Hey folks, markets are starting to feel a bit tired after a strong run up into and just out of the US Presidential Elections. Where do we go from here?
MARKET SOUND BITES:
Markets gave back a portion of the previous week’s gains with “Boom Boom” Powell’s comments on the FEDs desire to take its time with interest rate reductions. The potential policy implications for corporate earnings were visible in the wide dispersion of sector returns, with financials and energy shares continuing to benefit from hopes for deregulation and merger approval while health care took a beating on the prospects of RFK Jr taking over HHS. Reports surfaced mid-week that Musk would co-head a planned new Department of Government Efficiency (DOGE) alongside Vivek Ramaswamy, another tech investor, entrepreneur, and Trump supporter. We also saw inflation data, was in line with expectations, with CPI rising 0.2% in October and core (less food and energy) prices rising 0.3%. Due largely to stubbornly high housing costs, however, year-over-year headline inflation rose for the first time since March, from 2.4% to 2.6%. The US Interest rate tab has climbed from $628 Billion in 2023 to just under $900 Billion in 2024 and is now currently running at $1.2 Trillion annually. The current S&P forward PE multiple has only been matched twice before – 1999 and 2021. And in both cases returns the following year were negative.
Expectations priced into futures markets for a quarter-point cut in December fell moderately over the week, from 64.6% to 58.4% and expectations for a full percentage point of cuts by the end of next year fell more considerably, from 41.3% to 32.6%.
Expectations for higher long-term interest rates were also reflected in a sharp rise in the yield of the benchmark 10-year U.S. Treasury note, which touched its highest intraday level (4.51%) on Friday since the start of June.
Euro area data kept hopes of a soft landing for the economy alive. A second estimate of GDP from Eurostat confirmed the surprisingly strong 0.4% expansion in the third quarter. In addition, the European Commission projected growth of 0.8% in 2024, although Germany’s economy is expected to contract by 0.1%. The UK economy slowed unexpectedly in the three months through September. Gross domestic product (GDP) was measured at 0.1%—down from 0.5% in the preceding quarter and below the consensus forecast of 0.2%.
In Japan, authorities again warned that they would take appropriate action against excessive currency moves in the Yen. If economic activity and prices evolve as expected, the BoJ can follow a path in which it raises the policy interest rate gradually so that the rate will be at 1.00% in the second half of fiscal 2025 at the earliest. The yield on the 10-year Japanese government bond rose to 1.07%, from the prior week’s 1.00%. On an annualized basis, the economy grew 0.9%, down from 2.2%.
Chinese equities declined as evidence of persistent deflation and worries about potential U.S. tariffs under incoming U.S. President Trump hurt investor confidence. Retail sales expanded a better-than-expected 4.8% from a year ago, up from September’s 3.2% rise and marked the strongest growth since February. Industrial production rose 5.3% from a year earlier, lagging forecasts. New home prices in 70 cities fell 0.5% in October from September, when home prices dropped 0.7% from August. October’s decline marked the second month of slowing home price declines and the slowest pace since March, according to Bloomberg. The improvement came after Beijing unleashed in recent months a series of stimulus measures aimed at boosting the housing sector.
Get my take on the current markets in this week’s market round-up;
Don’t Be A Rat Brain Trader – Be the Red Stripe Zebra !!
Trade Smart !
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