Weekly Market Report: December 13th, 2024
Markets were mixed last week as attention was centered on a number of foreign monetary policy announcements and an economic calendar featuring data on inflation, the jobs market, and business sentiment. Interest rates drifted notably higher despite no meaningful shift in the narrative pressing 10yr yields up to 4.40%. Higher rates may have contributed to soft equity markets where U.S. and developed international markets closed down 0.64% and 1.5%, respectively. Emerging markets posted a 0.40% gain on the week thanks in part to a 1% rally in Chinese equities. Oil and natural gas both rallied 6% last week in part due to stimulus discussion in China and continued risks surrounding the Russia-Ukraine conflict.
Market Anecdotes
- 2024 is shaping up to close out with an impressive, albeit more common than one might think, outcome for equity markets characterized by concentrated earnings growth, top heavy performance, challenges for active management, and elevated valuations.
- Inflation dynamics were in focus last week with the CPI release and upcoming FOMC meeting. BLS methodology versus alternative measures again garnered significant attention when assessing underlying inflation dynamics, particularly with housing and wage growth.
- Last week was a blackout week for the FOMC but meetings from other central banks generated headlines with nearly 71% of major central banks now in easing cycles including last week’s ECB (-25bps), SNB (- 50bsp), BoC (-50bps), and the RBA (0bps) moves.
- Bond markets’ renewed focus on U.S. fiscal policy, inflation dynamics, and growth trends last week with interest rates drifting higher and the 10yr/3mo slope uninverting for the first time since July 2022.
- While China signaled intent to ramp up stimulus next year, monetary and credit data in November underwhelmed with new loan growth and total social financing coming in well below market expectations and M2 growth slowing from 7.5% to 7.1%.
- A consideration in early 2025 will be how DC ultimately decides to sequence legislative and executive priorities with the potential for vastly differing market reactions depending on the composition of tariffs, tax cuts, immigration reform, and deregulation initiatives.
- The Tax Foundation estimate of tariffs implemented in 2018, and maintained today, cost Americans approximately $80b/year and the baseline new tariff taxes would amount to a $1.2t tax increase over 10 years, reduce GDP by 0.45%, and cost U.S. workers 344,900 jobs.
- DC policy conversations surrounding federal agencies who acquire residential mortgages with both explicit and implicit federal guarantees are raising some interesting considerations regarding cost of capital, size of the guarantee pool, and mortgage product implications.
Economic Release Highlights
- CPI for November was in line with expectations for both headline and core with YoY readings of 2.7% and 3.3% and MoM readings of 0.3% and 0.3% respectively.
- Continuing Jobless Claims continued to edge higher last week while headline Weekly Jobless Claims surprised a bit to the upside (242k vs 220k) and came in above the consensus forecast range (190k to 225k).
- The November NFIB Small Business Optimism Index jumped from 93.7 to 101.7, well above the 94.5 consensus estimate.
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