The post-election rally lost steam last week amid rising interest rates and less dovish commentary from Fed Chair Powell, sending U.S. equity indices lower. The S&P500 index slid 2%, while the Nasdaq Composite and Russell 2000 dropped 3% and 4%, respectively. A surging U.S. dollar…
RECAPPING LAST WEEK
The post-election rally lost steam last week amid rising interest rates and less dovish commentary from Fed Chair Powell, sending U.S. equity indices lower. The S&P500 index slid 2%, while the Nasdaq Composite and Russell 2000 dropped 3% and 4%, respectively. A surging U.S. dollar continued to hammer international stocks—especially emerging markets, which sank 4.5%. Crude oil, gold, and other commodities also faced headwinds from the rising greenback. Bitcoin, however,
sustained its bullish wave, jumping another 19% for the week. Eight of eleven S&P500 sectors lost ground, with healthcare plunging 5.5%, while technology and basic materials each shed more than 3%.
U.S. Treasury yields rose across the curve after Powell said the central bank does not need to be “in a hurry” to lower interest rates. He cited a strong economy and a “bumpy” path down for inflation as the main reasons for the comments, and indeed, last week’s economic data supported his views. October’s CPI report was in line with forecasts but higher than the prior month, with inflation rising 0.2% MoM and 2.6% YoY. Producer prices also perked up last month. Meanwhile, consumer spending remained strong, with October retail sales climbing 0.4% MoM while the prior reading was revised sharply upward. New unemployment claims for the week of the election fell to the lowest level since May. Investors still anticipate a rate cut in December, but odds are trending lower. Additionally, the outlook for the pace of future rate cuts is becoming murkier.
Overseas, China reported solid retail sales for October, but the drop in real estate investment steepened. Industrial production rose 5.3% YoY, missing forecasts of 5.6% growth. The country’s recent stimulus measures appeared to help certain areas of the economy, but the property slump worsened. In Japan, the yen has cratered nearly 10% from its September high, yet Bank of Japan policymakers remained divided on how soon they could raise interest rates, according to the
Summary of Opinions from their October meeting. Japan’s wholesale inflation accelerated last month, while Q3 GDP expanded 0.3% YoY, reversing two straight quarters of decline. Finally, the British economy contracted in September and only grew marginally in the third quarter. Still, due to sustained wage increases over the period, heightened inflation risks may dissuade the Bank of England from pursuing a second consecutive rate cut in December.
THE WEEK AHEAD
A quick programming note—this newsletter will not be published next week and will return on December 2. While Fed Chair Powell’s comments last week led to a retreat in risk assets, it seems important to point out that he struck a more positive tone on the labor market than in prior communications, supporting further economic strength. Turning to this week’s economic calendar, it contains mostly second-tier data, highlighted by global flash PMI surveys for the manufacturing and services sectors on Friday.
The release could provide early indications on how U.S. companies are preparing for potential import tariffs. Meanwhile, Europe is grappling with Germany’s prolonged manufacturing downturn while the services sector carries on. Other notable U.S. data points include housing updates—starts, permits, and existing home sales—along with the Philly Fed Manufacturing index and revised consumer sentiment figures.
Chipmaking giant Nvidia will report earnings on Wednesday after the close. International investors will get inflation updates from Canada, the UK, and Japan. World leaders gather at the G20 meetings in Brazil amid ongoing conflicts in the Middle East and Europe and the looming U.S. administration change. China’s central bank is not expected to adjust the loan prime rates on Tuesday evening. Looking ahead to the shortened Thanksgiving week, the main economic releases in the U.S. will include consumer confidence, the PCE price index, the second estimate of Q3 GDP, and FOMC minutes from the October meeting. Eurozone inflation updates and China’s PMIs are on the international docket.
