2024 Weekly Update

Market update

The S&P 500 closed the week at 5,969.34, +1.68% higher. The Dow Jones closed at 44,296.51, +1.96%, with the Nasdaq higher by +1.73%. The volatility index VIX closed the week at 15.24, down from 16.14. The Euro Stoxx 600 rose +1.06%.

The 10-year UST closed at 4.40%, down from 4.44% a week before. The yield curve is inverted with the yield spread between the 3-month and 10-year UST at -15bps. US Corporate Bond spreads: Investment Grade spreads widened +2bps at 158bps and High Yield spreads widened +2bps at 294bps. German 10-year Bunds yield closed at 2.24% down from 2.35% a week before. In Europe, Corporate Investment Grade spreads widened +6bps at 118bps and High Yield widened +11bps at 358bps.

The US Dollar Index (DXY) appreciated +0.81% last week and closed at 107.55. The Euro closed at 1.0418 (-1.16%); the Yen depreciated -0.31%, closing at 154.78 and the Swiss Franc depreciated -0.71%, closing at 0.8939. Gold closed at $2,716.19, appreciating +5.97%. Oil was higher, Brent closed at $75.17 (+5.81%) and WTI at $71.24 (+6.30%).

Macroeconomy

Global PMIs

S&P US Composite PMI increased to 55.3 in November. That was the highest level since April 2022 and followed a reading of 54.1 in October. New orders rose to 54.9 from 52.8 in October. Price increases slowed further, with average input prices falling to 56.7 from 58.2 last month. Prices charged dropped to 50.8, the lowest level since May 2020, from 52.1 in October. The manufacturing PMI inched up to 48.8 from 48.5 last month, in line with expectations. Services PMI rose to 57.0, the highest reading since March 2022, from 55.0 in October. That was well ahead of economists' expectations for a reading of 55.2. In Europe, S&P Composite PMI sank to a 10-month low of 48.1 in November, compared to expectations that predicted no change from October's 50.0. New business fell to 46.6 from 47.9, its lowest reading this year, suggesting no imminent improvement. The economic downturn accelerated in both Germany and France with business activity falling at the quickest rate since early this year. German industry expects a 3% fall in production in 2024, a third year of decline, with no recovery in sight for 2025, the country's BDI industry body said. A PMI index of euro zone services, which had been offsetting the decline among manufacturers, fell to a 10-month low of 49.2 from 51.6. Firms did increase headcount again but were less optimistic about the year ahead. The business expectations index fell to a two-year low of 55.0 from 59.9. Manufacturing PMI index fell to 45.2 from 46.0, vs. expectations for no change. The output prices index dropped to 47.9 from 48.2. In Japan, composite PMI coming in at 49.8.

Fedspeak

Chicago's Goolsbee said Fed may slow pace of rate cuts as it approaches target inflation rate. Governor Cook said she sees rates trending downward, but the magnitude and timing of cuts should be driven by the data. Lastly, Fed Governor Bowman said she “would prefer to proceed cautiously” with further easing and Boston Fed’s Collins said that while “some additional policy easing is needed”, the cuts delivered so far “enable the FOMC to be careful and deliberate going forward”.

US labor data

We saw some mixed US labor market data. On the bright side, the weekly initial jobless claims were down to 213k in the week ending November 16 (vs. 220k expected). That’s their lowest level since April, and it comes on the back of a clear declining trend in recent weeks, as the 4-week moving average also fell to its lowest since early May, at 217.75k. However, that was countered by some weakness among the continuing claims number, which was up to a three-year high of 1.908m in the week ending November 9 (vs. 1.88m expected).

UK data

The UK’s first estimates of GDP in Q3 surprised to the downside, reaching 0.1% q-o-q (consensus at 0.2%), following two consecutive quarters of strong growth. The primary factor was a sluggish performance in the services sector. Household consumption increased by 0.5%, mainly driven by higher spending on housing. In the labor market, regular wage growth (excluding bonuses) slightly declined in September to 4.8%, above expectations. Unemployment rate rose to 4.3%, amid ongoing measurement issues. Inflation surprised to the upside in October. Headline CPI rose above target at 2.3% y-o-y. Core CPI rose by 10bps, reaching 3.3%. Similarly, services CPI also increased by 10bps to 5% y-o-y, above consensus.

Highlights

Rates

In the US, robust economic data led investors to dial up their hawkish expectations. Strong PMI numbers and rising long-term inflation expectations meant the rate priced in for the Fed’s December 2025 meeting rose +9.4bps last week to 3.926%, its highest level in four months. With investors pricing in fewer rate cuts, the 2yr Treasury yield moved up for a 5th consecutive week to 4.37% (up +7.0bps on the week). That said the 10yr yield closed the week at 4.40%, slightly lower (down -3.9bps). The odds of a 12/18 Fed cut stand at 50/50. Over in Europe, sovereign bonds rallied after economic data came in below expectations. The 10yr German bund ended the week at 2.24%, -11.4bps lower. Weak PMIs led investors to dial up the likelihood of a 50bps ECB rate in December. The probability nearly tripled from 17% on Thursday to 49% on Friday. That move also followed dovish comments from the ECB’s Panetta who said “restrictive monetary conditions are no longer necessary”, and that the ECB needed to “normalize our monetary-policy stance and move to neutral – or even expansionary territory, if necessary.” Other speakers also made comments in favor of a December cut though were less dovish than Panetta. Greece’s Stournaras said he thought “25bps is an optimal reduction” while Ireland’s Makhlouf said he believed “in a prudent and cautious approach”.

Q3 earnings

With the earnings season almost over, the calendar is light apart from Tuesday when CrowdStrike, Dell and Workday report. Overall, Q3 results have been strong. S&P 500 revenues and earnings grew 5.4% and 8.7% respectively. In aggregate, EPS have beaten expectations by 6.5% while 67% of companies topped projections. Major releases last week included Nvidia, Walmart, Target, Lowe, and TJX. Moving to retail earnings, most companies reported beat-and-raise results with notably Walmart reporting solid EPS upside at 58c (vs. expectations 53c). The beat was driven by a combination of solid revenue growth and healthy margin performance. The full-year guidance for F25 is increased. Target was an exception, with the company posting a large EPS shortfall and guidance for Q4 far below consensus.

US equity market

Equity markets are currently in a consolidation phase. The US market's outperformance after the election appeared stretched, leading to a short-term pause. Despite the strength of the dollar, emerging markets narrowly led the performance on a weekly basis compared to the other regions. The S&P 500 remained practically flat with a slight increase recently. US Energy and Financials outperformed, possibly due to optimism about fiscal or deregulatory policies. However, the Healthcare sector continued to underperform, potentially due to ongoing regulatory uncertainties. The market seems to be in a "holding pattern," awaiting clarity on US policy initiatives and economic indicators. The impact of the election is unlikely to be reflected in short-term earnings consensus forecasts. Currently in a quiet period for analyst updates after the Q3 earnings season, earnings revisions have bottomed out and are likely to remain flat for the rest of the year. Japan shows the strongest improvement in earnings revisions. Europe is struggling with the weakest revisions, despite the depreciation of the euro.

What to watch

• Monday: Germany IFO index (November)

• Tuesday: US FOMC minutes (November)

• Wednesday: US personal income, spending, PCE price index (October)

• Thursday: Euro area money and credit data (October), EC business survey (November); Germany, Spain flash HICP (November)

• Friday: Euro area, France, Italy flash HICP (November)