Markets Wrap (11–25 October)

Stocks
The S&P 500 notched its best week since June (+4.7%) as several FED regional governors hinted that at the upcoming November meeting, a discussion may be held on what should be the maximum interest rate at the peak of the tightening cycle and when interest rates should be lowered in order not to hurt the economy (the market currently sees the key rate peaking at 4.9% in May 2023). 
Some history of stock bear markets: during these periods the S&P 500 usually reached a point where a substantial number of its constituents fell more than 20% below their 52-week high; during minor crises, the share of companies that experienced a loss of this magnitude stood at around 50%, major shake-ups (like the global financial crisis or the Covid-19 outbreak) saw the 80% threshold being reached, whereas the current figure of 70% is in between, but closer to the upper range.
As Rishi Sunak has become the UK's fifth prime minister since Brexit, the country’s stock market trades near record lows versus the rest of the world – the forward 12-month price-to-earnings ratio of MSCI UK currently stands at 8.8, which translates into a 40% discount to MSCI World (Chart 1). 

Macro
October flash PMI indices missed economists' expectations and declined further across Europe and in the US; US industry PMI dropped below the 50 threshold which separates contraction from expansion for the first time since the Covid-19 crisis in mid-2020 (Chart 4). 
The spread between inflation and average hourly earnings growth in the US has now been positive for 18 months (Chart 3), which along with negative wealth effects (falling asset prices) may at some point depress consumption despite a healthy level of household savings.
China's delayed Q3 GDP announcement turned out not as bad as some feared – the economy grew by 3.9% – up from 0.4% in Q2 and 0.6 pps above the median Bloomberg forecast; the details, however, are more troubling – consumption decelerated, property investment remained on a downtrend and unemployment rose unexpectedly. 

Central banks
The ECB in expected to deliver a 75 bps hike on 27 October and repeat its hawkish message in order to convince the market that the problem of rampant inflation will be taken seriously; the latest ECB Bank Lending Survey shows that the demand for home loans over the recent quarter has fallen by 42% – most since the Covid-19 pandemic. 

Commodities
The price of gas with delivery in 1 month dropped below EUR 100 per MWh, whereas spot contracts even traded in the negative territory for a short moment, as storages in Europe are full and winter so far has been milder than usual; Dutch gas is still almost twice as expensive as oil (Chart 6), and the fact that the only remaining operational pipeline from Russia to Europe is situated in a warzone leaves the market exposed to an extremely high level of uncertainty.