Market Update

In the UK, attention is turning to the upcoming Autumn Budget on October 30th, while uncertainty surrounding the US presidential election on November 5th continues to weigh on market sentiment. Polls indicate a tight race, leading some investors to take profits from recent gains and reassess the potential policy impacts of each candidate. This political uncertainty, along with renewed concerns about the direction of global monetary policy, drove market sentiment this week. Federal Reserve officials have recently signaled a more cautious approach to rate cuts, increasing focus on 10-year Treasury yields, which climbed above 4.25% early Thursday as market participants adjusted their expectations for future interest rate changes.
On the economic front, the US PMI showed continued business expansion in October, with the composite index rising to 54.3 from 54.0 in September, signaling a strong start to the fourth quarter. However, growth was driven entirely by the service sector, as manufacturing output improved but remained in contractionary territory.
This week also saw a flurry of corporate earnings reports, with mixed results overall. Of the 37% of S&P 500 companies that have reported so far, 59% surpassed revenue expectations. Tesla was a standout, helping to offset the broader decline in the index. The electric vehicle manufacturer posted stronger-than-expected quarterly earnings and projected robust vehicle sales growth for 2025, leading its stock to surge by 22% on Thursday.
In Europe, markets closed lower, driven by shifting expectations around the pace of rate cuts from the Federal Reserve and their potential impact on European Central Bank (ECB) policy. Eurozone PMI data revealed that business activity remained in contraction, although it edged up to 49.7 in October from 49.6 in September, marking a slight improvement. Service-sector growth unexpectedly slowed, but the decline in manufacturing was less severe than anticipated.
In the UK, economic indicators this month have signaled slowing growth and weakened consumer confidence. Surveys highlighted that "gloomy government rhetoric and uncertainty ahead of the budget" dampened both business confidence and spending. The UK composite PMI remained in expansionary territory but fell to 51.7 from 52.6 in September, driven by slower growth in new orders. GfK’s consumer confidence survey also showed a decline, despite inflation returning to the 2% target, likely due to concerns over the Autumn Budget and potential tax increases.
Meanwhile, Chinese stocks performed better after the People’s Bank of China injected liquidity into the banking system, keeping key lending rates unchanged and signaling ongoing support for economic stability. Recent rate cuts by Chinese banks are part of broader stimulus efforts to encourage borrowing. Youth unemployment eased slightly in September, which was a positive signal, although it remains high amid continued economic pressures.
Japan's stock markets, on the other hand, declined amid pre-election uncertainty. Tokyo’s inflation rose 1.8% year-over-year in October, easing slightly from September's 2.0% due to renewed energy subsidies. Bank of Japan Governor Ueda emphasized a cautious approach to policy adjustments to avoid prolonged low rates and speculative risks. Following Sunday’s election, political uncertainty persists, as no party secured a majority. Prime Minister Ishiba’s coalition won 215 seats, short of the 233 needed, while the opposition CDPJ gained 148. Parties now have 30 days to negotiate a coalition government.