Market Update

European stocks surged on Thursday following the European Central Bank's (ECB) decision to cut interest rates for the third time this year. Policymakers reduced the deposit facility rate by 0.25%, bringing it to 3.25%, in response to inflation falling below the 2% target in September. ECB President Christine Lagarde expressed cautious optimism, noting that current data suggests the economy is on a soft-landing path rather than heading into a recession.
However, Lagarde acknowledged that risks to economic growth remain tilted to the downside, highlighting factors such as reduced confidence, which is slowing the recovery of consumption and investment. She also pointed to geopolitical tensions and weak global demand for exports as additional challenges. While the ECB did not anticipate September's 1.7% inflation reading, Lagarde still expects inflation to rise in the coming months, partly due to the diminishing impact of previous sharp energy price declines. She expressed greater confidence in reaching the 2% inflation target sustainably but reiterated that the ECB’s approach will remain “data-dependent,” with decisions made based on broader trends rather than isolated datapoints.
In the US, stocks closed the week higher as investors digested third-quarter earnings. Tech stocks experienced a volatile week, initially dipping following ASML’s quarterly report but later rebounding after TSMC’s optimistic outlook eased concerns over AI chip demand. The third-quarter earnings season kicked off solidly, with around 50 S&P 500 companies reporting results, 79% of which exceeded expectations. Morgan Stanley shares climbed 6.5% after reporting stronger-than-expected Q3 earnings and revenue. Netflix’s better-than-expected earnings also boosted investor sentiment, helping lift the tech sector.
On the economic front, US retail sales rose 0.4% month-over-month in September, surpassing August’s 0.1% increase and market expectations. This data points to sustained consumer spending, with the biggest gains seen in miscellaneous retailers, clothing, and health stores.
In China, third-quarter GDP grew by 4.6% year-over-year, slightly above the 4.5% forecast, though it marked the slowest pace since Q1 2023. The growth was tempered by ongoing weaknesses in the property market, weak domestic demand, and deflation risks. Other data showed industrial production and retail sales exceeded expectations for September. However, the rise in retail sales was largely driven by food and energy sector sales. With the government maintaining a 5% full-year growth target, further stimulus measures are expected to help meet this goal.
On Friday, China’s central bank announced 800 billion yuan ($112 billion) in liquidity measures aimed at supporting equity purchases. Additionally, the People's Bank of China (PBOC) signaled potential interest rate cuts later in the year, depending on the economic outlook, to stimulate consumer spending. Despite these measures, market participants remained cautious, with indices closing the week lower amid uncertainty over the effectiveness of these actions, which will take time to yield results.
In the UK, retail sales exceeded expectations in September, rising 0.3% compared to forecasts of a decline. This positive surprise was largely driven by significant gains in the telecoms and computer sectors, with non-food sales jumping nearly 35%. This strong demand helped offset broader concerns about consumer spending, providing a welcome boost to UK retailers, who have been grappling with the impact of higher interest rates on consumer behavior.