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WEEKLY ROUND-UP Thru Jan 5th 2024; “Market Tug-o-War”

Hey everyone, the markets took a breather as we move into the first trading week of 2004. Get my take on how things are shaping up in our first Weekly Round-Up for 2024.

Market Sound Bites:

US indexes gave back a portion of the past several weeks’ solid gains as investors appeared to rotate into sectors that lagged in 2023, including utilities, energy, consumer staples, and health care. Trading volumes was muted over much of the holiday-shortened week, with markets shuttered on Monday in observation of the New Year’s Day.

On Tuesday, S&P Global revised lower its gauge of December manufacturing activity, indicating the fastest pace of contraction since August. On the other hand, the Institute for Supply Management’s (ISM’s) similar gauge, released Wednesday, showed factory activity picking up more than expected in the month. The week’s headline labor market data generally surprised on the upside, although underlying trends were more mixed. The monthly nonfarm payroll report showed that employers added 216,000 jobs in December, well above consensus forecasts. Monthly growth in average hourly earnings stayed steady at 0.4%, slightly above expectations, and the unemployment rate similarly defied expectations by remaining at 3.7%. The workforce participation rate fell back unexpectedly to 62.5%, however, its lowest level since February. The ISM’s Non-Manufacturing Employment Index also fell sharply into contraction territory and hit its lowest level since July 2020.

The yield on the benchmark 10-year U.S. Treasury note ended higher for the week and moved above the 4% threshold for the first time since mid-December. There is a current Tug-O-War going on with the markets expecting 5-6 rate cuts in 2024 while the FEDs are standing pat with only 3 rate cuts. As January unfolds, we will get a better indication of the probabilities of a March rate cut leading up to the Jan 31st Fed Policy decision.

A reacceleration in eurozone inflation in December appeared to make early rate cuts by the European Central Bank less likely. A preliminary estimate indicated that annual consumer price growth rose to 2.9% from a two-year low of 2.4% in November, reflecting a cut in government subsidies for electricity, gas, and food. However, a measure of core inflation, which excludes more volatile food and energy costs, eased to 3.4% from 3.6%.

In Japan the earthquake prompted debate that any potential exit by the BoJ from its negative interest rate policy could now be delayed, given the need to assess the earthquake’s effects on the economy. The yen dropped sharply, falling to the low145 range against the U.S. dollar, from around 141 at the end of the previous week. The yield on the 10-year Japanese government bond was broadly unchanged over the shortened week at 0.61%.

Stocks in China retreated amid persistent concerns about its economy. The official manufacturing Purchasing Managers’ Index (PMI) contracted for the third consecutive month, falling to a below-consensus 49.0 in December as declines in new orders and exports accelerated. The nonmanufacturing PMI rose to 50.4 from 50.2 in November as stronger construction activity offset weakness in the services sector. The People’s Bank of China injected 350 billion Yuan via its Pledged Supplemental Lending program, a low-cost funding program aimed at policy-oriented banks, in its latest effort to shore up the property sector. The housing downturn continues to drag on China’s economy as falling home prices, construction delays, and builder defaults weigh on consumer sentiment.

Enjoy this week’s round-up;

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