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WEEKLY ROUND-UP Thru Nov 17th 2023; “Santa Rally”?

Hey Folks, we’ve seen an impressive move in the US Indexes over the past 3 weeks. Will this momentum continue into the end of the year? A Santa Rally? Get my take in this week’s round-up


US indexes have built on strong gains over the past two weeks. The week’s advance was also notably broad, with an equally weighted version of the S&P 500 Index outperforming its market-weighted counterpart by a full percentage point. For the benchmark S&P 500, its 2.24% gain capped a 9.63% three-week surge, the best showing over such a stretch going back to the week ended June 5, 2020. Meanwhile, the Russell 1000 Value Index also outperformed its growth counterpart and moved back into positive territory for the year to date. Macroeconomic factors appeared to take center stage as the third-quarter earnings reporting season wound down.

On Tuesday, we saw the CPI Headline number come in unchanged at 3.2% YoY while the Core CPI came in at 4.0% which was 10 BPS lower than expected. This is the slowest pace in two years. Producer price inflation, reported Wednesday, also surprised on the downside. In addition, Retail sales (which are unadjusted for inflation) fell 0.1% in October, less than expected and due in part to a drop in gasoline and auto sales.

The cooling inflation signals fostered another drop in long-term Treasury yields, with the benchmark 10-year note touching an intraday low of around 4.40% on Friday, its lowest level since mid-September. The federal-funds futures market is pricing in four 25 bps cuts by the end of 2024 in the wake of the latest CPI print, but thus far the FEDs dot plot is showing only 2 25 bps cuts next year. Perhaps at the next FED meeting on Dec 13th the revised Dot Plot will come closer to what the markets are expecting. If not we could see a bit of a move lower in market expectations which would entail lower market valuations and prices.

In Europe the ECB President Christine “Queen Bee” Lagarde said policymakers expected inflation to pick up at the start of next year as base effects drop out of the annual comparison, however, that even if inflation accelerates again, another interest rate increase may not be required. Meanwhile, the latest data confirmed that the annual inflation rate in the eurozone fell to 2.9% in October, the lowest level since July 2021. And ion the U.K. annual CPI in the UK slowed more than expected to 4.6% in October from 6.7% in September, prompting financial markets to increase their bets on interest rate cuts next year.

In Japan, their Q3 GDP data showed that the economy shrunk by a worse-than-expected 0.5% over the three months (1.2% on an annualized basis) The main drag was from private inventories, while inflation and yen weakness continued to weigh on private consumption and sluggish global demand hit exports. The contraction follows two straight quarters of growth and suggests that Japan’s economic recovery remains fragile.

Over in China, official data for October offered a mixed picture of China’s economy. Industrial production and retail sales grew more than forecast last month from a year earlier, while fixed asset investment growth missed estimates due to a dip in infrastructure growth and real estate investment. More stimulus is coming from the Gov via the People’s Bank of China (PBOC). They injected RMB 1.45 trillion into the banking system via its medium-term lending facility. The housing market’s slump deepened in October. Investment in property development fell by an above-consensus 9.3% in the first 10 months of the year while property sales slumped by 7.8% between January and October versus the same period in 2022.

Enjoy this week’s round-up

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