Weekly Market Recap

The Bank of England (BoE) held its key policy rate at 4.0%. The Monetary Policy Committee voted five to four in favour of the decision. Comments from Governor Andrew Bailey reinforced market expectations for an interest rate cut in December. In a text explaining his decision, he wrote that current market pricing, which implies a terminal rate of around 3.5% in three years, was “a fair description of my position at present,” adding that it gave “a reasonable view of a sensible path.”

The US federal government shutdown reached its longest on record during the week, which also appeared to weigh on broader sentiment. While headlines over the past few weeks have seemingly done little to impact investor sentiment, coverage of the shutdown's effects seemed to pick up during the week, highlighted by news that the Federal Aviation Administration would order airlines to reduce flight traffic amid concerns about air traffic controller staffing. Concerns about the ongoing lack of government data and the potential impact of the shutdown on gross domestic product (GDP) growth also increased.

With the ongoing shutdown continuing to limit government data releases, investors focused on several reports from alternative private-sector sources during the week, including ADP’s October employment report. On Wednesday, the private payroll processing firm reported that private employers added 42,000 jobs during the month, rebounding after two consecutive months of declines. However, the report also noted that hiring was not broad-based, as employers in the professional business services, information, and leisure and hospitality industries shed jobs for the third consecutive month, while pay growth remained unchanged.

Meanwhile, a report released Thursday from consulting firm Challenger, Gray & Christmas indicated that employers have cut nearly 1.1 million jobs this year through October, a 65% increase over the same period last year and a 44% jump from the number of job cuts in the entirety of 2024. October’s 153,074 job cuts were the most for the month since 2003.

The Institute for Supply Management (ISM) reported that economic activity in the services sector returned to expansion territory in October, with the ISM Services Purchasing Managers’ Index (PMI) registering a reading of 52.4% versus 50.0% in September (readings above 50 indicate expansion). New orders in the sector rose to the highest level since October 2024, with an index reading of 56.2%. Eleven industries in the sector reported growth during the month, an increase from 10 in September.

On the other hand, manufacturing activity contracted for the eighth consecutive month in October, with ISM’s Manufacturing PMI declining to 48.7% from September’s reading of 49.1%. Contractions in production and inventories led to the month-over-month (MoM) decline.

The University of Michigan reported a preliminary reading of its November Index of Consumer Sentiment on Friday morning. The index reading dropped 3.3 points MoM to 50.3, the lowest since the index’s record low in June 2022, “led by a 17% drop in current personal finances and a 11% decline in year-ahead expected business conditions,” according to the report. Federal government shutdown worries were cited as a primary reason for the decline. Expectations for inflation over the next year rose to 4.7% from 4.6% in October.

Sweden’s central bank, the Riksbank, kept its policy interest rate at 1.75%. Governor Erik Thedeen said policymakers were expecting it “to remain at this level for some time to come.” In Norway, Norges Bank held the key rate at 4.0%, citing an inflation rate that remains too high. Governor Ida Wolden Bache told Reuters: “It will take some time before it is appropriate to lower the rate.”

Retail sales in the euro area fell 0.1% sequentially in September, marking a third consecutive month of contraction and missing a consensus forecast for a 0.3% gain in a FactSet poll of analysts. Year over year (YoY), growth in retail trade slowed to 1.0% from 1.6% in August.

The German economy ministry said “the trend in the manufacturing sector remains weak” after the release of September’s industrial data. Industrial output grew 1.3% over the previous month but came in below a 3% consensus estimate in a FactSet survey of analysts. Industrial orders rose by 1.1% from the prior month on a seasonal and calendar-adjusted basis. Third-quarter orders declined 3.0% relative to the preceding three months.

Sentiment improved after the US and China reached a one-year truce in their trade dispute following the presidents of both countries' meeting at the Asia-Pacific Economic Cooperation (APEC) summit in South Korea the prior week. Beyond the upbeat tone of the landmark meeting, however, the summit appeared to offer few specifics, noted T. Rowe Price investment analysts. Instead, the key takeaway for investors is a pronounced sense of pragmatism that prevailed at the APEC meeting, in which countries are adapting to an evolving world, trading where they can, and hedging where they must, T. Rowe Price analysts added. In the longer term, prolonged strategic competition remains the underlying dynamic between the US and China, which could play out in areas beyond trade.

Broader concerns about stretched AI valuations weighed on risk appetite and boosted demand for assets perceived as safer—the yen strengthened to the middle of the JPY 153 range against the US dollar from the prior week’s JPY 154. The Japanese currency was also supported by Finance Minister Satsuki Katayama, who reiterated that the government continues to monitor the foreign exchange markets with a high level of urgency, given the one-sided and rapid currency movements.

The yield on the 10-year Japanese government bond rose to 1.69% from 1.66% at the end of the previous week, mainly on expectations that the Bank of Japan (BoJ) remains on track to tighten monetary policy further. The BoJ has emphasised its focus on the outlook for wages as a key factor in deciding when to raise interest rates next. Japan’s nominal wages grew 1.9% YoY in September, in line with consensus and up from a 1.5% increase in August. However, real wages fell for the ninth consecutive month in September, down 1.4% YoY compared with a 1.7% decline in August, as inflation continued to outpace wage growth.

New Prime Minister Sanae Takaichi emphasised that Japan has still not achieved sustainable and stable price growth backed by solid wage gains. She stated that her government will allocate fiscal spending to enhance household incomes, consumer sentiment, and the economy. A draft of an economic stimulus package is expected this month.

Australia household spending increased 0.2% MoM in September, softer than the consensus. Annual growth rose to 5.1% YoY, the strongest since November 2023. Essentials spending drove the rise, as households spent more on food, health and petrol. Separately, building approvals increased 12.0% MoM, 15.3% YoY in September, stronger than market expectations.

In a unanimous decision, the Reserve Bank of Australia (RBA) Board kept the policy rate target unchanged at 3.60%, as widely expected. Recent data have prompted renewed concerns at the RBA about inflation pressures. While the Board acknowledged some labour market softening, it continues to see conditions as tight. Governor Bullock and the Board emphasised the need to be cautious and take a data-dependent approach.

Last week, the MSCI All Country World Index (MSCI ACWI) lost -1.5% (19.8% YTD).

The US S&P 500 Index declined by -1.6% (15.6% YTD) as concerns regarding elevated valuations and increased scrutiny around artificial intelligence (AI) spending weighed on many of the growth-oriented stocks that had driven the index’s rapid rise since early April. Growth stocks strongly underperformed value stocks by the widest margin since February, while small-cap stocks underperformed large-cap stocks. The Russell 1000 Growth Index returned -2.9% (17.9% YTD), the Russell 1000 Value Index was flat (12.1% YTD), and the Russell 2000 Index lost -1.9% (10.3% YTD). The technology-heavy Nasdaq Composite fell -3.0% (19.8% YTD).

In Europe, the MSCI Europe ex UK Index lost -1.4% (13.6% YTD). Concerns about overvaluation in AI-related stocks weighed on sentiment. Most major stock indexes retreated. Germany’s DAX Index was down -1.6% (18.4% YTD), France’s CAC 40 Index dropped -2.1% (11.2% YTD), and Italy’s FTSE MIB Index slipped -0.6% (30.4% YTD). Switzerland’s SMI Index rose 0.5% (9.4% YTD). The euro appreciated against the US dollar, closing the week at USD 1.16 for EUR, up from 1.15.

The FTSE 100 Index in the UK lost -0.3% (22.2% YTD), and the FTSE 250 Index declined -1.7% (8.9% YTD). The British pound was little changed against the US dollar, closing the week at USD 1.32 for GBP.
Japan’s stock markets declined over the week. The TOPIX Index lost -1.0% (20.5% YTD), and the TOPIX Small Index decreased -0.4% (22.4% YTD). The TOPIX had reached record highs in late October. With shares of AI-related technology and heavyweight chip companies driving most of the recent gains, some investors questioned the sustainability of the rally and sought to lock in profits.

In Australia, the S&P/ASX 200 Index pulled back -1.1% (11.6% YTD) following the hawkish RBA commentary after the November meeting and the sell-off in US equity markets. Australian government bond yields rose, with the curve modestly steepening. The Australian dollar weakened against the US dollar by 1.1%.

In Canada, the S&P/TSX Composite lost -1.1% (23.7% YTD).

The MSCI Emerging Markets Index declined -1.4% (31.7% YTD), with the stock markets of China and Brazil contributing positively to the performance. In contrast, the stock markets of India, Taiwan and South Korea contributed negatively.

Mainland Chinese stock markets edged higher for the week as easing US-China trade tensions boosted risk appetite. The onshore CSI 300 Index edged up 0.8% (21.9% YTD), and the Shanghai Composite Index added 1.1% (22.2% YTD). The latest weekly gain took the CSI 300 Index, the main onshore benchmark, to its highest level in nearly four years despite concerns about China’s growth outlook. Hong Kong's benchmark Hang Seng Index rose 1.4% (35.2% YTD). The MSCI China Index, which primarily consists of offshore-listed stocks, gained 0.4% (37.0% YTD).

In Poland, the central bank held its scheduled monetary policy meeting, and, as generally expected, policymakers decided to reduce the key interest rate, the reference rate, by 25bps from 4.50% to 4.25%. This was the central bank’s fifth rate cut in 2025.

According to the post-meeting statement, policymakers consider incoming economic data to be a sign of “ongoing favourable economic conditions.” They specifically cited September data featuring “a rise in retail sales, industrial output and construction and assembly production.” However, they also noted that the enterprise sector is showing “a gradual slowdown in the wage growth, amidst a further fall in employment in annual terms.”

Regarding inflation, central bank officials noted that the annual consumer price index inflation rate in October was 2.8%, down from 2.9% in September, “largely due to lower annual growth of food prices.” Policymakers also estimated that “inflation net of food and energy prices also decreased, amidst still elevated services price growth.” Given the decrease in inflation and an improved inflation outlook “for the coming quarters,” policymakers felt that they would be “justified to adjust the level” of interest rates at this time.

In Mexico, the central bank held its scheduled policy meeting and decided to reduce the key interest rate, the overnight interbank interest rate, by 25bps from 7.50% to 7.25%. The decision was not unanimous: Four meeting participants voted in favour of a rate cut, while one voted to leave rates unchanged.

According to the post-meeting statement, central bank officials noted that Mexico’s third-quarter economic activity “contracted with respect to the second quarter” and that the “environment of uncertainty and trade tensions continues posing significant downward risks.” Regarding inflation, policymakers acknowledged a marginal decrease in headline and core inflation between “the first fortnight of September and the first fortnight of October.” They also noted that headline inflation expectations for late 2025 were revised downward and that headline inflation itself is still expected to converge to the central bank’s target in the third quarter of next year.

Ultimately, policymakers decided that it would be “appropriate to continue the rate-cutting cycle” after taking into consideration “the behaviour of the exchange rate, the weakness of economic activity, and the possible impact of changes in trade policies worldwide” as well as “the level of monetary restriction” that had already been implemented. As for possible future rate cuts, policymakers did not rule that out, noting that they will “evaluate reducing the reference rate” by considering “all determinants of inflation.”

Last week, the Bloomberg Global Aggregate Index (hedged to USD) returned -0.1% (4.8% YTD), the Bloomberg Global High Yield Index (hedged to USD) -0.2% (8.4% YTD), and the Bloomberg Emerging Markets Hard Currency Aggregate Index -0.2% (11.1% YTD).

US Treasuries generated positive returns, with short- and intermediate-term yields generally decreasing and long-term yields increasing. Over the week, the 10-year Treasury yield rose by 2bp, ending at 4.10% from 4.08% (down -47bps YTD). The 2-year Treasury yield decreased by -2bps, ending the week at 3.56% from 3.58% (down -68bps YTD). Meanwhile, equity market weakness and broader risk-off sentiment weighed on the performance of high-yield bonds.

Over the week, the 10-year German bund yield rose 4bps, ending at 2.67% from 2.63% (up 30bps YTD). The 10-year UK gilt yield increased by 5bps, ending the week at 4.46% from 4.41% (down -10bps YTD).