Equities Extend Their Rally

For the week ending 6 December 2024

As of midday Friday, global equities were trading in record territory. The yield on the US 10-year Treasury note fell to its lowest level since mid-October at 4.16%. The price of a barrel of West Texas Intermediate crude oil declined to $67.30 from $69.05 before the US Thanksgiving holiday. Volatility, as measured by futures contracts on the Cboe Volatility Index (VIX), fell to 14.4 from 15.25 last week.

November US payrolls rebound after stormy October

US nonfarm payrolls rose 227,000 in November, a dramatic improvement from an upwardly revised 36,000 in October, when a series of hurricanes and strikes disrupted hiring. The prior two months’ payrolls were revised up 56,000. The unemployment rate edged up to 4.2% from 4.1% while average hourly earnings rose 4% — 0.1% more than expected — compared with a year ago. However, markets focused on the 355,000 drop in employment, according to the Bureau of Labor Statistics’ household survey. After the data were released, futures markets upped the odds of a December rate cut to around 90%.

Powell says Fed can afford to be cautious

US Federal Reserve Chair Jerome Powell said Wednesday that economic growth is stronger and inflation a little higher than was expected back in September, when the Fed began cutting rates. This suggests the pace of rate cuts is likely to slow. Powell said that he expects cuts to continue but that with the economy performing more strongly than expected, the Fed can afford to be more cautious as it “tries to find neutral.”

Markets take political instability in stride

France’s prime minister ousted? Martial law decreed briefly in South Korea? Civil war intensifying in Syria? No problem, if market reaction is any guide. The spread between French government bonds and their German counterpart narrowed after French Prime Minister Michel Barnier lost a confidence vote on Wednesday, having failed to ram through the 2025 budget. Barnier, the first French premier to be sent packing in over 60 years, will stay on in a caretaker capacity until President Emmanuel Macron appoints a successor. Macron said Thursday he will name a new prime minister in coming days and that he will serve out the remainder of his term as president. South Korea’s Kospi Index lost only 0.5% on the week after an attempt by President Yoon Suk Yeol to declare martial law quickly fizzled when the country’s parliament voted 190-0 to rescind the declaration. Yoon is likely to face impeachment proceedings and be removed from office, setting the stage for fresh elections. On the week through Thursday’s close, the Kospi index lost only about 0.5%. Turmoil in the Middle East intensified this week, with Syrian President Bashar al-Assad’s regime in danger of collapse as an armed coalition of opposition factions took control of an estimated 250 Syrian cities and towns, including Aleppo, the country’s second largest city. While the Syrian pound continues to tumble, global markets remain largely unperturbed.

QUICK HITS

Tax hikes in the recent UK budget took additional steam out of that country’s economy while the US services sector saw a setback in November, though the sector remained in expansion.

The S&P 500 and the Nasdaq indices notched fresh record-high closes on Monday, Tuesday and Wednesday this week.

Canada’s unemployment rate rose to 6.8% in November, pushing up the odds of a 50-basis-point cut at Wednesday’s Bank of Canada meeting.

As trade tensions between the US and China continued to build, China announced a ban of exports to the US of the rare earth minerals used in the manufacture of advanced semiconductor chips after the US Department of Commerce slapped fresh curbs on China relating to the sale of high-bandwidth memory chips made by US and foreign companies.

Bundesbank head Joachim Nagel urged the relaxation of Germany’s debt brake amid ongoing economic challenges.

Reports this week indicated that Robert Lighthizer, the US Trade Representative in the first Trump administration, is not expected to join the second one. Lighthizer had been hoping to lead the Commerce Department or the Department of the Treasury.

Trump appointed Peter Navarro as senior counselor for trade and manufacturing, a White House position that does not require Senate confirmation.

Amid sluggish economic growth, the yield on China’s 10-year government bond slipped below 2% this week to the lowest level on record.

A magnitude 7 earthquake hit northern California late Thursday morning local time, with no reports of serious damage.

Unemployment in the eurozone held steady at 6.3% in October.              

In the face of threats from US President-elect Donald Trump, Canada announced that it will enhance its border security to ward off fresh tariffs. 

OPEC+ announced it will maintain production caps until the end of Q1 2025 and then allow a production increase of 2.2 million barrels a day spread out over 18 months, amounting to 2.2 million additional barrels a day by late 2026.

The October US Job Openings and Labor Turnover Survey showed that the job market tightened in October as job openings increased to 7.74 million from 7.37 million the month before. The quit rate rose to 2.1%, the highest level since May.

The OECD this week warned central banks against rapid rate cuts, citing persistent inflation.

Trump nominated Paul Atkins to head the US Securities and Exchange Commission. Atkins, a cryptocurrency supporter, was an SEC commissioner during the administration of George W. Bush. Bitcoin broke above $100,00 after the appointment was made public.

The German economy will grow by only 0.1% next year, following two consecutive years of contraction, according to forecasts from the IW German economic institute. The organization’s chief economist said Germany no longer faces a cyclical downturn but a severe structural crisis.

THE WEEK AHEAD

China’s Central Work Conference, where officials will discuss economic targets and stimulus measures

Tuesday: US unit labor costs and nonfarm productivity

Wednesday: US CPI, Bank of Canada rate decision (market split between a 0.25% and a 0.5% cut)

Thursday: ECB rate decision (-0.25% expected), US PPI

Friday: Japan, UK and eurozone industrial production