Markets in a minute
6th February 2024
Markets in a minute
27 November 2023
TOO HOT TO CUT
Last week, global stock markets were buoyed by stellar labour market data in the US, indicative of a ‘hot’ market. This led to higher bond yields as markets priced in fewer rate cuts in 2024, while the Fed at its meeting last week also effectively ruled out a March rate cut.
This week, the calendar is light but data from the Eurozone including retail sales may be of note.
Equity Markets
Last week, the S&P 500 rose by 1.4% (MTD 2.3%, YTD 4.0%), while the Euro Stoxx 50 rose by 0.3% (MTD -0.2%, YTD 2.8%). Stocks continued to push higher amid strong economic data, particularly in the US.
US labour market data was very strong. Non-farm payrolls showed that 353K jobs were added in January, more than double consensus expectations of 168K. Unemployment remained low at 3.7% and average hourly earnings also rose by more than expected (4.5% y/y). Job openings were up by 1.1% m/m in December, with the ratio of job openings to unemployed also rising slightly, indicative of robust labour demand.
Eurozone Q4 GDP was flat quarter on quarter, which resulted in full-year 2023 GDP being up by 0.5% y/y. On a country level, activity was mixed. Germany GDP fell by 0.3% q/q and France was flat, both in line with expectations. In Spain and Italy, GDP rose by more than expected (0.2% and 0.6%, respectively).
Bond Markets
The Fed left policy unchanged at it’s meeting as expected, but stated that rate cuts would only be implemented when the Committee has “gained greater confidence that inflation is moving sustainably toward 2%.” Powell said this was unlikely to occur by the next meeting in March.
The Bank of England also left policy unchanged and moved to a less hawkish stance. It stated that price pressures were now “more evenly balanced”, but also that “key indicators of inflation persistence remained elevated”. It pushed back against the notion of a rate cut in the first half of 2024.
As a result of strong labour market data and the Fed effectively ruling out a March cut, rate markets now expect 100bps of easing from the Fed in 2024, down from 135bps a week earlier, from a current Fed funds range of 5.25-5.50%. The Bank of England is projected to cut by 100bps from the current base rate of 5.25%.
Watch Points
This week, the calendar is light but data from the Eurozone including retail sales may be of note.
Dates to Watch
This is intended as a general review of investment market conditions. It does not constitute investment advice and has not been prepared based on the financial needs or objectives of any particular person.