Please see below, Brooks Macdonald’s ‘Weekly Market Commentary’ which provides a brief analysis of the key factors currently affecting global investment markets. Received yesterday afternoon – 11/12/2023
Despite the US equity market now posting its 6th consecutive weekly gain, there should be no complacency ahead of this week which sees a Fed meeting, an ECB meeting and perhaps most importantly, a US CPI print.
Before we move onto this week, we should acknowledge the US employment report which was slightly stronger than markets were expecting on a headline level and saw the US unemployment rate fall to 3.7% versus the 3.9% expected. Average hourly earnings were also slightly stronger than expectations. Taken as a whole, the US jobs report pushed back against the soft-landing narrative and expectations for a near immediate loosening of policy. There was some good news on Friday however as the University of Michigan survey showed 1 year inflation surprising to the downside, coming in at 3.1% versus the 4.3% that was expected.
The jobs report is likely to dissuade the Fed from sounding too dovish this week and markets also reduced the implied number of interest rate cuts in 2024 as a result. The key question for Wednesday’s Fed meeting statement will be whether the Fed explicitly rebukes the market’s pricing of around 4½ 25bp interest rate cuts in 2024. With the jobs report in recent memory, the Fed is likely to strike a more cautious tone, saying that while rate rises are likely finished, this does not mean rate cuts are imminent. The tone of the statement and press conference will be key, as will the dot plot of interest rate expectations. The ECB and Bank of England will report on Thursday, with expectations of a pause in interest rates from both central banks.
Before we get to the trio of central banks, markets will need to contend with the US CPI release on Tuesday. The consensus expects there to be no month-on-month inflation at a headline level and 0.3% growth for Core CPI. The major difference between these two readings is the gas price which is down -8% since October and is excluded from the Core CPI reading. The two-day Federal Reserve meeting will already be underway when the CPI report lands but it is undoubtedly going to feed into their thinking if we see an upside or downside surprise.
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Alex Kitteringham
12th December 2023