The employment figures shower the hopes of monetary inflection. Growth is slowing in Europe and China. The earnings outlook is darkening.
Last week ended on a disappointment. When the Reserve Bank of Australia chose to raise rates by just 25bp last Monday, markets began to hope that central banks were finally considering a change in monetary policy. Published the same day, figures from the JOLTS survey showing a massive drop in job creation in the United States reinforced this thesis, while the United Nations urged central banks to take into account fears of a global recession. But the markets’ hopes were dashed on Friday by the September employment report in the United States. Although some leading indicators have weakened recently, the jobless rate and participation rate reflected a market that was too tight for the Fed to change its monetary policy, suggesting a 75bp hike at its next meeting. We will be watching the CPI numbers released on Thursday.
As European leaders seek to collectively manage the energy crisis, the €200 billion bailout package adopted by Germany is accused of undermining unity and penalizing weaker EU countries (the indices purchasing managers/composite PMI data from Italy and Spain both fell last month, indicating deteriorating economic conditions). However, the implementation of the eighth round of EU sanctions once morest Russia has been better coordinated. These measures were taken during the week of Vladimir Putin’s 70th birthday, which was also marked by the sabotage of the Crimean bridge. Russian retaliation is likely in the coming weeks and the November renewal of the grain deal between Ukraine and Russia is now in jeopardy. At the same time, OPEC+ refused to consider a drop in oil prices despite the decline in demand, deciding to cut its daily production by two million barrels. As some countries did not meet their quota, production will actually be reduced by around 1 million barrels. This decision confirms our objective of 95 dollars/barrel for Brent at the end of 2022.
In China, the Golden Week tourist season turned out to be less active than last year due to covid-related restrictions, resulting in a severe drop in the Caixin China General Services Business Activity PMI index. services). The recent measures taken to improve the liquidity of large real estate developers are nevertheless a step in the right direction.
The Twitter saga might soon come to an end, as Elon Musk has agreed to buy the company at the price originally agreed. Despite the darkening outlook, the S&P500 rose 1.5% over the week. The third-quarter earnings season begins this week with the big banks: Earnings have been revised down, but companies and analysts are expected to further cut their expectations for next year. Our portfolio is underweight equities. We wish our American friends a happy “Columbus Day”.
