Market Briefing: 21st October

Last week was another good one for stock markets, with global stocks rising by about 0.8% and the UK share market by about 1.3%. Market gains were powered by strong earnings numbers from US companies (notably the Banks and Netflix), a lower-than-expected inflation rate in the UK and another signal confirming that interest rates are headed lower, as the European Central Bank cut rates. This week is quiet in terms of economic data but there’s a decent amount of corporate activity both in the US and the UK.

Last week

• Global stock markets rose by about 0.8%.
• US corporate earnings came in strong.
• UK inflation came in at 1.7%, which combined with strong retail sales numbers to give UK stock markets a boost.
• The European Central Bank cut interest rates.
• UK bonds rallied on the back of the lower-than-expected inflation rate.

This week

• Corporate earnings are likely to be the main focus for markets this week, with c20% of the US index reporting and also a smattering of UK names.
• In the US, we have Tesla reporting on Wednesday, along with Boeing and IGM and then Intel on Thursday (amongst others).
• Several of the UK banks report next week too, with Lloyds reporting on Wednesday, Barclays on Thursday and Natwest on Friday.
• It is fairly quiet in terms of economic data early in the week, with PMIs due out towards the end of the week (Thursday for the UK, US, Japan and Germany).

Equity returns are in GBP, Oil is in USD. Gold is shown in GBP. Bond returns are all shown in GBP. Source Bloomberg.

More detail:

• Global stock markets rose by 0.8% last week and closed out the week at a fresh all-time high. Within the global index, the best returns came from Financials and Utilities as strong earnings numbers came through. There were also some good gains for the technology sector, as strong results from Netflix and Taiwan Semiconductor filtered through across this part of the market.
• UK share markets also had a good week, with the FTSE All Share rising by 1.3%. Digging into the detail, the best returns came from the domestically focused FTSE 250, which rose by about 1.9%, whilst the larger companies in the FTSE 100 rose by about 1.3%. A key driver in the move higher for UK stocks was likely the lower inflation number that we saw on Wednesday. CPI came in at 1.7% (lower than the 1.9% which had been expected), which helped boost the odds of interest rate cuts. Bond futures markets moved to price in 6 interest rate cuts by the end of next year which would take the base rate to 3.5%.
• It is early days in the US corporate reporting season (only 14% of companies have reported), but the numbers, so far, have been encouraging. The big features of this quarter’s earnings season are likely to be big technology companies needing to jump over a fairly lofty bar of expectations, with near enough all other companies needing to jump over a very low (often negative!) bar of earnings expectations.
• Last week saw a handful of the big banks report, with Bank of America, Citigroup, Morgan Stanley and Goldman Sachs all strongly beating on their earnings numbers and beating (less strongly in some cases, but still beating) on their revenue numbers.
• At the other end of the scale (with the Banks tending to be the amongst the cheaper companies within the index), Netflix posted very strong numbers on Thursday night which jumped over the high bar of expectations and helped to lift the technology sector higher on Friday. Netflix added 5.1 million new subscribers in the 3^rd quarter (much higher than the 4.5 million that analysts had been expecting). This brings its total subscriber count to 282.7 million and is remarkable in so far as they’ve added 22 million subscribers this year: the most since 2020 (when large swathes of us were sat at home watching Netflix!). The resultant earnings growth and revenue numbers were better than expected. Semi-conductor manufacturer, Taiwan Semiconductor Manufacturing (“TSMC”), also posted very strong numbers (with year-on-year earnings growth of 51%), which helped signal continued strong demand for investment in Artificial Intelligence; which fed through positively across the rest of the technology sector.
• The European Central Bank cut interest rates to 3.25%. This was their first back-to-back reduction in 13 years. President Lagarde said the disinflationary process was “well on track” and this was confirmed by the European Commissions annual inflation rate which came in at 1.7%; well below the ECB’s target of 2%.
• UK inflation came in at 1.7%, with services inflation (helped largely by air fares) dropping below 5% to 4.9%. Other UK data was strong last week. House prices continued to tick higher as did Retail Sales. The UK inflation number is now the lowest since April 2021 and a long way below the 11.1% that we clocked up in October 2022.
• Bond markets were a mixed bag. UK Government bonds did well (as more interest rate cuts got priced in due to the lower inflation number), whilst global bonds were flat due to decent US economic data. UK 10-year bonds closed out the week yielding 4.05%.

The value of investments and the income from them can go down as well as up and you could get back less than you invested. Past performance is not a reliable indicator of future performance.

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