Hey folks, as the markets wind down to close out 2023 the upcoming FED Meeting will be significant in that we will get the latest FED Dot Plot on their interest rate expectations for 2024. This will help drive the markets into the final weeks of 2023. Get my take on this in this Week’s Market Round-Up.
WEEKLY SOUND BITES:
US indexes have built on strong gains over the month of November and momentum helped US Indexes hold onto gains as we go into the remainder of Dec and finish out 2023. The small-cap Russell Index outperformed the S&P 500 for the 3rd time in the past 4 weeks, helping narrow its significant underperformance for the YTD period.
The week’s busy economic calendar seemed to be another major driver of sentiment. Fridays closely watched nonfarm payrolls report surprised modestly on the upside, with employers adding 199,000 jobs in November versus consensus expectations of around 180,000. The unemployment rate also surprised by falling back to 3.7% from a two-year high of 3.9% in October. Average hourly earnings rose 0.4%, above expectations, but the year-over-year increase remained at a consensus 4.0%. Also surprising the markets was the University of Michigan’s preliminary gauge of consumer sentiment in December, which jumped to its highest level since August on calming inflation fears. Survey respondents expected prices to increase by 3.1% in the coming year, down sharply from 4.5% in November and the lowest rate since March 2021.
The data on job openings seemed to drive a continued decrease in long-term interest rates over much of the week, with the yield on the benchmark 10-year U.S. Treasury note hitting an intraday low of 4.10% on Thursday. The Fed’s drive near term IR which drive Earnings, which in turn drive valuations that then also effect market sentiment.
In Europe, ECB Executive Board members seem to be shifting to a dovish stance saying that the most recent inflation number has made a further rate increase rather unlikely. Inflation has slowed sharply for three months in a row to just above the ECB’s 2% target. Meanwhile, in Germany, industrial output fell for a 5th consecutive month in October, sliding 0.4% sequentially, which was more of a contraction than the 0.2% increase called for in one consensus estimate. Factory orders unexpectedly slumped, dropping 3.7%. Meanwhile, the jobless rate rose to 5.9% in November, the highest level since May 2021.
IN Japan, comments by BoJ officials stoked speculation that the central bank may abandon its policy of negative interest rates earlier than anticipated, weighing on riskier assets. Amid perceived BoJ hawkishness, the yield on the 10-year Japanese government bond (JGB) rose to 0.77%, from 0.71% at the end of the previous week. Japan’s GDP contracted by a bigger-than-estimated 2.9% on an annualized basis in the three months ended September, compared with an initial reading showing the economy had shrunk 2.1%.
Chinese equities fell after a credit downgrade on China’s sovereign debt by Moody’s underscored worries about its economic outlook. Moody’s cut its outlook for China’s government bonds to “negative” from “stable” on Tuesday, saying that the country’s debt-laden local governments and state firms posed downside risks to the economy. S&P Global survey of services activity, which rose to an above-forecast 51.5 in November from October’s 50.4. Overseas exports rose an above-consensus 0.5% in November from a year earlier, reversing the 6.4% decline in October and marking the first increase in six months. However, imports unexpectedly fell by 0.6% in November, down from the 3% growth in October.
Enjoy this week’s Round Up;
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