In September, the U.S. economy saw the creation of 360,000 new jobs, and an extra 119,000 positions were included in the count through revisions. The print surged passed expectations of only 170,000 new jobs, re-igniting the bonds sell-off that has swept global markets over the past two weeks. The U.S. 10-year Treasury yields climbed by approximately 14 basis points, reaching 4.88%, marking their highest point since 2007, coinciding with a roughly 50% increase in the likelihood of a rate hike before the end of the year. The unemployment rate remained unchanged at 3.8%. Wage growth remained stagnant, rising 0.2% m/m and 4.2% y/y, while the workforce participation rate stayed steady at 62.8%. However, digging deeper, the data suggests that the labour market is driven more by increased worker supply than excessive demand, creating a more favourable inflation outlook.

In U.S. political news, after failing to secure Republican caucus support in the U.S. House of Representatives for a government funding bill that included spending cuts and increased border security, Speaker Kevin McCarthy allowed a bipartisan bill to proceed. It passed with a 335 to 91 vote, but 90 Republicans opposed it. On Monday, a motion to remove McCarthy as Speaker was filed and succeeded with a 216 to 210 vote on Tuesday. Eight Republican renegades joined with a united Democratic caucus to remove a speaker for the first time in history. The House is in recess until next week when a new Speaker will be elected.

Throughout most of 2023, the U.S. services sector remained strong, while manufacturing experienced a contraction. However, in September, this trend flipped, with the manufacturing index improving to 49 from 47.6, while the nonmanufacturing measure dropped to 53.6 from the previous month’s 54.5. Notably, the nonmanufacturing new orders index hit a low point, declining to 51.8, marking its lowest level in a year, down from 57.5.

Both official and private-sector data indicated a potential slowdown in the eurozone economy during the third quarter. The September reading of the final Composite Purchasing Managers’ Index (PMI) from S&P Global stood at 47.2, marking the fourth consecutive month of contraction. (A PMI reading below 50 signifies a decrease in business output.)

China’s manufacturing sector showed signs of recovery, marking its first expansion since March and suggesting a potential economic turnaround. The official manufacturing Purchasing Managers’ Index (PMI) exceeded expectations, rising to 50.2 in September from August’s 49.7. Additionally, the nonmanufacturing PMI surpassed forecasts, expanding to 51.7 compared to August’s 51.0.

During another week of trading dominated by large-cap growth stocks, especially in the mega-cap information technology and internet sectors, the major U.S. indexes closed with a mix of performances. The Nasdaq (+1.60%) and the S&P 500 (+0.48%) ended the week higher while the Dow Jones dipped -0.30%. Shares in Europe (Euro Stoxx 50) declined by -0.72%, while the FTSE 100 dropped by -1.49%. Financial markets in China were closed last week for the Mid-Autumn Festival and National Day holiday and will reopen on Monday, October 9. The Hong Kong Stock Exchange resumed trading on Tuesday, and the benchmark Hang Seng Index slipped by -1.80% for the shortened holiday week. Japan’s Nikkei 225 fell by -1.68%. Brent oil prices declined by -8.36% as demand fears outweighed supply cuts, while gold dropped by -0.84%.

Early Saturday morning, Palestinian group Hamas launched one of the biggest attacks on Israel in years with many killed, hostages taken, and fighting raging after a surprise assault that included gunmen entering Israeli towns after a barrage of rockets were fired from the Gaza Strip. Israeli Prime Minister Benjamin Netanyahu has declared a state of war.

In the past year, concerns about inflation, rising interest rates, and political instability have persisted, even as markets have shown improvement. However, recent tragic events in the Middle East have introduced new worries for investors, as they evaluate how military conflicts might impact financial markets. While acknowledging the human tragedy, the market’s primary focus has shifted to potential effects on oil prices, interest rates, and the strength of the dollar, as these factors have a more direct influence on market performance.

Major indexes concluded the week with mixed results as investors weighed up inflation data against dovish signals from Federal Reserve officials. Leading banks such as Citigroup, Wells Fargo, and JPMorgan Chase initiated the unofficial start of the third-quarter earnings reporting season on a positive note, benefiting from higher interest rates.

The release of minutes from the Fed’s September policy meeting on Wednesday suggested that policymakers agree that they need to maintain restrictive interest rates for some time, while being mindful of balancing the risk of overtightening with the goal of curbing inflation towards the 2% target. In September, CPI rose by 0.4% month-on-month, surpassing market expectations, signalling ongoing inflationary pressures. The Fed’s core CPI, which excludes food and energy costs, also increased by 0.3% in September.

In Europe, the ECB’s minutes revealed that the majority of policymakers voted to raise the key deposit rate to a record high of 4.0%. Meanwhile, the German government lowered its 2023 economic growth outlook from 0.4% growth to a 0.4% contraction due to higher energy costs and reduced demand from major markets like China.

UK retail sales growth slowed to 2.7% year-on-year in September, marking the second weakest month of the year, while GDP rose by 0.2% month-on-month in August, after contracting 0.6% in July.

In China, inflation remained subdued with CPI for September remaining unchanged from a year earlier. Meanwhile, producer prices fell by a higher-than-expected 2.5% compared to the previous year. At the same time, Chinese developer Country Garden Holdings faces its first-ever potential default and restructuring due to difficulties in meeting offshore payment obligations on U.S. dollar bonds, highlighting China’s property debt crisis.

Global equity markets concluded the week with mixed results. In the U.S., the Dow Jones (+0.79%) and S&P 500 (+0.45%) were positive whilst the Nasdaq (-0.18%) was mildly negative. Similarly, European and Asian markets, including the Euro Stoxx 50 (-0.20%), FTSE 100 (+1.40%), Nikkei 225 (+4.26%), Hang Seng (+1.65%) and Shanghai Composite Index (-0.70%) were mixed.