2024 Weekly Update

Market update

The S&P 500 closed the week at 5,702.55, +1.36% higher. The Dow Jones closed at 42,063.36, +1.62%, with the Nasdaq higher by +1.49%. The volatility index VIX closed the week at 16.15, down from 16.56. The Euro Stoxx 600 fell -0.33%.

The 10-year UST closed at 3.74%, up from 3.65% a week before. The yield curve is inverted with the yield spread between the 3-month and 10-year UST at -93 bps. US Corporate Bond spreads: Investment Grade spreads narrowed -10bps at 168bps and High Yield spreads narrowed -25bps at 344bps. German 10-year Bunds yield closed at +2.21% up from +2.15% a week before. In Europe, Corporate Investment Grade spreads narrowed -6bps at 128bps and High Yield narrowed -16bps at 364bps. 

The US Dollar Index (DXY) depreciated -0.39% last week and closed at 100.72. The Euro closed at 1.1162 (+0.79%); the Yen depreciated -2.13%, closing at 143.85 and the Swiss Franc depreciated -0.14%, closing at 0.85. Gold closed at $2,621.88, appreciating +1.71%. Oil was higher, Brent closed at $74.49 (+4.02%) and WTI at $71.92 (+4.76%).

Macroeconomy

Fed cuts

After keeping rates on hold for 14 months, the Fed finally reversed course and delivered a 50bps cut on Wednesday, lowering the fed funds target to the 4.75-5.00% range. This was an 11-1 decision with Bowman becoming the first Fed Governor to dissent since 2005, favoring instead a 25bps cut. The larger cut came amid a dovish shift to the Fed’s inflation and unemployment projections compared to June, with 2025 PCE inflation lowered 0.20% to 2.1% and unemployment raised 0.20% to 4.4%. The economic projections also showed a notable shift in the balance of risks, with a clear majority of the FOMC now seeing unemployment risks weighted to the upside but inflation risks as broadly balanced. The dots shifted lower, with the median Funds Rate now forecast at 4.4% at the end of this year (implying another 50bps worth of cuts), 3.4% at the end of 2025 (implying 100bps in cuts next year), and 2.9% in 2026 (implying 50bps of cuts in 2026). The terminal rate assumption ticked up 10bps, from 2.8% to 2.9%. In the press conference, Powell repeatedly framed the decision as a “recalibration”, saying that "there is no sense that the committee is in a rush" and adding that "I do not think that anyone should look at this and say that this is the new pace" for easing going forward.

US data

Weekly initial jobless claims were down to 219k (vs. 230k expected) in the week ending Sept. 14. That’s the lowest number since May, and there are growing signs that isn’t just a blip, because the 4-week moving average was also down to 227.5k, which is the lowest since early June. The decline may have been boosted by residual seasonality, with strong September declines visible the previous two years. In the same lines, the Atlanta Fed’s GDPNow estimate now expects Q3 growth to come in at an annualized +3.0%, up from +2.5% before, so well away from recession territory as it stands. The headline retail sales print was stronger than expected at +0.1% (vs. -0.2% expected), and the previous month was revised up a tenth to +1.1% as well. On industrial production, the headline figure was up +0.8% in August (vs. +0.2% expected), and that outperformance more than outweighed the three-tenths downward revision to the previous month. Lastly, data from the Mortgage Bankers Association showed that a 30yr fixed mortgage rate was down to 6.15% in the week ending Sept. 13, which is the lowest it’s been in just over two years. Otherwise, housing starts rose to an annualized pace of 1.356m in August (vs. 1.318m expected), their highest level since April. Building permits were also up to an annualized pace of 1.475m (vs. 1.410m expected), their highest since March.

Global data

Hong Kong Monetary Authority cut its interest rate for the first time since 2020, easing by 50bps to 5.25%, mirroring the Fed’s policy easing. Japan’s export growth slowed sharply in August, rising +5.6% y-o-y (vs. +10.6% expected), up for a ninth straight month and against a downwardly revised +10.2% y-o-y increase the previous month. Meanwhile, the value of imports grew +2.3% y-o-y in August, versus a +13.4% increase expected by Bloomberg. As a result, the trade deficit stood at -JPY 695.3 Bn (vs. JPY -628.7 Bn last month) compared with the forecast of a deficit of JPY -1.43 Trn. Separately, data also showed that Japanese inflation picked up as expected, with headline inflation up to a 10-month high of +3.0% in August, having been at +2.8% in July. National new core CPI for August accelerated to 2.0% y-o-y from 1.9% in July, primarily on higher goods prices, and service inflation (excluding imputed rents) also accelerated slightly due to higher wage growth. In China, the PBoC left their key lending rates unchanged, with the 1yr loan prime rate staying at 3.35%, and the 5yr loan prime rate at 3.85%. Australia’s unemployment rate remained steady in August at 4.2% while the number of employed people grew by 47,500 (vs. 26,000 expected). The participation rate remained at its record level of 67.1%. The UK CPI came in at +2.2% as expected, with core CPI rising to +3.6%, and services CPI up to +5.6%. To conclude, German ZEW survey came in noticeably lower than expected, with the expectations component down to an 11-month low of 3.6 (vs. 17.0 expected). The current situation also fell back to -84.5 (vs. -80.0 expected), which is the lowest reading since May 2020. Meanwhile in Canada, inflation fell a bit more than expected in August, with CPI coming down to +2.0% (vs. +2.1% expected).

Bank of England

The BoE decided to maintain its policy rate unchanged at 5%, in line with consensus, with a majority vote of 8-1. The overall guidance remains somewhat unchanged, as there has been limited new data since the last meeting. Monetary policy needs to “remain restrictive for sufficiently long” until inflation returns sustainably to the 2% target in the medium term, while Governor Bailey continues to argue against “cutting rates too quickly or by too much”. Nevertheless, he also mentioned that the Bank “should be able to reduce rates gradually over time” if the economy evolves as expected and inflationary pressures continue to recede. Moving ahead, the MPC expects services prices to ease slightly further in Q4 as expectations of inflation easing and more pass-through from declining labor costs is expected to materialize.

Bank of Japan

On Thursday, the BOJ left the overnight call rate unchanged between 0-0.25%, as widely expected. With the economy moving in line with BOJ forecasts, Governor Ueda’s assessment on Japan domestic outlook was broadly positive, reinforcing expectations that another hike could occur this year. During the press conference, Ueda highlighted several points to monitor in the future including the service price revision in October, the impact of increase in minimum wage, the outcome of next year's wage negotiations, and whether consumption will remain firm.

Highlights

On rates

Sovereign bonds recorded a mixed performance over the week but there was a clear pattern of curve steepening on both sides of the Atlantic. In the US, the 2s10s yield curve ended the week at 14.6bps, its steepest level since June 2022, just before it became apparent that the Fed would accelerate their rate hikes up to a 75bps pace. That came as the 10yr yield rose +8.9bps to 3.74% and the 2yr yield rose 1bp to 3.59%. Fed expectations held relatively steady with the market pricing in another 75bps worth of cuts over the course of the year’s final two meetings. Futures are implying a 50% probability that the Fed will deliver another 50bps rate cut in November. In Europe, yields on German 10yr bunds were up +5.9bps to 2.21%.

What to watch

• Monday: US: manufacturing PMI (Sep); EU: PMIs (Sep); UK: PMIs (Sep)
• Tuesday: US: consumer confidence (Sep), housing price index (Jul), Richmond Fed manufacturing (Sep); GE: IFO business climate (Sep)
• Wednesday: US: new home sales (Aug)
• Thursday: US: initial jobless claims, durable goods orders (Aug); JP: Tokyo CPI (Sep), CH: SNB policy rate meeting
• Friday: US: PCE (Aug), Michigan consumer sentiment (Sep), University of Michigan inflation expectation (Sep); EU: consumer and economicconfidence (Sep); JP: Liberal Democratic Party President and Prime Minister elections