Weekly Market Report: January 26th, 2023

Last week, markets took in a healthy dose of both economic and earnings reports, moving equity markets higher globally. U.S. large caps were up 1% to a new record high while small caps added 1.75%. Participation was relatively broad, led by the energy and communication services sectors. International developed (+1.5%) and emerging (+1.3%) outperformed thanks in part to a bounce in Chinese equities. Interest rates were relatively unchanged despite the encouraging economic news, but commodity markets rallied sharply with energy markets leading the way as WTI oil surged 6.3% to $78.01 on the week.

Market Anecdotes

• Central banks in or beginning easing cycles alongside healthy economic indications (GDP, labor, inflation) have overshadowed a sub-optimal start to fourth quarter earnings season.
• The FOMC meeting on tap this week is focused on quantitative risk assessment with no policy announcements expected. Markets have been walking back 2024 rate cut expectations (from 6 to 5) but resilient growth and consumption may still challenge that further.
• With 25% of S&P 500 companies reported, the beat rate is 69% and beat magnitude is -5.3% with blended earnings of -1.4% and revenue growth of 3.2%. The 12-month forward P/E multiple is 20x.
• Chinese policy makers, responding in part to nearly $6t in losses across mainland and Hong Kong equity markets since February 2021, announced stimulus headlines last week including a PBoC 0.5% RRR rate cut and a possible CNY 2t stock market rescue package.
• BCA’s Geopolitical team’s annual look at low probability, high impact market risks include a Chinese recession, oil shock in Iran, and military conflicts with Russia/East Asia.
• Despite higher interest rates pressuring corporate debt coverage levels, leveraged loan default rates have remained below historical averages due to a significant increase in ‘distressed exchanges’ which include out of court restructurings, exchanges, and sub-par paybacks.
• The spot Bitcoin ETFs launched on January 11th have thus far been a “sell the news” illustration, down over 20% while equity markets have grinded higher.
• To put a number on higher mortgage rates, a mortgage loan today is over 2% higher than any time since 2011 which equates to $385/mo on a $300,000 conforming 30-year loan.

Economic Release Highlights

• The pace of headline (core) PCE inflation fell in November registering 2.6% (2.9%) YOY and MOM readings of 0.2% (0.2%), both generally in line with consensus. Personal Consumption exceeded forecasts (0.7% vs 0.4%) and Personal Income growth of 0.3% was in line.
• The first estimate of 4Q GDP came in well above consensus (3.3% vs 2.0%) and the high end of the forecast range (1.3% – 2.5%).
• Personal Consumption Expenditures of 2.8% in 4Q cooled slightly from the 3Q rate of 3.1% but beat the spot forecast of 2.5% and above the high end of forecast range (2.4% – 2.6%).
• January U.S. PMI (C, M, S) registered 52.3, 50.3, 52.9 where both services and manufacturing readings came in well above consensus forecast and the high end of their respective ranges.
• January non-U.S. PMI (C, M, S) last week included relatively constructive readings in the Eurozone (47.9, 46.6, 48.4) and UK (52.5, 47.3, 53.8).
• Durable Goods Orders were mixed in December with a miss on New Orders (0% vs 1%), a beat on ex-Transportation (0.6% vs 0.2%), and a beat on Core Capital Goods (0.3% vs -0.2%).
• New Home Sales in December of 664k came in slightly ahead of the spot consensus forecast of 660k and increased slightly over the prior month’s 615k pace. Pending Home Sales jumped 8.3% on the month, well ahead of the 1.3% spot consensus and 0.7%-3.9% forecast range.

Weekly Market Report: January 19th, 2023

Markets took in a good deal of central bank pushback and some firmer economic data last week very much in stride. A tech and shadow tech rally pushed the S&P 500 to a new record high despite yields drifting higher in two of the past three weeks. The S&P 500 climbed 1.17% while international developed (-1.1%) and emerging (-1.7%) both declined. Bond yields were up across the curve with the belly (2s, 3s, 5s) up over 25 bps. The USD strengthened 0.86%, up 1.9% to begin the year, while commodity markets and WTI oil ($73.41) were both relatively flat on the week.

Market Anecdotes

• The S&P 500, which has been up 11 of the past 12 weeks, marked a new all-time high for the first time since January 3, 2022 last week. Interest rate relief, disinflation/growth outlooks, the AI/”Mag 7” rally, and multiple expansion explain most of the recent move.
• Metrics indicating softening demand for labor (more of a leading indicator), would include declining job openings, hiring rates, temporary employment, business survey hiring intentions, quits rate, and average hours worked – all seemingly flashing yellow as we look into 2024.
• A still robust liquidity backdrop provides a constructive backdrop for risk assets and can also mitigate risks of protracted downturns as liquidity sometimes serves as a support mechanism in market dislocations.
• Nine FOMC speaking engagements last week in advance of the month end FOMC meeting served to cool dovish market expectations, taking rate cut probabilities down to 46% for the upcoming March 20th meeting and now pricing 140 bps of easing for the year, down from nearly 175 bps.
• Fourth quarter earnings are off to a subpar start with a beat rate of 62%, a beat magnitude of -18.1%, and a blended -1.7% earnings result. Blended revenues are growing at 2.9%. Misses at this early stage in the financial sector account for the weak start.
• A Goldman research note highlighted how the record lack of financial (rate) incentive to refi outstanding mortgages is translating to anemic existing home sales albeit in what can only be categorized as a resilient U.S. housing market.
• With all the focus on global shipping choke points, Peterson Institute for International Economics published an interesting paper on long term trends in global trade cycles and globalization.
• BCA noted the fall in oil prices in the back half of 2023 can be partially attributed to an 880k b/d surge in U.S. production to record high levels thanks to a flood of DUC shale wells coming online.

Economic Release Highlights

• December Retail Sales beat on headline (0.6% vs 0.4%), Ex-Vehicles (0.4% vs 0.2%), and Ex-Vehicles & Gas (0.6% vs 0.3%).
• Consumer Sentiment Index in January improved from 69.7 to 78.8, above the spot forecast 69.2 and consensus range 66.5-72.5.
• Housing Market Index climbed in January to 44 from prior month reading of 37 and ahead of consensus forecast of 38.
• December Housing Starts (1.460M vs 1.425M) and Permits (1.495M vs 1.478M) both came in slightly ahead of forecasts. Existing Home Sales of 3.78M were down 1% MOM and -6.2% YOY.
• Industrial Production in December grew 0.1%, slightly ahead of the -0.1% consensus estimate.

Weekly Market Report: January 12th, 2023

Markets were relatively firm last week, in what was the first full trading week of the year. Key markers last week included the beginning of the 4Q earnings season, geopolitical developments (Yemen, Taiwan), and a relatively light economic calendar including December inflation data. Equity markets looked past a lackluster start to earnings and a hotter than expected December inflation reading. U.S. (+1.8%) and developed international (+1.2%) posted gains while emerging markets (-0.6%) were weighed down by China which fell 2.1%. Bond yields declined pushing the 10yr UST yield back below 4% while the USD and commodity markets were both relatively flat on the week.

Market Anecdotes

• A great series of charts from Bespoke takes a long-term look at the U.S. stock market, reminding us all that a disciplined and resilient ‘get invested stay invested’ strategy is the most sound approach to equity market investing.
• Market priced probabilities for a March rate cut stands at 75% with a soft PPI working to offset the firm CPI last week. Meanwhile, the labor market remains strong with weekly claims last week (202k) falling to their lowest mark since October.
• Fourth quarter earnings season kicked off last week with a relatively low bar on S&P 500 consensus earnings estimate of 1.3%. The larger issue is likely surrounding forward guidance and the stability of the 12% consensus earnings estimate for full calendar 2024.
• Following an early week SEC twitter hack (and premature crypto ETF announcement), the SEC approved 11 spot Bitcoin ETFs and a BitMEX Research estimated $523mm of inflows in 3 days.
•  A Bloomberg article last week highlighted an IMF report noting global governments will be selling a net. $2.1t in new bonds to finance deficit funding of government operations, a 7% increase over 2023. Sadly, the U.S. is furthest in the crowd from balancing its checkbook.
• The U.S. Senate is likely to move forward with a CR this week to avoid a looming January 19th government shutdown funding deadline.
• Attacks in Yemen (Bab-el-Mandeb Strait) have reverberated north to the Suez Canal where traffic is down considerably. Unfortunately, drought conditions have forced the Panama Canal also to operate well below capacity with supply chains and global logistics again being challenged.
• Taiwan elected VP and DPP candidate Lai Ching-te President surely to the dismay of Chinese officials who refer to Lai as a “separatist”. Tensions are expected to remain high.
• Year-end data from China suggests improving demand conditions (import/export data) but weak private sector credit demand and a clear deflationary trend point to a tepid growth backdrop.

Economic Release Highlights

• December headline and core CPI registered 3.4% and 3.9% respectively while MOM readings both came in at 0.3%.
• December headline and core PPI registered 1.0% and 1.8% respectively with MOM readings of -0.1% and 0%.
• December NFIB Small Business Optimism Index improved slightly to 91.6, beating the spot consensus forecast of 90.6.

Weekly Market Report: January 5th, 2023

Markets went back to work in the first week of 2024 with a bit of consolidation, snapping a nine-week winning streak, following a robust Santa Claus rally to end the year. Drivers last week centered around the release of December FOMC minutes, a notable move higher in bond yields, and a fairly heavy slate of economic
reports. U.S. equity markets started the year down approximately 1.75% (R3000) while developed (-1.5%) and emerging (-2%) equity markets followed suit. Interest rates backed up across the curve pushing the 10yr UST yield back up over the key psychological 4% threshold. The USD and commodity markets were up approximately 1% with the latter helped by a rally across all energy contracts, leaving WTI back up to $73.81.

Market Anecdotes

• We see largely the same set of questions on the landscape including the outlook for growth, monetary policy trajectory, higher interest rate implications, and health of the labor market/consumer.
• A touch of yesterday always informs tomorrow so before heading full steam into 2024, a clear-eyed look back at 2023 capital markets and key dynamics seems to make good sense.
• A research note from Bianco Research highlighted the unprecedented 40 year easing of financial conditions as a big driver (and reflection) of the substantial stock and bond market rallies that occurred in the last two months of 2023.
• Market expectations of 175 bps in cuts in 2024 beginning in March with a backdrop of 3.7% unemployment, respectable GDP growth, and a still healthy 3.2% core PCE might be a little offside but if not, it may spark growth, and unfortunately, a new bout of inflation.
• As opposed to the synchronized global central bank hiking cycle, the cutting cycle is expected to differ but the U.S., Euro area, U.K., and Canada will be similar with OIS markets currently expecting cuts beginning in Q2 and 5 to 6 cuts priced in by the end of 2024 across the board.
• Fourth quarter earnings season kicks off next week with earnings growth consensus of 1.3%, significantly below (downward revisions) the 8.1% consensus 4Q estimate on September 30th. Full year 2024 earnings expectations are around 12%, which many feel is lofty.
• Red Sea attacks by Iranian proxies in Yemen, the Houthis, have the potential to spark another surge in energy prices with just under 9% of global oil and refined products being transported through the Red Sea.
•  A positive economic consensus for 2024 has grown markedly in the past two months but it seems mostly limited to the U.S. with other developed economies being revised downward.

Economic Release Highlights

• December payrolls rose 216,000, more than the 164,000 consensus and above the forecast range (100,000- 200,000). The unemployment rate held at 3.7%. Labor force participation rate fell notably to 62.5%. Average Hourly Earnings were +0.4% MOM and +4.1% YOY.
• The JOLT Survey for November showed job openings marginally lower to 8.790M.
• U.S. ISM Manufacturing Index for December remained in contraction at 47.4, generally in line with consensus and a marginal improvement over the prior month. Final December U.S. Manufacturing PMI was revised slightly lower from 48.2 to 47.9.
• U.S. ISM Services Index for December registered 50.6, well below consensus and last month’s reading which were both 52.7.
• December non-U.S. PMI readings (C, M, S) for China (52.6, 50.8, 52.9), India, (58.5, 54.9, 59.0), U.K. (52.1, 46.2, 53.4), and Eurozone (47.6, 44.4, 48.8) all blended to a Global reading of (51.0, 49.0, 51.6) – a sixteenth consecutive Manufacturing PMI decline.
• November Factory Orders came in within consensus forecast range at +2.6% following a 3.4% decline the prior month.

Weekly Market Report: December 29th, 2023

As is typically the case, the final week of the year came with a very light economic calendar and financial market volume. The lack of material catalysts last week translated to very little movement, but we did put a bow on December, the fourth quarter, and 2023. The S&P 500 notched a ninth consecutive weekly gain to finish the year up 26%. Emerging and developed international equity markets were also up slightly on the week, finishing up 9% and 19% respectively for the year. Bond yields were generally flat in the last week of the year, but the year saw the yield curve maintain and become further inverted, leaving intermediate term yields lower, the long end flat, and the short end notably higher thanks to Fed policy. Commodity markets were down 1.5% in the last week of the year thanks to declining energy prices which closed the year down double digits.

Market Anecdotes

• A quick recap of market events and financial markets in 2023 shows strong (albeit narrow) global equity returns, very pedestrian bond market returns, a double-digit negative year for commodities, and a slight down year for the USD.
• In typical year-end fashion, crystal balls looking at 2024 abound with S&P forecasts ranging from -12% to +12%, mostly clustered in the 0%-6% range. Meanwhile economists have flipped from overwhelmingly predicting recession in 2023 to a soft/no landing outlook for 2024.
• The 3m/10yr yield curve slope finished the year significantly more inverted than where it began, a condition it’s been in for well over a year. Meanwhile, the 2yr/10yr slope finished the year slightly less inverted than it began.
• A WSJ article highlighted declining quality of survey-based data from households and establishments thanks to a greater societal migration away from the telephone and a survey ‘fatigued’ public.
• Politics and geopolitics are front and center as we enter 2024 with Middle East conflict, government funding cliffs, Taiwan election, and several critical Supreme Court decisions. A research note from SSGA suggests that if you’re feeling like international armed conflicts are on the rise, it’s because they are.

Economic Release Highlights

• The Case Shiller Home Price Index for October rose 0.6% in October, up 4.9% YOY.
• Pending Home Sales in November were flat, less than the 0.8% consensus expectation.

Weekly Market Report: December 15th, 2023

A dovish FOMC pivot, moderating inflation, and a generally in line slate of economic reports pushed equity markets to another strong week of gains. The yield curve flattened and yields again fell sharply, leaving the 10yr yield below the 4% level. The USD weakened notably (-1.4%) as other central bank narratives weighed in a bit more hawkish than the Fed. Commodities were up 1% on the back of a rally in industrial metals while WTI oil was relatively flat, closing at $71.43, down 11.9% on the year and down 24.3% since its 9/27/23 peak for the year.

Market Anecdotes

• Seven consecutive up weeks on the S&P 500, something we’ve only seen 10 other times since 1990, led Goldman Sachs to note the market has reached its most overbought level (RSI >70) in over a decade. Forty- six percent of stocks are trading with a 14-day RSI>70, the most in 30 years.
• Last week’s FOMC meeting left rates unchanged as expected at 5.25%-5.50% with markets focused on the SEP, dot plot, and Powell’s remarks. While the statement continued to indicate the Fed is prepared to hike further, Powell’s remarks made clear they are at or near the peak.
• U.S. monetary policy focus has been changed to the timing of rate cuts. A look back at the historical span between the last rate hike and initial rate cut shows a range of 4 to 15 months, with an average of 8.
• While markets are certainly in celebration mode, the prospect of sticky inflation or second wave inflation remains a tangible risk as evidenced by near term moving averages of both the Cleveland and Atlanta Fed. inflation models.
• After 11 consecutive hikes and stepping aside at their October meeting, the ECB again kept rates on hold at 4.5%. 14 successive hikes and two pauses saw the BoE again leave rates at 5.25% as did the SNB (1.75%).
• The sharp decline in bond yields comes with several constructive implications including lower cost of debt across both the public and private sector, a tailwind for equity market valuations, and increased home buying activity which can spur factory orders and the manufacturing sector.
• The unemployment rate fell in November from 3.9% to 3.7% warranting a check in on Sahm rule and Joshi rule recession indicators with the latter rising from 0.153 to 0.169, closing in on the key 0.20 threshold.

Economic Release Highlights

• Headline and core CPI rose in November 3.1% and 4.0% with MOM readings of 0.1% and 0.3% respectively, all relatively in line with consensus forecasts.
• U.S. PMI (C, M, S) saw manufacturing come up short, but services exceeded their respective forecasts registering (51.0, 48.2, 51.3) in the December flash.
• Eurozone and U.K. PMIs (C, M, S) for the December flash registered (47.0, 44.2, 48.1) and (51.7, 46.4, 52.7) respectively.
• November Retail Sales grew 0.3%, well ahead of the spot consensus -0.1%. Both ex-vehicles (0.2% vs -0.1%) and ex-vehicles & gas (0.6% vs 0.1%) beat forecasts as well.
• NFIB Small Business Optimism Index registered 90.6, generally in line with forecasts but still below the long- term historical average of 98.
• Industrial Production grew 0.2% slightly below 0.3% forecasts and toward the bottom of the 0.1%-0.7% forecast range.

Weekly Market Report: December 8th, 2023

The S&P 500 and NASDAQ delivered a sixth consecutive weekly gain, both marking fresh highs on the year. Economic reports showing a still resilient U.S. labor market, some AI hype, and a healthy uptick in consumer sentiment were key drivers last week where soft landing and peak Fed narratives remained firmly in place. Last week saw bond yields break a streak of six consecutive weekly declines with the curve flattening and yields rising 10-15bps in the belly. Oil prices (and commodities) maintained their downward momentum, closing the week just above $71/bbl while the USD strengthened 0.71%.

Market Anecdotes

• As we approach year-end, a quick look at stock and bond market returns should make investors feel relatively jolly as we head into the end of the year, particularly as it compares to last year.
• An article by Robert Armstrong in the FT connects the November risk asset rally to soft landing/peak Fed narratives but also very much to the significant increase in liquidity from the NY Fed RRP which Bianco Research estimates accounts for more added liquidity than QT has withdrawn.
• A look at Chinese stocks versus U.S. or global stocks reminds investors of the many issues facing the country including real estate excess, timid stimulus, elevated debt levels, and overall deflation which does seem to be translating to a balance sheet recession dynamic in China.
• The healthy jobs report last week pulled bond yields higher and expectations of Fed rate cuts in 2024 lower but details show the number of job losers actually rose but was offset by an increase in people re-entering the job market (participation rate).
• BCA noted an interesting disconnect between copper prices and cyclical vs defensive equity dynamics where copper has declined on the year, but cyclicals have outperformed defensives.
• Prevailing ‘soft landing’ optimism among economists and strategists seems to be shared by sell side analysts, currently forecasting 2024 earnings and revenue growth of 10.4% and 4.75%, respectively, with four consecutive quarters of positive earnings growth.

Economic Release Highlights

• The November Jobs Report showed 199,000 new jobs, slightly better than the 180,000 consensus estimate. The unemployment rate fell from 3.9% to 3.7%. The participation rate increased to 62.8% and average hourly earnings of 0.4% MOM and 4% YOY were in line with forecasts.
• The November ISM Services Index registered 52.7, slightly higher than consensus forecast of 52.4 and an improvement relative to October’s 51.8.
• Non-U.S. PMIs (C, S) released last week included Global (50.4, 50.6), China (51.6, 51.5), India (57.4, 56.9), Eurozone (47.6, 48.7), and the UK (50.7, 50.9).
• October’s JOLT Survey reported 8.733M job openings, well under the consensus 9.4M expected.
• December’s U of M Consumer Sentiment Index of 69.4 was well above forecast of 61.9 and prior month of 61.3. The one-year inflation expectation decreased from 4.5% to 3.1%.

Weekly Market Report: December 1st, 2023

Last week markets digested a very busy economic calendar and Fed speak from a dozen speaking engagements sprinkled throughout the week. Continued peak Fed and soft-landing narratives helped equity markets post a fifth consecutive week of gains. We saw some rotation out of year to date winners (magnificent 7) and broader participation across markets. Treasuries continued to rally with bond yields falling across the curve, leaving the 10yr UST (4.22%) at its lowest level since the end of August. The USD (-0.13%) continued its November trend, weakening to late August levels, while the energy patch dragged down overall commodity markets which closed down 1% on the week.

Market Anecdotes

• Stocks and bonds wrapped up a terrific November last week with the Bloomberg Aggregate Index (+4.53%) posting its best month since 1985, bolstering what was a horrible year for bonds to a positive 1.66% return.
• Now that we are in the last month of 2023, a brief look at the positive seasonal equity market tailwinds serves up some hopeful holiday cheer that this year rhymes with history.
• Despite improving equity market breadth last week, a Goldman Sachs look at 2023 illustrates just how prolific the magnificent seven have been.
• Smaller companies, being more susceptible to higher interest rates, have seen both earnings and sales declines since the FOMC began raising rates.
• Broadly speaking, the softening labor market, coinciding with fiscal contraction and the lagged effect of higher interest rates informs our latter half 2024 cautious outlook for risk assets.
• Global central banks have officially become net rate cutters recently but the FOMC speaking circuit last week (@12) reiterated the November meeting narrative which was dovish on balance but delivered with a higher for longer expectation.
• Fed open market activities, now fully in QT mode, show the Fed as a clear net seller of treasuries and a Treasury department leaning heavily into the front end of the curve.
• Crude oil traded below $75 last week despite further output cuts from OPEC+ and another potential territorial dispute stemming from a Venezuela referendum regarding a disputed oil rich territory long ruled by Guyana.

Economic Release Highlights

• October headline (core) PCE inflation registered 3.0% (3.5%) YOY alongside MOM readings of 0% (0.2%), both generally in line with consensus forecasts. Personal Consumption and Personal Income were both in line with forecasts at 0.2% growth for the month.
• November ISM Manufacturing Index came in below the spot consensus forecast (46.7 vs 47.5) and toward the bottom end of the forecast range. The final PMI Manufacturing registered 49.4.
• The November Global Manufacturing PMI improved from 48.8 to 49.3.
• October New Home Sales of 679k came in short of the spot consensus (725k) but within the forecast range of 650k-750k. Pending Home Sales fell 1.5%, slightly less than the -2% forecast.
• The September Case-Shiller Home Price Index grew 0.7% MOM and 3.9% YOY, generally in line with the consensus forecast.
• Consumer Confidence Index for November registered 102.0, an improvement versus the prior month and
  slightly above the spot consensus forecast of 101.5.
• The second estimate of 3Q GDP reflected an upward revision from 4.9% to 5.2% but Personal Consumption was revised lower from 4.0% to 3.6%.

Weekly Market Report: November 24th, 2023

Markets last week, effectively a three-day workweek, were characterized by low volumes, a handful of economic reports, and hopefully a good dose of family, friends, and feasts. Global equity markets saw the S&P 500 up 1% and NASDAQ up 0.9%, both delivering a fourth consecutive week of gains. Emerging markets turned in a gain of 0.6% and we also saw a nice rally in developed internationals of 2.4%. Bond yields were relatively quiet with a small and parallel move slightly higher, closing with 10yr yields at 4.47%. Both the USD (-0.50%) and commodity markets (-0.40%) notched slight declines on the week.

Market Anecdotes

• 3Q earnings season is over, ending with a healthy earnings growth rate of 4.3% YOY totaling $487.1b in aggregate. The beat rate (LT average) 81.9% (66%), miss rate 13.7% (20%), and magnitude 7.3% (4.1%) all compared favorably relative to their respective long-term averages.
• Decent earnings, disinflation trends, peak FOMC rate cycle, easing financial conditions, and increased soft landing expectations have all contributed to one of the best Novembers for the S&P 500 on record thus far, currently up 8.8% with a few days remaining.
• For all the S&P headlines in 2023, non-U.S. markets including Japan (+15.8%), Germany (+17.2%), France (+16.4%), Emerging Europe (+27%), and Brazil (+23.7%) have impressed as well. Unfortunately, the same cannot be said for commonwealth countries and China (-6.3%).
• FOMC minutes released last week showed consensus on a cautious approach regarding additional rate hikes and an expectation that tight policy will continue to weigh on growth and inflation looking into 2024. Market rate cut expectations remain aggressive regardless.
• Interest rates have fallen from just under 5% (10yr) prior to the November FOMC meeting to under 4.5%, assisted by peak Fed, continued disinflation, and slowing growth narratives, the latter bolstered last week by slowing PMIs and durable goods orders reports.
• The resilient U.S. consumer has been a key growth driver over the past two years which begs a credit health check in addition to consumer ‘balance sheet’ narratives. A recent look at consumer loan delinquencies from Strategas does seem to square with a cautious view of 2024.
• The soft-landing narrative has been bolstered by the sample based estimates (2mo lag) of monthly payroll growth which has shown downward revisions every month this year with the exception of July – a sign of overstated 2023 strength following understated strength in 2021.
• The Biden-Xi summit went relatively well but, even more so than U.S. elections, Chinese geopolitical risk is centered around the January 13th Taiwan elections and whether a pro-mainland government will assume power.
• A Qatar negotiated temporary ceasefire in Gaza brought temporary reprieve to the war between Hamas and Israel with hostage and prisoner exchanges occurring over the weekend.

Economic Release Highlights

• U.S. PMI for November registered a composite reading of 50.7 with Manufacturing (49.4 vs 49.9) and Services (50.8 vs 50.5) both generally in line with their respective consensus forecasts.
• Eurozone PMI for November registered a composite reading of 47.1 with Manufacturing (43.8 vs 43.3) and Services (48.2 vs 48.0) both generally in line with their respective consensus forecasts.
• UK PMI for November registered a composite reading of 50.1 with Manufacturing (46.7 vs 45.0) and Services (50.5 vs 49.6) slightly better than the consensus forecasts.
• Existing Home Sales declined 4.1% MOM in October to 3.79M, down 14.6% YOY.
• Durable Goods Orders contracted 5.4% in October, below the low end of the (-4.4% – 2.8%) range and consensus spot forecast of 3.2%.
• U of M Consumer Sentiment Index for November was revised higher from 60.4 to 61.3 in the final release.

Weekly Market Report: November 17th, 2023

Markets last week rallied for a third consecutive week on the back of easing overall financial conditions thanks in large part to disinflation, soft landing, and peak Fed narratives. There was a fair amount of economic data, including October CPI, which leaned into the prevailing bad news is good news sentiment of late. Equity
markets were up sharply with U.S. (+2.24%), developed (+3.98%), and emerging (2.63%) all participating. Small cap U.S. stock jumped nearly 5.5% on the week. Bond markets saw the rally in Treasuries continue and the curve flatten, leaving the 10yr UST yield at 4.44%, down from 4.98% one month ago. The counter cyclical USD fell 1.84% while commodity markets were relatively flat thanks to a late week rally in oil which washed out losses from early in the week.

Market Anecdotes

•  A healthy easing of financial conditions since late October has contributed to stock markets rallying nearly 10% and bond yields falling nearly 0.50% – very healthy gains across the majority of financial market assets as we work through a (seasonally) favorable end to the year.
• Numerous economies including the U.S. are reporting slowing growth and disinflation trends. The most recent Atlanta Fed GDPNow model forecast for 4Q U.S. GDP is 2%.
• The soft CPI print washed out market expectations of any remaining FOMC rate hikes which are now pricing cuts of 25bps by June and 50bps by July. However, Bianco Research issued a reminder that the next two months present some difficult YoY base effect bogeys.
• Nineteen Fed speaking engagements last week noted favorable disinflation trends but also made clear it is far too early to declare victory – avoiding any hint of an all-clear signal for markets.
• A Preqin report on private credit highlighted the significant growth of the asset class to roughly $1.6t in AUM and nearly $500b of dry powder across various types of private credit strategies.
• The House and Senate passed a CR, avoiding a government shutdown, covering operations through late January to early February.
• An FT article last week highlighted net purchases by major central banks totaled nearly $20t from 2009 through 2022 with the exit from central bank QE programs a significant source of uncertainty looking out over the next several years.
• A weaker USD, which touched a 2 ½ month low last week, has been fueled by disinflation momentum implying a pull forward of Fed rate cut expectations.
• A report late last week that KSI may extend their voluntary cut and OPEC+ may cut an additional 1M bpd at this week’s meeting sparked a late week rally in crude oil prices.

Economic Release Highlights

• Headline and core CPI in October rose 3.2% and 4.1% with MOM readings 0% and 0.2% respectively, all registering 0.1% under their consensus forecasts.
• October Retail Sales declined 0.1%, slightly better than the expected -0.3% decline. Ex-Vehicles (0.1% vs – 0.1%) and Ex-Vehicles & Gas (0.1% vs 0.2%) were also generally in line with consensus.
• Weekly unemployment claims took the 4-week moving average to 220,250, a fifth consecutive weekly increase. Continuing Claims of 1.865mm are now at their highest in two years.
• October Industrial Production declined 0.63%, the largest monthly decline since December 2022 and below the long-term average reading of 0.26%.
• The NFIB Small Business Optimism Index in October registered 90.7, slightly above consensus 90.5 and within the forecast range.
• Housing Starts (1.372mm) and Permits (1.487mm) rose slightly in October versus the prior month reading.
• NAHB/Wells Fargo Housing Market Index fell a fourth consecutive month to 34.0.