Weekly house view | Cockroaches in the market
The week in review
US 10-year Treasury yields fell below 4.0% last week on concerns about banks’ exposure to private credit as some regional lenders said they had been exposed to fraudulent loans, sparking a warning about cockroaches in the market. The credit market tensions raised bank funding costs, with lenders borrowing the largest amount over a two-day period since the Covid-19 pandemic at the Federal Reserve’s repo facility.
The credit tensions also fueled some volatility in the stock market, though the S&P 500 rose 1.7% on the week, buoyed by strong early third-quarter earnings. Most companies beat EPS and revenue forecasts. Earnings growth is expected to slow in Q3 and Q4, with a rebound in 2026. The gap between large tech firms (“the Magnificent Seven”) and the broader S&P 500 is expected to narrow.
US-China trade risks also contributed to last week’s stock market volatility as President Trump threatened an additional 100% tariff on Chinese imports unless Beijing scraps export restrictions on rare earth minerals. US-China trade tensions also weighed on oil prices, with WTI falling below USD 60 per barrel for the first time since May.
In Europe, S&P downgraded France’s credit rating to A+ on expectations its debt will rise higher than previously expected.
Quote of the week
JP Morgan CEO Jamie Dimon said there may be credit risks lurking in the US economy, noting that “when you see one cockroach, there’s probably more.”
Key data
The Federal Reserve’s Beige Book showed little change in US economic activity since early September. Euro zone headline inflation was in line with expectations at 2.2% in September but core rose to 2.4%, slightly ahead of expectations for 2.3%. In the UK, wage growth slowed and unemployment rose.
In China, deflationary pressures persisted, with both consumer and producer prices falling in September. Outstanding loan growth fell to a historic low of 6.6% in September.