Weekly Macro Matters
Macro Matters – Weekly review, w/c December 4
Federal Reserve officials hint at a dovish pivot, with rate cuts anticipated by 2024. Economic data shows strong GDP growth, declining inflation, and challenges in manufacturing, painting a mixed picture for global markets.
TradeDay Macro Matters
Macroeconomic / Geopolitical Developments
• Fed Speakers Starting to Pivot Towards More Dovish
Fed officials, including Christopher Waller and Loretta Mester, signaled a cautious shift toward dovish policies, reflecting confidence in current rates. Markets now expect over 100 basis points of rate cuts by the end of 2024. Despite progress on inflation, Fed Chair Powell emphasized a cautious “wait-and-see” approach before considering rate cuts.
• Short-End US Bond Yields Plunge
Bond yields fell sharply as markets priced in rate cuts by mid-2024. November saw the steepest monthly decline in long-term yields since 2019. This trend triggered rallies in stocks, credit, and cryptocurrencies, marking one of the strongest months for the 60/40 portfolio model since 2020.
• US GDP Data Stronger Than Previously Thought
Q3 GDP growth was revised to 5.2%, driven by increased business investment and government spending. Corporate profits surged by 4.3%, highlighting the resilience of the US economy. While consumer spending was revised down, the data underscores strong economic momentum.
• US PCE Data as Expected
October’s Core PCE Price Index, the Fed’s preferred inflation measure, rose 3.5% year-over-year, aligning with expectations. Personal income and spending increased modestly, reflecting a gradual economic cooling. These trends bolster the case for stable or lower rates in 2024.
• US Manufacturing PMI Data Signals Sustained Contraction
Both S&P Global and ISM Manufacturing PMIs highlighted persistent challenges, with the ISM index at 46.7, below expectations. Weak new orders and production contraction reflect a tough environment, though shorter supplier lead times offer a glimmer of hope for future activity.
• EU CPI Data Lower Than Expected
Eurozone CPI fell to 2.4%, the lowest since August 2021, while core inflation hit an 18-month low of 3.6%. These declines eased inflationary pressures and supported European equities, reflecting a broader global trend of cooling prices.
What’s Ahead
Central Bank Watch:
• Tuesday: Reserve Bank of Australia Interest Rate Decision and Statement.
• Wednesday: Bank of Canada Interest Rate Decision and Statement.
Macro Data Watch:
• Tuesday, December 5: Global S&P Global Services and Composite PMI; US ISM Services PMI.
• Wednesday, December 6: Australian GDP; EU Retail Sales; US ADP Employment Change.
• Thursday, December 7: China Trade Balance; EU Employment Change and GDP.
• Friday, December 8: Japan GDP; German CPI; US Employment Report; Michigan Consumer Sentiment Index.
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