BRING ON THE CUT
Markets on both sides of the Atlantic advanced for a second straight week as expectations for a US Federal Reserve Interest rate cut solidified. Corporate catalysts also added to momentum including Netflix's multibillion-dollar bid for Warner Bros. and strong earnings from tech and consumer companies.
This week, all eyes will be on Wednesday's rate decision from the Federal Reserve. Market futures are currently pricing in a ~90% chance of a 0.25% rate cut. We also get US job openings data along with Producer Price Inflation data.
Markets climbed again in the first week of December supported by growing conviction that the Fed will deliver a rate cut on Wednesday. Major equity indices closed in on record highs as inflation data remain calm, labour indicators strengthened and volatility stayed muted. The dollar weakened over the week which supported commodities and corporate earnings surprises alongside one of the biggest media deals of the decade all added to positive momentum.
Economic releases were positively received by markets. Core PCE inflation came in slightly below expectations indicating that inflation continues to drift towards the 2% Target. Labour data helped sentiment also with initial jobless claims dropping to the lowest level since 2022.
Despite growing expectations of a rate cut in the US, bond yields rose over the week which was largely a spillover effect from climbing yields in Japan.
The S&P 500 closed up 0.5% for the week. The tech-heavy NASDAQ 100 gained 0.91% while, in Europe, the STOXX 600 gained 0.41% through the week. Investors continued to react positively to a data backdrop which suggested that lower rates are on the way. Markets currently indicate a 90% expectation for a rate cut this week.
Bond yields rose last week, (bond yields rise as bond prices fall) as investors reacted to rising yields in Japan. Comments by the Bank of Japan's President Ueda on Monday indicated that there could be another rate rise this month. Bond investors reacted by pushing global bond yields higher out of fear that higher rates in Japan could lead to a sell off in foreign debt and a repatriation of Japanese assets. The 10-year US Treasury yield rose by 9.6bps over the week to 4.141%. The German bund equivalent rose by 9.4bps to 2.803%.
- Tue 9th US - Job Openings & Labor Turnover (Jolts)
- Wed 10th US - Federal Reserve FOMC interest rate decision
- Thur 11th US - PPI data
This is intended as a general review of investment market conditions. It does not constitute investment advice and has not been prepared based on the financial needs or objectives of any particular person.