US
In a week filled with notable economic developments, the U.S. labor market took center stage, delivering a surprise that caught many by surprise. The September job growth surpassed expectations, demonstrating the resilience of the U.S. economy in the face of challenges such as rising interest rates, labor disputes, and political discord in Washington. The Labor Department's report revealed that nonfarm payrolls expanded by a remarkable 336,000 jobs, well above the Dow Jones consensus estimate of 170,000 and a significant improvement over the previous month. Although the unemployment rate slightly exceeded forecasts at 3.8%, the market initially responded with caution. However, as the day progressed, U.S. stocks rebounded, with the S&P 500 and Nasdaq indices ultimately closing up 1.18% and 1.60%, respectively.
This robust job market performance continues to astound, with job creation nearly doubling expectations. Investors have been closely monitoring this trend, as a strong economy may compel the Federal Reserve to maintain or even increase interest rates to combat persistent inflation. Treasury Secretary Janet Yellen expressed her optimism about the U.S. economy, citing a decline in short-term inflation and an "extremely strong" labor market.
Beyond the job market, we've been closely tracking the oil market's recent shifts. Brent Crude, the global benchmark, experienced a significant decline to around $84 per barrel, marking a more than 10% drop in just over a week. This downturn followed a peak in global crude prices near $100 per barrel on September 27th. Notably, supply cuts are no longer sufficient to boost prices, as dwindling oil demand across the world has become a pressing concern. Factors such as China's economic challenges and Europe's precarious economic situation since the Ukraine crisis have contributed to this decline in energy demand.
Mexico
Mexico's economic landscape is currently experiencing a robust and widespread expansion, as indicated by the International Monetary Fund (IMF). With an anticipated growth rate of 3.2% in 2023, driven by strong private consumption and investment, key sectors such as services, construction, and auto production are displaying noteworthy strength. This economic vigor has resulted in record-low unemployment rates and record-high manufacturing capacity utilization rates. Moreover, Mexico's fiscal authorities have admirably managed to keep public debt under control, while monetary policy is judiciously focused on curbing inflation. The IMF has revised its growth projection for Mexico in 2023, increasing it from the previous estimate of 2.6%.
However, the Mexican Peso (MXN) faced challenges during the week, with Friday marking the fourth session of losses against the US Dollar (USD). Despite the overall weakness in the USD, news from Mexico exerted downward pressure on the emerging market currency. The MXN concluded the week at 18.26, and it appears poised to test the significant psychological threshold of 18.50 in the near future.
Mexico's primary stock index experienced its most significant daily decline since January 2021 on Thursday. This drop was attributed to a substantial sell-off in the country's leading airport operators due to changes in tariff base regulations, which raised concerns among analysts about potential sectoral impacts. The S&P/BMV IPC stock index in Mexico ended more than 2.5% lower, marking the largest daily decline in nearly three years and reaching its lowest close in nine months. Despite a late-week rally that mirrored the U.S. on Friday, Mexican stock markets struggled, with the S&P/BMV IPC closing the week down 2.38%.
Europe
The United Kingdom is facing a notable challenge in the form of rising yields on its treasury bonds. Yields on ten-year bonds have climbed to approximately 4.6%, while 30-year bonds have reached 5.1%, marking their highest levels since 1998. These yields play a critical role as banks use them as a benchmark to determine commercial loan rates, which means that borrowing costs are on the rise for both businesses and the government. Furthermore, the yields on two-year and five-year treasury bonds, which influence mortgage rates, have surged beyond the previous high set due to budgetary reasons last year, reaching levels not witnessed in over a decade. This situation raises concerns about the increasing financial burden on borrowers in the UK.
The decision by Prime Minister Rishi Sunak to suspend the High-Speed Two (HS2) project due to soaring costs underscores a broader trend of economic challenges in the UK. It highlights a painful reality: the country appears to be constrained in its ability to invest significantly in major projects, in contrast to the capabilities demonstrated by countries like Germany, France, Italy, and even further afield in China and Japan.
On continental europe, the German economy faces headwinds, with an expected contraction of 0.4% in 2023 attributed to factors such as high inflation, elevated energy prices, and weak international trade. This is a departure from earlier forecasts by the government in April, which had projected a growth rate of 0.4% for the same year. Meanwhile, Spain's economic performance has exhibited resilience against interest rate hikes and inflation, with an upward revision of its quarterly growth figures for 2020-22. This makes it a standout performer among its euro zone peers. However, the overall euro zone economy faces challenges, with a potential contraction in the last quarter due to declining demand, driven by consumers reining in spending amid rising borrowing costs and higher prices.
Asia
This week, Asian markets presented a mixed picture as investors closely monitored economic data releases from key players in the region, namely China and Japan. Despite the diverseness in market performances, a prevailing positive sentiment was observed, largely attributed to the avoidance of a U.S. government shutdown.
China experienced a notable surge in travel activity during the recent "super golden week" holiday, a sign of recovering consumer confidence. The Ministry of Transport reported a remarkable increase in the number of passengers, with 458 million individuals traveling by various means during the eight-day holiday. This marked a substantial 57.1% rise compared to the previous year, when stringent Covid-19 measures were still in effect. Notably, this holiday was unique as it combined the National Day celebration with the Mid-Autumn Festival, resulting in an extended eight-day break. However, despite the resurgence in travel, experts caution that the Chinese economy still bears the scars of the Covid-19 pandemic, with low-income groups continuing to face economic challenges. Chinese markets were closed during this period due to the Golden Week holiday, with South Korean and Hong Kong stock markets also closed for holidays.
Meanwhile, Japan encountered a concerning economic development as its factory activity experienced the sharpest decline in seven months during September. The final au Jibun Bank Japan manufacturing purchasing managers' index (PMI) fell to 48.5 in September, down from 49.6 in August and roughly in line with expectations. This contraction in factory activity raises questions about Japan's economic trajectory, and it's a noteworthy development that investors are keeping a close eye on.
[Disclaimer: The information provided in this blog post is for educational and informational purposes only and should not be construed as financial advice. Consult with a qualified financial professional before making any investment decisions.]
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