The European Central Bank (ECB) left interest rates unchanged at last week’s policy meeting, the base rate remaining at 4.5%[1]. That brought an end to 10 consecutive rate hikes since last summer with the ECB rapidly tightening policy to try and contain surging inflation. Pricing pressures have abated meaningfully this year with headline CPI expected to have slowed to 3.2% last month[2]. With the economy having also moderated, there is less pressure for the ECB to tighten further although ECB President Christine Lagarde has left further moves firmly on the table. The MSCI Europe ex UK index closed the week -0.8% lower whilst in the sovereign bond market, the 10-year Europe benchmark yield retreated by 6 basis points (bps) to 2.80%.

Elsewhere, US equities lost further ground as investors continued to weigh up possible higher Federal Reserve (Fed) rates, growing geopolitical tensions and mixed corporate results. The S&P 500 and NASDAQ fell by -2.5% and -2.6% respectively with the aptly called “S&P7” continuing to dictate the market. A strong advance by Amazon was offset by a sharp post results fall by Alphabet which missed analyst expectations. The 10-year US treasury yield meanwhile briefly topped 5.0% for the first time in 16 years before pulling back slightly by the weekend (-8bps to 4.83%). In the UK, the FTSE 100 slipped by -1.5% ahead of this week’s Bank of England (BoE) policy gathering. Japanese equities also finished the week in the red, the Nikkei 225 declining by -0.9% although the index did stage a recovery towards the end of the week. Bucking the negative trend, the Shanghai Composite in China rose by +1.2% after the government announced further support for the economy, this time an increase in its fiscal deficit and fresh sovereign debt issuance for disaster relief and construction[3].

Moving to commodities, oil posted a weekly loss despite a spike on Friday due to growing Middle Eastern supply concerns. Brent crude declined by -2.0% to $90.43 a barrel over the week, reflecting concerns over the global economy and future oil demand. As for the positive movers, copper added +1.9% to $8,030 with the metal a winner from the Chinese stimulus announcement.

Week Ahead

Source: Refinitiv Workspace, 30/10/23

[1] European Central Bank – Monetary Policy Meeting 26/10/23

[2] LSEG Workspace – Economic Monitor, Europe CPI Forecast Oct’23

[3] T. Rowe Price – Global Markets Weekly Update 27/10/23

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