The S&P500 index closed at a record high for a second straight week, rising 1% after U.S. employment data boosted expectations for another interest rate cut later this month. The Nasdaq Composite index surged more than 3% to set a fresh weekly…
RECAPPING LAST WEEK
The S&P500 index closed at a record high for a second straight week, rising 1% after U.S. employment data boosted expectations for another interest rate cut later this month. The Nasdaq Composite index surged more than 3% to set a fresh weekly closing high, while the Russell 2000 slipped 1%. S&P500 sector performance titled negative though, as gains in technology and consumer discretionary were more than offset by losses in deep cyclicals like energy, industrials, and basic materials. Spot Bitcoin prices crossed and closed above the 100k threshold for the first time. Crude oil futures fell more than 1% after OPEC+ delayed production increases for a third time amid a looming supply surplus.
Trade tensions between the U.S. and China escalated after the Biden administration announced new restrictions on semiconductor-related exports. China retaliated by banning shipments of high-tech materials such as gallium and germanium to the U.S. Turning to the labor market, U.S. Treasury yields fell after non-farm payrolls rose by 227k last month, slightly above expectations. However, October’s anemic reading was only revised higher by 36k, and the unemployment rate ticked up to 4.2%. All in all, the report reinforced the idea of a gradual slowing in the jobs market and the likelihood of a 25bps rate cut at the December 18 FOMC meeting. On the other hand, the amount of rate cuts for 2025 remains very much up for debate, as wage growth of 4% YoY is still well above the historical average of 3.1%, keeping inflation concerns in play. In a speech delivered Wednesday, Fed Chair Powell said the central bank can be “cautious” as it lowers rates to find the neutral level.
In other economic news, U.S. manufacturing shrank less than forecast in November as new orders expanded for the first time in eight months, while services sector activity eased but remained firmly in growth territory. Consumer sentiment rose in early December, but one-year inflation expectations also accelerated due to potential policy changes such as tariff hikes.
Overseas, Europe’s second-largest economy plunged into deeper political chaos after the divided French parliament voted to oust Prime Minister Barnier over his controversial 2025 budget proposal. French 10-year sovereign yields hit 12-year highs versus Germany’s. Meanwhile, German manufacturing data for October was mixed, as factory orders improved, but industrial production overall was hampered by automotive weakness. In the UK, construction activity in November was buoyed by commercial projects, while residential developments lagged. Finally, China’s recent stimulus measures lifted manufacturing activity into expansion territory, according to the official government and private Caixin PMI surveys. New orders rose the most in three years.
THE WEEK AHEAD
Central bank decisions and U.S. inflation are the main data points on this week’s economic agenda.
The Reserve Bank of Australia has left interest rates unchanged since late 2023, in contrast to most of its global peers that are well into easing cycles. It is expected to keep the status quo when it meets later tonight and stay on hold at least into early 2025 as the country grapples with stubborn inflation despite subpar economic growth.
The Bank of Canada meets Wednesday, and forecasts are divided on whether it will cut by 25 or 50bps. The European Central Bank has cut rates from 4.5% to 3.4% since June with another quarter-point reduction anticipated on Thursday. However, the loosening of monetary policy has only served to weaken the currency while doing little to spur economic activity in the Eurozone. Long-term growth prospects are further hindered by the political uncertainties in Germany and France.
In the U.S., Wednesday’s CPI report may not affect the Fed’s upcoming rate decision, but any upside surprise could drastically alter forecasts for next year given how strong the economy has been. The rest of the U.S. calendar includes Treasury auctions, producer prices, and small business sentiment. On the international side, China is scheduled to release inflation and trade balance figures, while Japan has PPI and the Tankan manufacturing and services surveys on the docket. The UK’s monthly GDP figures and inflation expectations round out the week.
(Schwab)
