2024 Weekly Update

Market update

The S&P 500 closed the week at 6,090.27, +0.96% higher. The Dow Jones closed at 44,642.52, -0.60%, with the Nasdaq higher by +3.34%. The volatility index VIX closed the week at 12.77, down from 13.51. The Euro Stoxx 600 rose +2.00%.

The 10-year UST closed at 4.15%, down from 4.17% a week before. The yield curve is inverted with the yield spread between the 3-month and 10-year UST at -26bps. US Corporate Bond spreads: Investment Grade spreads narrowed -2 bps at 156bps and High Yield spreads narrowed -4bps at 300bps. German 10-year Bunds yield closed at 2.11% up from 2.09% a week before. In Europe, Investment Grade spreads narrowed -7bps at 113bps and High Yield narrowed -18bps at 352bps.

The US Dollar Index (DXY) appreciated +0.30% last week and closed at 106.06. The Euro closed at 1.0568 (-0.09%); the Yen depreciated -0.15%, closing at 150 and the Swiss Franc appreciated +0.25%, closing at 0.8788. Gold closed at $2,633.37, depreciating -1.03%. Oil was lower, Brent closed at $71.12 (-2.50%) and WTI at $67.2 (-1.18%).

Macroeconomy

US jobs

The US economy added 227k jobs in Nov. according to the Establishment survey, a sharp rebound from the 36K figure in Oct. and higher than consensus at 220k (the 36k Oct. number was revised up from the original reading of 12k). The 227k number is only modestly ahead of the 186k 12-months average. Private payrolls advanced 194k (up from -2k in Oct. and below the 205k estimate). Establishment Survey employment trended up in health care, leisure and hospitality, government, and social assistance. Employment increased in transportation equipment manufacturing, reflecting the return of workers who were on strike. Retail trade lost jobs. The Household Survey showed a large drop in the number of employed people in Nov (-355k). This steep decline, coupled with a lower participation rate (62.5% vs. 62.6% in Oct) caused the unemployment rate to tick up to 4.2% in Nov (up from 4.1% in Oct. and above the consensus of 4.1%). Average hourly earnings rose 4% y-o-y (steady vs. Oct) while average weekly earnings advanced 3.7%. The workweek was 34.3 hours.

Fedspeak

Richmond Fed Barkin spoke about Trump administration’s tariff plan, saying that tariffs are an "inflationary pressure," and that the overall impact depends on how consumers, corporates and the Fed all deal with them. He also noted that consumers have started pushing back on higher prices, and demand may not stay as strong if prices continue to climb. Also, Fed Chair Powell said the US economy is “in remarkably good shape”, and the growth has been better than previously forecasted. He added that he feels “very good about where the economy is and where monetary policy is” and said the FOMC “can afford to be a little more cautious as we try to find neutral”. Earlier, Chicago Fed Goolsbee said that interest rates will “come down a fair amount from where they are now”. Additionally, Fed Governor Kugler said the economy was in a “good position” and that price pressures were on a “sustainable path” toward the Fed’s 2% target. The one semi-hawkish note was from San Francisco Daly, who noted that the neutral rate has likely moved up “closer to 3%” now. Fed Governor Waller said that “I am leaning toward continuing the work we have started in returning monetary policy to a more neutral setting,” signaling further cuts ahead, while adding that “an additional cut at our next meeting will not dramatically change the stance of monetary policy and allow ample scope to later slow the pace of rate cuts, if needed”. On the path of inflation he noted, “I believe the evidence is strong that policy continues to be significantly restrictive and that cutting again will only mean that we aren't pressing on the brake pedal quite as hard”.

US data

US November ISM manufacturing PMI increased to 48.4 (vs 47.5 expected), which was a surprise upside and the highest reading since June. Although still in contraction territory, the data shows improved business confidence with new orders stepping into expansion territory at 50.4, the highest since March, and majority of other components such as employment (48.1) and production (46.8) improving as well. The ISM services index was only at 52.1 in November (vs. 55.7 expected), ending a run of 4 consecutive monthly increases. The employment component was down to 51.5. There also wasn’t much optimism either from the ADP’s report of private payrolls, which came in at 146k (vs. 150k expected), with a negative revision to the previous month of -49k. The Atlanta Fed’s GDPNow tracker for Q4 pointing to an annualized pace of +3.2%, which is its highest level to date.

France politics

France continues to serve up an abundance of headlines. Michel Barnier has now officially resigned but will be staying on until a new Prime Minister is appointed. President Macron in a televised speech reiterated his plan to remain President forthe remainder of his term until 2027 and said he would appoint a new PM in the “coming days.” Macron criticized both political flanks, saying that far-left and far-right legislators tried to provoke an early presidential election, before stating that the new government’s priority will be approving a budget. There is a concern amongst some lawmakers that the special stopgap emergency powers could lead to higher taxes for millions of families, however Le Pen called the stopgap legislation better than former PM Barnier’s plan. Before Macron’s speech, markets became increasingly relaxed about France’s debt risk, with the Franco-German 10yr spread tightening a further -5.7bps tighter to 77.8bps. That came as Marine Le Pen gavea surprise Bloomberg interview, which was taken constructively by investors, as she said that France could pass a budget in “a matter of weeks” if the next PM was prepared to cut the deficit at a slower pace.

South Korea

On Tuesday, South Korean President Yoon from the People Power Party (PPP) shocked the world by imposing martial law, saying he needed to purge the country of  “anti-state forces”. Yoon backed down hours later after members of South Korea’s legislature rejected his political gambit. Yoon Suk Yeol will step back from fulfilling duties as his cabinet seeks to negotiate an ‘orderly exit’. South Korean prosecutors have opened an investigation into the country’s President, Yoon Suk Yeol, on charges of treason and abuse of power following his failed attempt to impose martial law. A new election must be held within 60 days of a President being removed from office, with the Prime Minister stepping in in an acting capacity. On the market front, the Bank of Korea (BoK) promised to provide “unlimited liquidity” if necessary.

Highlights

Rates

In the US, weaker than expected economic data kept the door open to a December rate cut. The odds of a cut on 12/18 climbed to 85% having been around 65% the week before. That proved supportive for US Treasuries with the 2yr yield falling -4.7bps to 4.104% and the 10yr ending the week -1.6bps lower at 4.14%. Over in Europe, yields on 10yr bunds ended the week at 2.11% despite markets pricing in a small chance of a 50bps at the 12/12 meeting. Most investors expect a 25bps cut to 3.0% which will be the fourth cut since the start of the easing cycle, making it 100bps of cuts so far. Looking at country specifics, there were significant developments in France with the resignation of Barnier following the motion of censure. While the 10yr Franco-German spread reached 88.1bps earlier in the week, its widest level since 2012, it fell over the following days. Overall, it tightened -3.8bps last week to 77bps. Other countries also saw large tightening. The Italy-German 10yr spread fell -12.6bps to 108.5bps and the Spanish-German spread tightened -5.3bps to 65bps. In part, that was because yields on 10yr bunds themselves rose +2.0bps.

What to watch

• Monday: Japan GDP (Q3) revision

• Tuesday: Germany CPI (Nov); US Unit Labor Costs & Labor Productivity (Q3)

• Wednesday: Canada BOC Decision; US CPI (Nov), Budget Balance (Nov)

• Thursday:  Eurozone ECB Decision; Switzerland SNB Decision

• Friday: Japan Tankan Manufacturing Index (Q4); France CPI (Nov)