Weekly Market Report: September 13th, 2024
Markets rebounded nicely from the prior week with a muzzled FOMC, a relatively light economic calendar, an uptick in the soft-landing narrative, and an increased possibility of a 50 bps move by the Fed leading U.S. equity markets to five consecutive up days and the S&P 500 (+4%) back within 1% of its record high. The NASDAQ 100 (+6%) and Russell 2000 (+4.3%) led the way while developed (+2.2%) and emerging (+2.5%) markets lagged. Interest rates fell again across the curve leaving the 10yr UST yielding 3.66% and the 2yr 3.57% with the slope remaining in positive territory. The USD closed relatively flat while commodity markets were up roughly 1.5%, including oil which closed at $68.65.
Market Anecdotes
- Despite warmer inflation data making the case for 25 bps cut, futures markets moved suddenly toward a higher probability (50%) of a 50 bps rate cut last week with Dudley’s comments in Singapore and WSJ and FT articles making the case for 50bps.
- An interesting cross-asset class perspective from JPMorgan showed how bond markets and base metals are pricing in much higher recession probabilities than equity markets and credit spreads.
- The ECB delivered what markets were expecting, which was a second 25 bps deposit rate cut to 3.5% and a 60 bps cut to the refi rate to 3.65% in order to narrow the gap between the two.
- A Bloomberg article reiterated that while unemployment has increased from 3.7% to 4.2%, about half of the move has come from new entrants and reentrants who don’t find work immediately.
- BCA and Alpine Macro strategists continue to see a clear path to a Republican administration with gridlock highly likely due to the economy and/or simple quirks of the Electoral College. Budget deficits, trade protectionism, and governmental influence in the private sector remain the primary market focus.
- Not to be overlooked are the significance of China’s deflationary forces and economic challenges where prices have declined for five consecutive quarters, something we haven’t seen since the late 1990’s back when China represented only 3% of global GDP (> 20% today).
- Bloomberg highlighted the outflows occurring in Bitcoin ETFs, estimating investors are sitting on a record $2.2b in unrealized losses. Investor adoption has been overwhelmingly retail (75%-80%) with professional investors the remainder.
Economic Release Highlights
- August CPI YoY Headline (2.5% vs 2.6%) and Core (3.2% vs 3.2%) along with MoM Headline (0.2% vs 0.2%) and Core (0.3% vs 0.2%) were generally in line with consensus estimates.
- August PPI YoY Headline (1.7% vs 1.8%) and Core (2.4%) along with MoM Headline (0.2% vs 0.2%) and Core (0.3% vs 0.3%) were generally in line with consensus estimates.
- NFIB Small Business Optimism Index deteriorated versus the prior month and registered below the consensus estimate (91.2 vs 93.6).
- The UofM Consumer Sentiment Index (69.0 vs 68.0) improved slightly versus prior month and 1-year inflation expectations fell one tick to 2.7%.
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