Weekly house view | And the winner is…

Weekly house view | And the winner is…

The CIO's view of the week ahead.

The week in review

Unsurprisingly, volatility has been increasing across US assets overall ahead of this week’s US elections. There were good results from some high-profile tech-related stocks late in the week, but investors continued to fret about big AI outlays by ‘Magnificent Seven’ companies and those that issued weak guidance were punished, leaving the S&P 500[i] 1.35% lower on the week (in USD). Job creation and ISM manufacturing index pointed down and was seen as opening the way to a Fed rate cut this week. But a measure of prices paid by manufacturers jumped according to the ISM index, contributing to the 13 bps rise in US 10-year Treasury yields, which ended the week at 4.4%. In other markets, UK gilt yields continued to climb in the wake of an Autumn Budget containing significant extra annual state borrowing as well as tax rises. The US dollar advanced moderately on higher bond yields with a 25 bps rate cut from the Fed seemingly priced in.

US elections

Tuesday’s US elections – for the presidency and seats in Congress – are key for markets and the global economy as they will impact US tax, trade, immigration, and budget policy, and potentially the Fed’s decisions in 2025.

Key data

US nonfarm payrolls rose a paltry 12,000 in October, well down from the September number of 233,000, due to storm and strike disruption. But unemployment stayed steady at 4.1%, while wages rose at an annual rate of 4%. The ISM purchasing managers’ index (PMI) for manufacturing declined to 46.5 in October from 47.2 in September. According to initial estimates, US GDP grew at a robust annual rate of 2.8% in Q3, down slightly from 3.0% in Q2. Initial estimates suggest that the euro area economy grew at 0.4% over the previous quarter in Q3, up from 0.2% in Q2. Annual consumer inflation in the euro area rose to 2% in October from 1.7% a month before. Core inflation was at 2.7%, unchanged from September. The official Chinese PMI for manufacturing rose from 49.8 in September to 50.1 in October, the first time in six months that the index was over the 50-mark separating expansion from contraction.

[i] Source: Pictet WM AA&MR, Thomson Reuters. Past performance, S&P 500 Composite (net 12-month return in USD): 2019, 31.5%; 2020, 18.4%; 2021, 28.7%; 2022,  -18.1%; 2023, 26.3%.
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