On Wednesday the Fed once again held interest rates steady, and while it did not rule out future rate hikes, investors found comfort in comments where the central bank acknowledged that the recent rise in long-term Treasury yields was helping tighten financial conditions. Then on Friday, non-farm payrolls eased more than expected, coming in at 150,000 jobs in October, while the unemployment rate ticked up to 3.9% and wage growth also eased. At the end of the week federal fund futures were pricing in a 95% chance that the Fed will remain on hold at its next meeting in December, according to CME Group.
The S&P 500 added 5.9% for the week, having only the prior week slipped into correction territory. This was its best weekly performance since November 2022. The Dow Jones Industrial Average was up 5.1% and the Nasdaq Composite rose 6.6%. Stocks also benefitted from the pullback in Treasury yields. For the week the yield on the 10-year note ended at 4.557% from 4.846% the prior week, seeing its largest weekly decline since March. Yields were pushed lower after the US Treasury announced smaller than expected increases to longer-term debt auctions.
European equities also rallied on hopes that interest rates have peaked, while government bond yields declined. For the week the pan-European STOXX 600 added 3.4%, in its best week since March. The real estate sector was one of the best performers, given interest rate sensitivity, up over 12% in its best week since 2008. Meanwhile energy was the only sector to log a loss, as oil prices slid on supply concerns owing to the conflict in Israel. Both the Bank of England and Norges Bank held their interest rates steady at their meetings.
The Bank of Japan remains the notable outlier amongst major central banks, maintaining its ultra-loose monetary policy, leaving its short-term lending rate at -0.1% at its meeting on Tuesday. However, it did announce a tweak to its yield curve control policy, and will treat the 1% ceiling for the 10-year Japanese government bond as a reference rather than a hard barrier. This lifted market sentiment and the Nikkei 225 added 3.1% in a holiday shortened week while the yen remained weaker against the US dollar. The Japanese government also unveiled a new $110bn stimulus package to try and boost the economy. Gains in China were more muted than elsewhere, but the Shanghai Composite still logged a 0.4% gain. Manufacturing PMIs painted a worrying picture for the economic rebound with both the official and Caixin readings falling into contractionary territory.
The value of your investment can fall as well as rise in value, and the income derived from it may fluctuate. You might get back less than you invest. Currency exchange rate fluctuations can also have a positive and negative affect on your investments. Please note that EFG Harris Allday does not provide tax advice. Past performance is not a reliable indicator of future performance.
This document has been produced by the EFG Harris Allday research team utilising data from documents produced by EFG Asset Management (UK) Limited for use by the EFG group and the worldwide subsidiaries and affiliates within the EFG group. EFG Asset Management (UK) Limited is authorised and regulated by the UK Financial Conduct Authority, registered no. 7389746. Registered address: EFG Asset Management (UK) Limited, Park House, 116 Park Street, London W1K 6AP, United Kingdom, telephone +44 (0)20 7491 9111.