North American stock markets edged lower this week, as the surprisingly strong month of September came to an end. The Dow slipped 0.3%, but the S&P 500 edged 0.2% lower. According to Reuters, the S&P 500 posted a 8.8% gain for September, making it the second best September on record.
The consumer confidence report announced on Tuesday was extremely dismal, as the index fell in September to its lowest since February. The consumer confidence index fell to 48.5 from 53.2 in August.
Gold shines once again
Gold continued to rally as it rose 1.5% for the week. Spot gold rose to a record high of $1,320.8/ounce, while US December gold futures went up to $1,317.8/ounce.
Good news from China
News from China helped to boost markets on Friday, as September PMI was announced to be 53.8 and better than expected. It was also 2.1 higher than August's reading, making it two months in a row that China's PMI has risen. Though it signals a strong Chinese economy, the reading is also raising interest rate hike worries among Chinese investors.
Trade tension between China and the US also continued to rise, as expected, as the US House of Representatives voted to amend the 1930 Tariff Act, in order to state that “fundamental exchange-rate misalignment” is a punishable subsidy. The measure was aimed at China, as US politicians continued to pressure the China currency ahead of the November mid-term elections.
Euro zone troubles continue
The situation in the euro zone turned increasingly ugly, as two more credit agencies warned on Tuesday that Ireland is at risk of more downgrades. That came after Moody's cut Anglo Irish Bank's lower-grade debt. As a result, Ireland's CDS, the cost of insuring Irish government debt against default, soared to a record high of 519 basis points (bp). Irish credit premiums also rose as the premium on the 10-year Irish government bond over the German bonds hit a record high of 475 bp.
Massive protests and strikes also occurred in the euro zone this week, as tens of thousands of workers protested in Brussels. Unions in Spain went on 24-hour strikes, crippling the train system and public transportation. Greece also faced similar strikes.
The week ahead
North American markets will face many economic data next week, including the non-farm payrolls report. Alcoa will also kick off the third-quarter earnings season on Thursday. Pending home sales and August factory orders will give markets direction on Monday, while the ISM services index is announced on Tuesday. The ADP payrolls report is released on Wednesday.
While markets have seemingly ignored the increasingly worse situation in the euro zone in September, that will unlikely continue in October. The worsening economic growth and social unrest in the periphery of the euro zone will likely begin to drag markets lower.
Meanwhile, trade tensions between China and the US will only increase as we near the November elections. Thus, while technical analysts see a potential for the S&P 500 to break out higher as it is currently near 1,150 points, October will more likely see North American markets end lower.