Weekly Market Report: December 20th, 2024

Last week markets digested a very busy economic calendar, a highly anticipated FOMC meeting, and some political noise with another U.S. government funding standoff translating to a notable move higher in equity and bond market volatility. The week ended with equity markets down globally with U.S. markets (-2%), developed international markets (-4.8%), and emerging markets (-4%) all losing ground. Interest rates moved higher across the curve as 10yr yields traded back over 4.5% and the curve steeped with both 2yr/10yr and 3mo/10yr becoming more positively sloped. Risk aversion and hawkish Fed narratives contributed to a strengthening USD and weakening commodity markets where oil and industrial metals traded down approximately 1%-3% across the board.

Market Anecdotes

• The FOMC delivered a hawkish 25 bps rate cut to get to a 425-450 target along with cooling market expectations for rate cuts in 2025. Post meeting pressers and speaking engagements made clear the economy is strong and they have time to assess incoming data.
• The BoJ, the only G10 bank in hiking cycle, left rates unchanged at 0.25%.
• 2024, like 2023, has been a remarkable year for AI, consumer, and technology stocks with the Mag 7 rally looking similar, yet different, than historically concentrated markets of the past.
• A recent Barron’s cover echoed bullish Wall Street, fund manager, and household sentiment for 2025 where the Conference Board survey of U.S. households hit its most bullish reading since the survey’s inception and UofM survey noted investors moving aggressively into stocks.
• The surge in immigration is clear from the U.S. Census Bureau data with associated political and economic ripple effects just now taking shape.
• Economic and financial market landscapes heading into 2025 contain ample pros and cons to consider with corporate earnings, economic growth, inflation trends, market interest rates, labor market conditions, and policy all factoring largely into forecasts.

Economic Release Highlights

• The PIO report showed headline and core inflation running at 2.4% and 2.8% YoY respectively with MoM readings of 0.1%. Personal income and expenditures grew 0.3% and 0.4% MoM.
• The final revision to U.S. GDP surprised to the upside with headline growth and PCE both revised higher from 2.8% to 3.1% and from 3.5% to 3.7% respectively.
• U.S. PMI (C,M,S) registered 56.6, 48.3, 58.5 with a strong services report countering a weak manufacturing report resulting in an improved overall composite reading for December.
• European PMI (C,M,S) at (49.5,45.2,51.4) beat forecasts across the board. UK (50.5,47.3,51.4) beat on services but missed on manufacturing.
• Industrial Production (-0.1% vs 0.3%) and Manufacturing Output (0.2% vs 0.5%) both came in below the consensus estimate for November.
• Headline Retail Sales beat forecasts (0.7% vs 0.5%) but Ex-Vehicles and Ex-Vehicles & Gas both missed the spot consensus estimate (0.2% vs 0.4%).
• UofM Consumer Sentiment came in right at consensus forecast of 74.0 while 1 yr forward inflation expectations moved down from 2.9% to 2.8%.
• The Housing Market Index ticked down one point to 46 in December, below the consensus estimate of 47 and at the lower end of the forecast range.

Weekly Market Report: December 13th, 2024

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.

Weekly Market Report: December 6th, 2024

Markets last week took in stride a relatively full economic calendar and some overseas political drama in Asia (South Korea), Middle East (Syria), and Europe (France). Upbeat narratives surrounding the holiday shopping season, renewed China stimulus sentiment, and measured cooling of the U.S. labor market translated to marginal gains across global equity markets with a narrow rally in the U.S. (+1%) and participation across both developed and emerging markets, both rising approximately 1.4%. Interest rates declined slightly with some curve flattening as short rates fell more than long rates. Commodities were relatively unchanged on the week with some weakness in oil/gas prices while the USD posted a marginal 0.30% gain for the week.

Market Anecdotes

• A new record high for the S&P 500 last week puts the headline index at a 28% gain for the year, a rally driven by large cap growth stocks but not one foreseen by most Wall Street strategists.
• Bespoke noted last week marked the two-year anniversary of OpenAI’s release of ChatGPT, a window where we’ve seen a remarkable boom in market caps, revenues, operating cash flows, and overwhelmingly unexpected earnings.
• The valuation gap created by small caps lagging large caps by 10% this year and 40% since the end of 2019 prompted a Furey Research Partners research note highlighting the strong historical probability (96%) of small caps outperforming large caps over the next five years.
• A new research piece from Robert Shiller titled “U.S. Crash Confidence Index” indicated a very high level of investor comfort and complacency, a cautious narrative amidst the current backdrop of record high equity markets.
• The market’s reaction to Friday’s jobs report may have been more focused on prior month revision announcements than the headline number given hurricane and strike related disruptions in the October report.
• A flurry of Fed speeches last week in advance of the blackout period echoed sentiments surrounding stubborn inflation sticking above target and tight but cooling labor markets.
• The U.N. FAO reported global YoY food prices up 5.7%, a concerning development for global stability as well as the consumer in general who experience food prices much differently than the simple year over year growth rate we monitor as investors.
• OPEC last week decided for a third time to push back unwinding production cuts to April of next year citing market fundamentals and likely the specter of U.S. production capabilities.
• A political crisis unfolded in South Korea last week with President Yoon targeting the opposition by declaring a crisis and attempting to instill martial law. Korea joins Russia-Ukraine, internal conflict in Syria, Israel-Iran armed conflict, and China-U.S. trade in the geopolitical risk landscape

Economic Release Highlights

• October Payrolls beat consensus (227,000 vs 211,000) while the Unemployment Rate increased to 4.2%. Average Hourly Earnings came in slightly ahead of forecast with MoM 0.4% vs 0.3% and YoY 4.0% vs 3.9%.
• The October JOLT Survey reported 7.744M openings, above the spot forecast (7.490M) and consensus range (7.287M to 7.550M) with a vacancy rate unchanged at 4.6%. The quits rate moved higher overall but remained steady in the private sector.
• The November ISM Manufacturing Index came in slightly above forecast (48.4 vs 47.6). The ISM Services Index came in below the spot forecast (52.1 vs 55.5) and range of estimates (54.0-57.5).
• The November JPM Global Manufacturing PMI improved slightly from 49.4 to 50.0 while the Services reading stayed at 53.1. The Composite reading climbed one tick to 52.4.
• The UofM Consumer Sentiment Index registered 74.0, slightly above the spot forecast while one-year forward inflation expectations increased from 2.6% to 2.9%.

Weekly Market Report: November 29th, 2024

Market Anecdotes

• An eventful month of November is now in the books where global equity markets favored the U.S. and smaller companies in particular with returns for growth and value stocks very similar.
• With the year-end fully visible now that we’re into December, a fresh look at Mag 7 earnings and the S&P 500 reinforces the narrative in the rear view but poses some questions looking forward.
• The current 10yr bond yield is sitting right at average levels of the past year and well within the “soft landing” range of 3.80% to 4.60% where yields falling below this range may suggest rising recession risks and yields rising above may suggest rising inflation risks.
• Concern over high budget deficits and outstanding government debt are tangible given the trajectory of the past 25 years but spending cuts, economic growth (the denominator), and new tariff tax revenue warrant careful attention as investors consider deficits and debt going forward.
• Inflationary fiscal stimulus (growth), tariffs (taxes), and immigration (labor supply) may result in short term price pressures and a strong USD but may ultimately slow the economy and reduce price pressures – a sentiment reflected in short versus long term inflation expectations.
• Torsten Slok pointed out a common misconception in economics, stock/level versus rate of change by noting while YoY inflation is near 2% the overall price level is 22% higher than pre-pandemic 2020.
• The first formal volley of threatened tariffs from POTUS elect came last week as 25% across the board on Canada and Mexico and 10% on China. Equity and bond markets called their bluff while FX markets blinked. Implications across earnings, USD, fiscal policy, and inflation warrant consideration.
• Treasury Secretary Scott Bessent touted a reasonable version of an Abenomics principle, “3-3-3”, which seeks 3% budget deficits, 3% GDP growth, and incentivizing an additional 3mm barrels of oil production. Bessent has also made clear his willingness to challenge Fed independence.

Economic Release Highlights

• Headline and Core PCE inflation were right in line with consensus estimates at 2.3% and 2.8% YoY respectively. MoM readings were 0.2% and 0.3% respectively.
• PCE was in line at 0.4% MoM (3% YoY) while Personal Income grew 0.6% MoM (2.7% YoY), well above the spot forecast of 0.3% and estimated range of 0.1% to 0.4%.
• The second reading of 3Q GDP was unchanged at 2.8% but personal consumption expenditures were revised slightly lower from 3.7% to 3.5%.
• Durable Goods Orders for October grew 0.2%, below the spot consensus of 0.5% but within the forecast range. Ex-Transports grew 0.1% and Core Capital Goods declined 0.2%.
• Consumer Confidence improved in November, rising from 109.6 to 111.7, slightly behind the spot forecast but within the consensus estimate range.
• New Home Sales for October declined from 738k to 610k, a larger decline than the spot forecast of 725k and below the consensus range of 710k-750k. Pending Home Sales rose 2.0%, well above the spot consensus of -1.8% and range of -2.1% to 0.4%.
• Case-Shiller Home Price Index reported home prices rising 0.2% MoM and 4.6% YoY, both generally in line with consensus forecasts.

Weekly Market Report: November 22nd, 2024

Market Anecdotes

• Equity markets again exhibited signs of internal rotation with small caps and cyclicals outperforming large technology names, an area where markets have placed remarkable valuation premiums over the past two years.
• Markets put a bow on the third quarter earnings season last week with 3Q YoY growth in the U.S. of approximately 7%, ahead of developed markets but behind emerging markets.
• FactSet looked at 3Q geographic based earnings data, challenged the idea that a strong USD translates to weaker earnings results for companies with larger international exposure highlighting that the 5.4% blended 3Q S&P earnings growth is comprised of U.S. centric companies who grew earnings by 1.9% and global companies growing at a 12.9% rate.
• The most recent VerityData tally of insider sales show activity at a record high, surpassing the last record high set in November 2016.
• NY Fed data on credit card delinquencies show the third quarter new delinquencies declined for the first time since 2021 by 0.26% to a still elevated 8.79%, a trend we’d like to see continue.
• Japan and China unloaded record sums of UST in 3Q adding to the trend of foreign central bank selling and foreign private investors buying, who have become the largest holders of U.S. debt.
• With continued upside economic surprises and FOMC minutes due this week, markets are viewing the probability of a December 18th rate cut as a coin toss with futures priced at 55% but swaps (OIS) priced at 41% and approximately three cuts expected over a year.
• A recent study from the SF Fed analyzed three measures of ‘labor tightness’ including vacancies to unemployment, vacancies to effective searchers, and headline unemployment concluding the former two remain one standard deviation above average while U3 is one below.
• Bloomberg reports the BLS will be releasing new labor market survey data that attempts to capture workers in the gig economy where estimates range from 5% to 30% of the total workforce.
• Viewing tariff issues as either China centric or ‘universal’ seems reasonable with the former most likely. A study from the Peterson Institute points out that while the economy can more readily absorb tariff inflation pressures, border issues and Fed independence are another story.
• Extending the TCJA will require approximately $3.9t over 10yrs before getting to Trump’s campaign promises. Strategists predict that it will be cut to 5yrs/$1.9t with 50% to the deficit and 50% offset, a portion likely sourced from ‘off budget’ executive action tariff tax revenue.

Economic Release Highlights

• November’s U.S. flash PMI (C,M,S) improved from the prior month and came in above forecasts at 55.3, 48.8, 57.0.
• November’s EU and U.K. flash PMI report (C,M,S) declined from the prior month and came in below forecasts with the EU at 48.1, 45.2, 49.2 and the UK at 49.9, 48.6, 50.0.
• The final reading for UofM Consumer Sentiment in November was revised lower from 73.0 to 71.8 while 1 yr inflation expectations were unchanged at 2.9%.
• November’s Housing Market Index registered 48, well above the prior month reading and spot consensus both of which were 43.
• Existing Home Sales in October came in at consensus 3.96M, up 3.4% MoM and 2.9% YoY.
• Housing Starts (1.311M) and Permits (1.416M) for October decreased slightly versus prior month but registered at the consensus forecast.

Weekly Market Report: November 16th, 2024

Market Anecdotes

• Post-election markets are taking shape as they await details on immigration policy, tax cuts, deregulation priorities, Fed policy, and trade tariffs with the expectation that many campaign proposals will likely be moderated as they become actual policy proposals.
• Bloomberg noted that European stocks are on pace for their worst performance relative to U.S. stocks since 1995 with growth, currency, and policy dynamics all significant factors.
• The CPI report last week renewed attention to Fed policy. We’ve seen 2yr inflation breakevens, which bottomed out the week before the first rate cut, increase 1.1% over the last 45 days thanks to resilient growth and the “reflationary cocktail” of tax cuts and tariffs.
• Fed speaking engagements last week served to further temper market expectations for rate cuts given the stubborn inflation backdrop of the past few months and renewed policy uncertainty following the Republican sweep in DC.
• With 3Q earnings season set to end this week, we are sitting on 8.6% bottom line growth (11% ex-energy) for full CY 2024 forecast of $242 and CY 2025 of $270-$275, a bit of a tightrope with forward multiples tracking at 22x and most other valuation metrics pretty stretched.
• A cut in the corporate tax rate from 21% to 15% is highly probable and effectively falls right to the bottom line. While markets have certainly been pricing this in, a note from Goldman might explain why small caps were the biggest benefactor of the policy change.
• An FT article highlighted new laws in China designed to retaliate against countries waging trade wars by blacklisting foreign companies from Chinese markets, employing sanctions, and cutting off supply chains relied upon by American companies.

Economic Release Highlights

• CPI rose in line with expectations across the board with YoY headline and core at 2.6% and 3.3% with MoM at 0.2% and 0.3%.
• Retails Sales in October grew 0.4%, slightly ahead of the 0.3% forecast while the Ex-Autos (0.1% vs 0.3%) and Ex-Autos & Gas (0.1% vs 0.4%) readings both missed.
• Third quarter European GDP grew 0.4% QoQ, 0.9% YoY while the U.K. reported 0.1% QoQ and 1% YoY growth.
• The October NFIB Small Business Optimism Index edged up to 93.7 from 91.5.

Weekly Market Report: November 8th, 2024

Last week markets took in a relatively light economic calendar but a full slate of corporate earnings reports, an important FOMC meeting, and the results of highly anticipated elections in the U.S. All four aspects, particularly the latter, contributed to a strong week for equity markets and a volatile week for bond markets. The S&P 500 (+4.7%) notched another new record high, breaking the 6,000 mark for the first time in the process. International developed and emerging equity markets both ended the week relatively flat thanks in large part to a strengthening USD. Bond yields surged mid-week but proceeded to unwind and close the week as 10yr yields closed down 7bps on the week.

Market Anecdotes

• Equity markets enjoyed an unwind of election hedges, VIX/MOVE retreats, favorable seasonality, stock buyback momentum, and a healthy dose of election related FOMO/animal spirits. Bond and currency markets endured a mid-week scare but ultimately settled relatively flat.
• Immediate market reaction to the RRR complexion in DC was a selloff in the bond market accompanied by a surge in the USD and small caps due to higher probabilities of tax cuts and tariffs. As the week drew to a close, equity markets retained gains and bond markets ended flat.
• Longer term, the degree of policy pragmatism and economic implications will dictate market outcomes. Positioning for short term equity market strength and bond market weakness with a close eye on yield impact on equity markets and policy development feels right.
• Last week’s FOMC meeting was lacking in suspense as markets received precisely what they expected, a 25- bps rate cut. However, the backdrop moved further away from one warranting the aggressive rate cuts priced in at the beginning of the year given labor and inflation trends.
• Expectations for Fed policy as expressed in futures and prevailing interest rates have clearly signaled risks of a dovish mistake with rate cut expectations now less than 4 cuts in the coming year, the 3m/10yr slope moving toward uninverting, and long-term bond yields rising sharply.
• Monetary policy in the U.S. has shifted focus from taming inflation to working toward an orderly cooling of the tight labor market and contained long-term inflation expectations have likely bolstered Fed confidence in doing so.
• An FT article made note that the strong U.S. economy backed by the consumer carries record high income gaps where the top 20% account for 40% of all spending and the bottom 40% account for 20% of all spending.
• We’re now at the 91% mark of S&P 500 3Q earnings reports with blended top and bottom lines of 5.5% and 5.3%, respectively, in what can still be categorized as mixed outcomes due in large part to beat margins of only 4.5% coming in lower than usual.
• An article in the FT highlighted rising risks of re-defaulting instances in CRE following the unprecedented ‘extend and pretend’ trend of loan modifications by U.S. banks in response to commercial real estate stress.
• Chinese stimulus details announced last week were centered on a $1.4t local government bond swap, a larger than anticipated figure but still centered on stabilization rather than stimulus.
• Money market/SOFR rates surged at the end of Q3, drawing renewed attention to the FOMC quantitative tightening initiative which has reduced the size of the Fed balance sheet by a historic $2t since June 2022.

Economic Release Highlights

• The October ISM Services Index improved from 54.9 to 56.0, beating the spot forecast (53.5) and coming in above the consensus range of 53.0 to 55.8.
• The JPM Global Composite PMI readings improved in November with Services (52.9 to 53.1) and Manufacturing (48.8 to 49.4) taking the Composite reading to 52.3.
• The UofM Consumer Sentiment Index for November came in above consensus (73.0 vs 70.8) and 1yr inflation expectations declined from 2.7% to 2.6%.

Weekly Market Report: November 1st, 2024

Market Anecdotes

• While the soft landing/no landing bullish narrative is still intact, risk appetites have been tempered the past couple of weeks thanks to the backdrop of rising bond yields and election uncertainty.
• Seventy percent of S&P 500 companies have reported earnings with results somewhat mixed overall. Blended earnings growth stands at 5.1% with beat rates and margins at 75% and 4.6% respectively. Revenue growth is at 5.2%.
• The Fed members were quiet last week in anticipation of this week’s FOMC meeting where markets are pricing a 99% probability of a 25-bps rate cut.
• With U.S. elections looming, BCA forecasters are leaning (55%) toward a Trump win with “Red Sweep” odds increasing to 47% and “Blue Gridlock” odds at 53%. There are several higher conviction investment implications to consider.
• China’s stimulus details were leaked last week at CNY 10t bond issuance over three years, 60% to boost local government balance sheets and 40% to buy raw land and housing. Meanwhile, anti-corruption crackdowns are rising.

Economic Release Highlights

• PCE inflation saw YoY headline (2.1% vs 2.1%) and core (2.7 vs 2.6%) both generally inline with forecasts. MoM headline (0.2%) and core (0.3%) both came in right at the spot forecast.
• Personal income growth of 0.3% increased from August’s 0.2% but came in slightly below the 0.4% estimate while Personal Consumption Expenditures of 0.5% beat the 0.4% estimate.
• October payrolls missed sharply with only 12,000 reported jobs, well below the spot forecast of 125,000 and range (57,000 – 180,000). The unemployment rate stayed at 4.1%. Average hourly earnings were generally in line with estimates at 0.4% MoM and 4% YoY.
• The Employment Cost Index (ECI) for Q3 rose 0.8%, slightly below consensus estimate of 1% but within the forecast range (0.7% to 1.0%). YoY ECI rose 3.9%, less than the 4.1% forecast.
• The JOLT Survey for September registered 7.443M job openings, well under the spot consensus of 7.900M and the forecast range of 7.8M to 8.0M.
• The initial 3Q U.S. GDP estimate came in slightly below forecast (2.8% vs 3.0%) while PCE exceeded (3.7% vs 3.0%) and came in above the high end of the forecast range of 2.0%-3.6%.
• The October ISM Manufacturing Index registered 46.5, below the consensus forecast of 47.6 while the final PMI Manufacturing index was revised up from 47.3 to 48.5.
• The Consumer Confidence Index in October jumped from 98.7 to 108.7, well above the spot forecast of 99.1 and consensus range of 97.7 to 100.5.
• Pending Home Sales jumped 7.4% MoM, well above the 1.0% expectation with the index climbing from 70.6 to 75.8.
• The Case-Shiller Home Price Index rose 0.4% MoM in August, up 5.2% YoY.

Weekly Market Report: October 25th, 2024

Market Anecdotes

• Q3 S&P 500 earnings season is 37% complete with beat rates and margins of 75% and 5.7%, respectively. Blended earnings growth stands at 3.6% and revenue growth at 4.9%.
• The recent BoA survey data has seen the likelihood of a ‘hard landing’ near its lowest level of the past 18 months with expectations of a ‘no landing’ scenario increasing notably and a clear consensus expectation of a ‘soft landing.’
• Hawkish FedSpeak narratives continued last week with futures markets continuing to moderate expectations of FOMC rate cuts, now down to roughly 1.25% (5 cuts) over the next 12 months.
• 10yr UST yields rose above 4.2% for the first time since the summer as yields continue to grind higher following the September FOMC rate cut.
• The no landing scenario likely implies higher interest rates stemming from increasing inflationary pressures which, history suggests, may present challenges to equity markets.
• Torsten Slok notes that while higher market interest rates would suggest higher corporate debt servicing costs, companies taking steps to lock in low QE and post pandemic rates have seen non-financial corporate net interest payments decrease to near record low levels.
• The dominance of the U.S. stock market relative to non-U.S. stocks has been remarkable, with the former outpacing the latter in eight of the past ten years. Looking at the next 10 years, valuations, currencies, and nominal bond yields may present challenges to a repeat.
•  A long-term look at home affordability from Bianco Research reminded investors that, while first time home buyer affordability today is clearly an outlier, the ultra-low interest rate QE era may not be the best relative comparison.

Economic Release Highlights

• October U.S. flash PMI (C,M,S) registered (54.3, 47.8, 55.3), in line with the consensus forecast and prior month levels.
• October Eurozone flash PMI (C,M,S) registered (49.7, 45.9, 51.2), meeting expectations but the composite survey remained below the 50 expansionary mark.
• Durable Goods Orders declined 0.8% in September, slightly more than the -0.5% spot forecast while the ExTransportation figure beat expectations (0.4% vs -0.1%).
• The final UofM Consumer Sentiment Index was revised up from 69.0 to 70.5 while one-year inflation expectations declined from 2.9% to 2.7%.
• New Home Sales in September registered 738k, slightly above the consensus forecast (718k) and prior month (709k).
• Existing Home Sales in September came in relatively in line with the spot forecast (3.84M vs 3.90M), -1% MoM and -3.7% YoY.

Weekly Market Report: October 18th, 2024

Market Anecdotes

• Early stages of third quarter earnings are getting off to a mixed beginning with above average beats but below average beat margins. Blended earnings and revenue growth rates are currently at 3.4% and 4.7%, respectively.
• Recent price action across small cap U.S. stocks may reflect an increasing probability of the soft landing scenario taking shape.
• Continued strength in various economic reports has taken the Atlanta Fed GDPNow forecast for 3Q GDP up to 3.4%, well above the generally expected potential growth rate of 2.0%-2.5%.
• Pricing across Morningstar high yield distressed bond data reinforces the idea that credit markets do not see reason for concern based on trends in the numbers, size, and quality of issuers in the space.
• Last week markets received details on various support measures from the PBOC, MoF, and Housing Ministry in China that seem to have impacted the domestic stock market more so than the economic growth outlook.
• Eleven Fed speaking engagements last week served to guide markets toward a more hawkish stance with regard to expected future monetary policy moves.
• The ECB delivered what markets were expecting, a third 25 bps rate cut to the refi and deposit rates, taking them down to 3.4% and 3.25% respectively. Meanwhile, the BoJ has retreated from their brief window of hawkish policy, with the Yen weakening accordingly.
• Updates on U.S. election predictions from our research outlets are seeing an increasing likelihood of a Trump victory, heightening the specter of unified control in DC.

Economic Release Highlights

• Retail Sales in September came in above consensus forecasts for Headline (0.4% vs 0.3%), ex-Vehicles (0.5% vs 0.1%), and ex-Vehicles & Gas (0.7% vs 0.3%).
• Industrial Production in September came in below the spot forecast (-0.3% vs -0.1%) and saw both manufacturing output and capacity utilization come in under consensus.
• The Housing Market Index for October registered 43, slightly under the expected forecast of 42.
• Housing Starts (1.354M vs 1.400M) and Permits (1.428M vs 1.500M) both came in slightly below their respective consensus forecasts.