US jobs growth cheer amid Superstorm Sandy havoc

Ahead of the impending US elections and the aftermath of Superstorm Sandy, global equity markets ended the week on a firmer note with the MSCI World Index rising by 0.4% (price index, in US dollar terms). Despite equities strength, core government bonds were still in favour with investors; the yields on 10-year US treasuries and German bunds fell to 1.73% and 1.45% respectively. Superstorm Sandy forced the closure of Wall Street on Monday and Tuesday. It is estimated that the closure cost the NYSE, NASDAQ and CBOE exchanges approximately $1mn each day in terms of lost net trading revenues.

Investors were filled with increasing optimism. In China, in signs of economic revival the official manufacturing PMI (purchasing managers’ index) reading for October rose from 49.8 to 50.2. In the US, there was positive news for the Obama camp ahead of Tuesday’s presidential election as a better-than-forecast 171,000 jobs were created in October. US dollar strength caused the price of commodities such as gold, copper and Brent crude oil to fall. However, there was a more pessimistic tone in the eurozone. The Markit Eurozone Manufacturing PMI fell for a 15th straight month in October, from 46.1 to 45.4 while Spain’s economy continued to shrink, with a contraction of 0.3% quarter-on-quarter in Q3.

Elsewhere, the strong yen and falling consumer prices led the Bank of Japan to extend its asset purchase programme for a second month running; an additional ¥11tn brings the total to ¥91tn. Further monetary easing is expected and during the week the yen reached a six-month low against the US dollar.

Shaping the markets – this week

Take me to your leader: America decides; China unveils; Greece deliberates

The week ahead is going to be an extraordinary one for politics, as leadership decisions are finalised in the world’s two largest economies. Today is the last full day of campaigning ahead of the US presidential election on Tuesday, with both candidates targeting swing states in the final push for crucial votes in a very tight contest. But, whoever wins, it is likely that neither leader would find it easy to implement policy proposals. The central expectation is for Congress to remain split, with Republicans forming a solid majority in the House of Representatives, with a narrow Democrat majority in the Senate.

In the East, we will gain more clarity on China’s once-in-a-decade transition of power on Thursday. China’s National Party Congress should announce its new President and Premier along with the new members of the Politburo Standing Committee. While Li Keqiang appears set to take over from Premier Wen Jiabao, and Communist Party leader Hu Jintao should begin to cede power to vice president Xi Jinping, the remaining appointments are still shrouded in mystery. The week will also see two crucial votes taking place in the Greek Parliament on Wednesday and Sunday. Prime Minister Antonis Samaras will present a new €13.5bn austerity package, which must win approval if Greece is to secure more aid from its ‘troika’ of international lenders and stave off bankruptcy.

On the macroeconomic front, UK industrial and manufacturing production data is due on Tuesday, while no significant decisions are anticipated from either the Bank of England or the European Central Bank this week. The first release of US jobless claims on Thursday could show the effects of Hurricane Sandy (fewer able to file for unemployment benefits). And finally, Chinese consumer price index inflation, industrial production, and export growth will be released on Friday.

 

Markets in numbers

 

World equities

Index

% 1W

% YTD

S&P 500 Composite

1414.20

0.2

12.5

Dow Jones Industrials

13093.16

-0.1

7.2

NASDAQ Composite

2982.13

-0.2

14.5

FTSE 100

5868.55

1.1

5.3

Euro STOXX 600

274.85

1.6

12.4

Nikkei 225

9051.22

1.3

7.1

Hang Seng

22111.33

2.6

20.0

Benchmark government bonds

Yield

1W /bp

YTD /bp

US Treasury – 10 year

1.73

-2.3

-14.7

UKGilt – 10 year

1.87

-0.1

-11.6

German Bund – 10 year

1.45

-8.0

-37.6

Japanese JGB – 10 year

0.78

1.5

-20.6

Credit indices

Yield

1W /bp

YTD /bp

IBOXX £ Non-gilts All maturities

3.95

-2.1

-100.9

ITRAXX Crossover 5 Year (MID)*

511.87

-20.1

NA

Volatility index

Index

% 1W

% YTD

CBOE PX Volatility – VIX index

17.59

-1.2

-24.8

Commodities

Index

% 1W

% YTD

Brent Oil ($/Barrel)

106.51

-2.8

-1.6

Gold Bullion $/ Troy Oz

1681.35

-2.0

6.8

Currencies

vs $

vs £

 

¥

80.54

129.2

 

$

 

1.60

 

Euro

1.285

1.248

 

Source: Datastream. * Spread in basis points. Past performance is not a guide to future performance.

 

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