The focus areas during the week included:

Increased geopolitical concerns (including the  Israel/Gaza conflict) and the likelihood of persistently high interest rates in the first half of 2024 in the major developed economies continued to negatively impact global equity markets. In particular, the S&P 500 lost a further -2.4% of its value during the week and is down -6.5% since the beginning of September 2023.

The STOXX Europe 600 Index500 Index fell a substantial 3.4% during the week, given concerns about the outlook for interest rates and fears that conflict in the Middle East could escalate. Equally, Europe China’s equity market  (Shanghai Composite) fell by 3.4% in the week (and is down -2.7% year-to-date) despite a better-than-expected gross domestic product report for Q3 2023. It appears that concerns about China’s property market are outweighing some improvement in the country’s economic data. The JSE All-Share Index fell by a further 3.7% during the week and is down -3.9% year-to-date.

The yield on the 10-year US government bond bond yields rose to almost 5% in intraday trading at the end of the week, reaching its highest level since July 2007. This has pushed up US borrowing costs more broadly. In particular, the 30-year fixed-rate mortgage has increased to 8%, its highest level in 23 years. The recent surge in US long-term bond yields suggests the market has embraced the idea that rates will remain higher for longer, as economic activity is proving to be more resilient than most analysts had predicted.

During the week, the yield on the 10-year Japanese government bond rose to 0.83%, up from 0.76% at the end of the previous week, and its highest level in around 10 years. The Bank of Japan (BoJ) adjusted the parameters of its yield curve control policy in July, effectively allowing yields to rise more freely but capping them at 1%. The BoJ intervened during the week to slow the pace of increase in bond yields, announcing an unscheduled bond-purchase operation.

US Federal Reserve chair Jerome Powell’s speech at the Economic Club of New York on Thursday highlighted that the recent increase in US long-term bond yields may serve as a viable alternative to another Fed rate hike. Specifically, he said “financial conditions have tightened significantly in recent months, and longer-term bond yields have been an important driving factor in this tightening. We remain attentive to these developments because persistent changes in financial conditions can have implications for the path of monetary policy”. However, Powell also indicated that he saw no signs that the current stance of Fed policy would push the economy into a recession. The Fed is “proceeding carefully” on monetary policy decisions while acknowledging that signs of ongoing economic growth could warrant further policy tightening. Overall, the market interpreted his comments to suggest that the FOMC would probably not increase interest rates at the next FOMC meeting on 1 November.

US Richmond Fed President Thomas Barkin told a real estate conference in Washington that he was “still looking to be convinced” that demand was slowing and cooling inflation.

On Tuesday, the US Commerce Department reported that retail sales rose by an impressive 0.7% m/m in September, which was double the consensus expectation. The increase was particularly strong among online retailers, as well as restaurants and bars, indicating continued strength in discretionary spending. Over the past 12 months, sales are up 3.8%, which is roughly in line with consumer inflation.

US weekly jobless claims surprised on the downside again, falling below 200 000 for the first time since January, highlighting the ongoing resilience in the US labour market. However, continuing jobless claims are trending noticeably higher.

US industrial production rose by 0.3% m/m in September, beating market expectations for no increase in the volume of production. However, over the past year production is up only 0.8%, suggesting that the sector is essentially stagnating.

US housing start for September rose more than expected, but building permits, which are a more forward-looking gauge of housing activity, fell by 4.4% in the month, the largest decline in 10 months. In addition, US existing home sales for September fell to their lowest level in more than 10 years.

The US index of leading economic indicators fell for the 18th consecutive month in September, signalling an impending economic recession in 2024. Six of the 10 components of the index declined, two remained unchanged and only two improved.

The US Department of Energy announced the monthly purchase of crude oil totalling six million barrels a month, to be delivered between December 2023 and May 2024. The US government has withdrawn about 200 million barrels of oil from its Strategic Petroleum Reserve (SPR) since early-2022, bringing the reserve to its lowest level in nearly 40 years. This was done to try to offset the high gasoline price that emerged at the onset of the Russia-Ukraine war.

The US Philadelphia Fed Manufacturing Index for October reflected persistent weakness in the region’s factory output, with the index remaining negative -9.

Several European Central Bank (ECB) policymakers, including ECB President Christine Lagarde, Robert Holzmann of Austria, and Yannis Stournaras of Greece, highlighted the upside risk to inflation as a result of the higher oil price, due to the Israel/Gaza conflict. In addition, ECB Chief Economist Philip Lane told a Dutch newspaper that the central bank may need to wait until the middle of 2024 before it can be confident that inflation is returning to the 2% target. Bundesbank President Joachim Nagel echoed Lane’s comments, adding that price pressures remain “too high” in the euro zone, and “upside risks are still pretty present.”

Japan’s headline inflation rate slowed to 3% y/y in September, with the core inflation rate easing to 2.8% y/y, down from 3.1% in August. Despite the moderation, inflation remained above the BoJ’s 2% target for the 18th consecutive month. Consequently, the BoJ is expected to revise up its inflation forecasts at its October policy meeting.

SA’s consumer inflation increased to 5.4% in September, up from 4.8% in August, which was in line with market expectations. The inflation rate was pushed higher by a large increase in the fuel price and higher food prices. On an annual basis, food inflation remains elevated at 8%. More encouragingly, core inflation slowed more than expected to 4.5%.

China’s economic activity picked up some momentum during the third quarter, with GDP growing by 4.9% y/y despite fading base effects. The acceleration was led by improvements in consumption and service sector activity.

Country Garden, which was (at some point) China’s largest property developer, announced that it was unable to meet all its offshore debt payments, despite receiving a 30-day grace period in August. This implies that the company will default on a dollar bond for the first time, highlighting the ongoing difficulties in China’s real estate market. In addition, new home prices in 70 of China’s largest cities fell by 0.3% m/m in September. This is the third consecutive monthly decline in China’s new home prices.