Galt&Taggart published Global Markets Weekly Update.
USA
MARKET OVERVIEW
The major stock indexes flipped early losses into an afternoon rally Friday after the U.S. jobs report showed a stronger than expected labor market alongside slowing wage gains. Employers added 336,000 jobs in September, the strongest gain since January and up sharply from the previous month's upwardly revised 227,000 gain. Prices of stocks and bonds initially fell sharply on the news, but both markets rebounded, as the increase in average hourly earnings was modest and job gains may have been distorted by seasonal adjustments. U.S. Treasury yields dropped from session highs but still ended higher for the week, with the benchmark 10-year note jumping 20 basis points to 4.78% and the 30-year yield climbing 24 basis points to 4.94%, the highest level since September 2007. Friday's big stock market move secured weekly gains for the major indexes, with the S&P 500 snapping a four-week losing streak to finish 0.5% higher, while the Dow Jones edged up 0.3% and the Nasdaq Composite gained 1.6%.
EXXON TO ACQUIRE PIONEER NATURAL RESOURCES
Shares of Pioneer Natural Resources (PXD) surged by 10.5% on Friday, becoming the top-performing stock in the S&P 500, driven by reports of Exxon Mobil (XOM) being in advanced discussions to acquire the shale drilling company for a reported $60 billion. If the deal goes through, it would mark Exxon Mobil's largest acquisition since its purchase of Mobil Oil for $81 billion in 1999. While reports suggest a potential agreement could be reached in the coming days, there remains uncertainty as to whether both parties will finalize the deal. This acquisition would enable Exxon Mobil to bolster its presence in the Permian Basin, the most prolific oil-producing region in the Western Hemisphere, with Pioneer ranking as the third-largest producer in this region, trailing behind Chevron and ConocoPhillips. The news of this potential acquisition drove Pioneer Natural Resources' shares into positive territory for the year, while Exxon Mobil saw a 1.7% decline in its share price on Friday. The deal reflects Exxon Mobil's strategic move to expand its operations and assets in the Permian Basin, a critical region for oil production, as it seeks to position itself for long-term growth and competitiveness in the energy sector.
WEIGHT-LOSS DRUGS IMPACT COCA-COLA AND PEPSICO SHARES
Shares of beverage giants Coca-Cola (KO) Co. and PepsiCo (PEP) Inc. experienced a significant drop during the week, with declines of 5% and 5.3% respectively. The fall is attributed to the rising consumer usage of weight-loss medications such as Novo Nordisk's Ozempic, and Eli Lilly’s Mounjaro, according to John Furner, U.S. CEO of Walmart (NYSE:WMT) Inc. He noted a marked decrease in the purchase of high-calorie groceries by customers using these drugs, which has led to an overall reduction in shopping basket sizes. Analysts at Morgan Stanley have predicted that this trend will prompt substantial shifts in the food and beverage industry, requiring product modifications to cater to evolving consumer preferences. The weight-loss medications mimic the effects of GLP-1, a gut hormone that regulates blood sugar levels and suppresses appetite. Meanwhile shares of Novo Nordisk and Eli Lilly are up more than 37% and 54% year to date.
RIVIAN DISAPPOINTS WITH GUIDANCE AND FRESH FUND RAISE
Rivian issued disappointing guidance late Wednesday and announced plans to raise more funds just days after the electric truck maker said it had delivered more units than expected in the third quarter. The stock was falling in early premarket trading. After the market had closed, Rivian said sales in the current quarter would be slightly lower than analysts estimated. It also said it would issue $1.5 billion in convertible notes—debt that can be turned into shares, which has the potential to dilute the holdings of current owners. Rivian’s vehicles are tempting for American buyers of electric-powered pickup trucks that handle like sports cars. But they sell at about $80,000 on average, and developing them is expensive. The company is burning through cash—it sold trucks at an average loss of $33,000 in the second quarter. The stock has dropped more than 20% during the week. It has depleted about half of its $18 billion cash pile. Shares are down some 70% since it raised $12 billion in a 2021 initial public offering.
Europe
Economic data signal eurozone economy struggled in third quarter
In local currency terms, the pan-European STOXX Europe 600 Index ended 1.18% lower as bond yields surged amid worries about an extended period of higher interest rates. Major stock indexes also fell. Italy’s FTSE MIB dropped 1.53%, Germany’s DAX declined 1.02%, and France’s CAC 40 Index lost 1.05%. The UK’s FTSE 100 Index slid 1.49%.
After a volatile week in European bond markets, the yield on Germany’s 10-year government bond slipped back below 3% but remained near a decade-plus high. French and Italian bond yields ticked up amid cautious sentiment. In the UK, the yield on the benchmark 10-year UK government bond held near its highest levels since August 2008 on signs of sticky inflationary pressures.
Both official and private-sector data suggested that the eurozone economy likely stumbled in the third quarter. The final Composite Purchasing Managers’ Index (PMI) compiled by S&P Global came in at 47.2 in September, marking a fourth consecutive monthly contraction. (PMI readings less than 50 correspond with shrinking business output.)
The EU’s statistics office reported that eurozone retail sales fell more than expected in August, declining 1.2% sequentially due to a sharp drop in gasoline, mail orders, and internet shopping.
German industrial orders rebound; exports fall for second month
On a month-over-month basis, German industrial orders in August bounced back by a seasonally and calendar-adjusted 3.9%, after dropping 11.7% in July. Strong increases in computing, electronic, and optical products drove the gain. Meanwhile, exports fell 1.2% sequentially in August, substantially more than forecast, following a 1.9% decline the previous month due to weak global demand.
UK house prices, construction activity weaken
House prices in the UK fell for the sixth month running in September, easing 0.4% sequentially, mortgage lender Halifax said. Another mortgage lender, Nationwide Building Society, estimated that house prices were unchanged last month after a 0.8% reduction in August. Both indexes declined the most year over year since 2009.
Meanwhile, a rapid slide in homebuilding caused activity in the construction industry to fall at the fastest pace in more than three years in September, an S&P Global/CIPS survey of construction purchasing managers showed.
UK house prices, construction activity weaken
House prices in the UK fell for the sixth month running in September, easing 0.4% sequentially, mortgage lender Halifax said. Another mortgage lender, Nationwide Building Society, estimated that house prices were unchanged last month after a 0.8% reduction in August. Both indexes declined the most year over year since 2009.
Meanwhile, a rapid slide in homebuilding caused activity in the construction industry to fall at the fastest pace in more than three years in September, an S&P Global/CIPS survey of construction purchasing managers showed.
Japan
YEN REBOUND PROMPTS SPECULATION ABOUT INTERVENTION
Stocks in Japan fell over the week, with the Nikkei 225 Index down 2.7% and the broader TOPIX Index declining 2.6%. Equities came under pressure amid surging U.S. bond yields and concerns that central banks will remain hawkish for longer. In Japan, economic data releases showed that real wages and consumer spending continued to fall in August, also weighing on sentiment. Conversely, the Bank of Japan’s (BoJ’s) latest quarterly Tankan survey showed that a weak yen has boosted business sentiment among Japanese companies, lending some support.
Speculation was rife that Japan’s Ministry of Finance (MoF) had intervened in the foreign exchange market to stem the yen’s slide, following the currency’s near-instant surge after it briefly breached the JPY 150 against the U.S. dollar level, which many market participants had anticipated could serve as a trigger for authorities to step in. MoF officials neither confirmed nor denied whether they had intervened after the yen plunged to its lowest level in 11 months, but they continued to stress that they would act against excess volatility without ruling out any options. The yen finished the week stronger, hovering around JPY 149 against the U.S. dollar.
The yield on the 10-year Japanese government bond (JGB) rose to 0.80%, a 10-year high, from 0.76% at the end of the previous week. Despite the BoJ making unscheduled purchases of JGBs at maturities between five and 10 years, yields rose amid the sell-off in U.S. Treasuries and increased expectations that the BoJ will pursue monetary policy normalization sooner rather than later.
SOLID EXPANSION IN SERVICES SECTOR CONTRASTS WITH DETERIORATING MANUFACTURING CONDITIONS
According to the latest Purchasing Managers’ Index (PMI) data compiled by au Jibun Bank, business activity within Japan’s services sector expanded solidly in September, supported by sustained growth in customer demand following the lifting of pandemic restrictions earlier this year. Expansion softened over the prior month, however, with the services PMI falling to 53.8 from 54.3 in August (levels above 50 indicate expansion). Deterioration in manufacturing conditions gathered pace in September, with the manufacturing PMI declining to 48.5 from 49.6 the previous month, as both output and new orders fell sharply.
China
FACTORY PRODUCTIONS PICKS UP FOR FIRST TIME IN SIX MONTHS
Financial markets in China were closed last week for the Mid-Autumn Festival and National Day holiday and will reopen Monday, October 9. The Hong Kong Stock Exchange resumed trading last Tuesday, and the benchmark Hang Seng Index declined 0.14% for the holiday-shortened week, according to FactSet.
China’s factory activity returned to expansion for the first time since March, the latest signal that the economy may have bottomed. The official manufacturing PMI rose to an above-consensus 50.2 in September from 49.7 in August. The nonmanufacturing PMI expanded to a
better-than-expected 51.7 from 51.0 in August. Separately, the private Caixin/S&P Global survey of manufacturing and services activity both eased from the previous month but remained in expansion.
Domestic activity in China picked up significantly during the eight-day holiday. Approximately 395 million trips were taken via road, rail, air, and waterways in the first four days of the holiday, almost 76% above the prior year period, according to the Ministry of Transport. Box office sales reached RMB 1.2 billion in the first three days, ahead of sales reported a year earlier. Meanwhile, the offshore gambling hub of Macau received more than 160,000 visitors from mainland China and Hong Kong on Saturday, marking the highest single-day total since the pandemic.
China’s crisis-hit property sector showed slight improvement in September. New home sales by the country’s top 100 developers fell 29.2% in September from a year earlier, easing from the 33.9% drop in August, according to the China Real Estate Information Corp. The slower month-on-month decline came after Beijing rolled out a raft of stimulus measures targeting the property sector in August.
