HOORAY FOR BAD NEWS
Equity markets on both sides of the Atlantic finished sharply higher last week as a stream of weak economic data raised hopes for a December rate cut in the US.
Data from the US will begin to trickle through this week as the backlog from the government shutdown begins to clear. Data pertaining to inflation, consumer spending and goods & services PMI's will be watched by investors.
Markets rallied on a stream of disappointing economic data as investors leaned back into the 'bad news is good news' mindset, interpreting soft consumer spending, fading confidence and weaker labour data as evidence that the US Federal Reserve may cut rates when it meets next on 10th December. Amidst the softer data releases, comments from three Federal Reserve officials suggested that that market now appears weak enough to support a December rate cut.
Oil prices dropped sharply as hopes for progress in Russia-Ukraine peace talks grew. Falling energy prices fed into the broader disinflation narrative. NATO foreign ministerial talks take place on Wednesday where US Secretary of State, Marco Rubio will be pressed for a debrief on ceasefire talks.
After weeks spent building US naval presence in the area, on Saturday, President Trump announced that the airspace over Venezuela should be considered closed. Last week, the Trump administration hinted that ground activity may be imminent in order to tackle activity by drug traffickers. Critics argue that the narco-narrative is just an excuse for the administration to force Venezuelan President Maduro to step down.
The S&P 500 closed up 4.75% for the week. The tech-heavy NASDAQ 100 gained 5.83% while, in Europe, the STOXX 600 gained 2.55% through the week. Investors reacted positively to a data backdrop which suggested that lower rates are on the way.
Bond yields fell last week, (bond yields fall as bond prices rise) as investors chose to focus on the benefits of lower rates over the dangers of slowing growth. The 10-year US Treasury yield fell by close to 40bps over the week to 4.02%. The German bund equivalent dropped by 10bps to 2.69%.
- Mon 1st US - Manufacturing PMI
- Tue 2nd EU - Flash Inflation YoY
- Wed 3rd US - Services PMI
- Fri 5th US - Core PCE, Personal Income & Personal Spending 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.