Markets in a minute 6th February 2024

Last week, the S&P 500 rose by 1.4% (MTD 2.3%, YTD 4.0%), while the Euro Stoxx 50 rose by 0.3% (MTD -0.2%, YTD 2.8%). Stocks continued to push higher amid strong economic data, particularly in the US.

US labour market data was very strong. Non-farm payrolls showed that 353K jobs were added in January, nearly double consensus expectations of 185K. Unemployment remained low at 3.7% and average hourly earnings also rose by more than expected (4.5% y/y). Job openings were up by 1.1% m/m in December, with the ratio of job openings to unemployed also rising slightly, indicative of robust labour demand.

Eurozone Q4 GDP was flat quarter on quarter, which resulted in full-year 2023 GDP being up by 0.5% y/y. On a country level, activity was mixed. German GDP fell by 0.3% q/q and that for France was flat, both in line with expectations. In Spain and Italy, GDP rose by more than expected (0.6% and 0.2%, respectively).

The Fed left policy unchanged at it's meeting as expected, but stated that rate cuts would only be implemented when the Committee has "gained greater confidence that inflation is moving sustainably toward 2%." Powell said this was unlikely to occur by the next meeting in March.

The Bank of England also left policy unchanged and moved to a less hawkish stance. It stated that price pressures were now "more evenly balanced", but also that "key indicators of inflation persistence remained elevated". It pushed back against the notion of a rate cut in the first half of 2024.

As a result of strong labour market data and the Fed effectively ruling out a March cut, rate markets now expect 115bps of easing from the Fed in 2024, down from 135bps a week earlier, from a current Fed funds range of 5.25-5.50%. The Bank of England is projected to cut by 100bps from the current base rate of 5.25%.

This week, the calendar is light but data from the Eurozone including retail sales may be of note.