Weekly Market Update
Notable events over the last week
- In a week of largely positive data for the US, jobs data stole the headlines. Nonfarm payrolls grew by 271,000 in October; a sharp jump from the weak August and September numbers of 153,000 and 137,000 respectively and easily exceeded the median estimate of 180,000. The unemployment rate fell to 5.0%, the lowest since April 2008 and average hourly earnings also impressed, rising 2.5% YoY, marking the highest YoY wage increase since 2008. The U6 rate, which measures underemployment more broadly, fell to 9.8%, the first time it’s been below 10% since May 2008. After the robust payrolls report and comments by US Federal Reserve Chair Janet Yellen on Wednesday, a December US rate hike is now seen as more likely with market-based odds now at 70% in favour.
- US auto sales surprised to the upside in October, increasing 13.6% YoY to 18.24mn versus expectations of 17.7mn. For a second consecutive month, the annualized sales pace exceeded 18mn, the best two-month stretch in 15 years. The auto market is on pace for its strongest annual results ever. US automakers had sales gains in the 13% to 16% range for the month. Japanese automakers also did well, while Volkswagen’s sales were flat in the month after news of its emissions cheating scandal broke.
- The leading US services gauge, the Institute for Supply Management’s non-manufacturing index rose to 59.1 in October from 56.9 in September. October marks the 69th straight month of service sector expansion. However, data for US manufacturing is more lacklustre with growth stalling to its slowest pace in more than 2 years. The ISM manufacturing index fell from 50.2 in September to 50.1 in October, below expectations of a rise to 51.
- Turning to Asia, China’s official government gauge for manufacturing held steady at 49.8 in October while the Caixin/Markit sector reading rose to 48.3 after reaching a 6year low of 47.2 in September. This is the 8th straight month that the manufacturing industry fell short of 50. President Xi Jinping has also lowered the country’s outlook for gross domestic product growth from 7.0% to 6.5%.
- The Eurozone composite purchasing managers’ index rose to 53.9 in October from 53.6 in September, indicating continued economic growth. The Eurozone economy is on track for 0.4% growth in the fourth quarter despite disappointing data out of Germany. German industrial production fell 1.1% MoM in September following a 0.6% MoM fall in August.
Q3 earnings season update
- In the US, 80% of companies have now reported with 74% of S&P500 companies beat EPS estimates, surprising positively by 5%. The actual EPS growth prints at -4% YoY and +3% exEnergy. The blended Q3 EPS prints at -0.3% YoY. 55% of the companies missed top-line estimates, with overall sales down 5% and up 1% ex-Energy.
- In Europe, 70% of companies have reported with only 49% of DJStoxx companies beat EPS estimates, surprising negatively by 6%. The actual YoY EPS growth prints at -8% and +2% ex-Energy. The blended Q3 EPS is running at -6% yoy. 54% of the companies missed sales estimates, delivering growth of -1% yoy and +6% ex-Energy.
- In Japan only 49% of companies have reported so far, with 48% of Topix companies beating EPS estimates, delivering EPS growth of -1%. 51% of the companies beat revenue estimates, with sales up 4% YoY.
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