike in December. The BoJ was projecting a 2.5% rise in core inflation by March 2025, so any continued inflationary pressures may strengthen the case for more policy normalisation.

Inflation rate chart

Japan's inflation rate chart Source: Refinitiv
Japan's inflation rate chart Source: Refinitiv
  • US

Q3 2024 US earnings

The third quarter (Q3) earnings season continues next week with reports scheduled from companies including Tesla, Lockheed Martin, Coca-Cola, Boeing, and American Airlines.

Q3 2024 US earnings chart Source: Eikon
Q3 2024 US earnings chart Source: Eikon
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This information has been prepared by IG, a trading name of IG Australia Pty Ltd. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.

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