Please see below this week’s Weekly Market Commentary from Brooks Macdonald, received yesterday afternoon – 08/01/2024
In summary
- The US Equity Index posts its first weekly loss after nine weeks of consecutive gains
- The headline US employment report pointed to a robust labour market backdrop
- This week the market will focus on the US Consumer Price Index (CPI) report, released on Thursday
Markets began 2024 in a downbeat mood with equities suffering as bond investors pushed back their expectations for US interest rate cuts based on the US Federal Reserve (Fed) commentary and strong economic data. The highest profile of these strong data points was the headline US employment report on Friday. This week the main event will likely be the US CPI report which is released, unusually, on Thursday.
The headline number of new jobs created in the US was 216,000 versus market expectations of just 160,000. With that stronger number, the overall unemployment rate remained steady at 3.7% compared to the consensus expectation of a rise to 3.8%. Lastly, the average hourly earnings was expected to slow to 0.3% however it actually still expanded by 0.4% month-on-month. Within the data there were some signs of a slowdown including the household survey which showed a loss of 686,000 jobs, the highest since April 2020. Last month that same survey saw a gain of 586,000 so clearly volatile, but one to keep an eye on. Later in the day, the US Institute of Supply Management (ISM) services survey pointed to a significant weakening in job prospects with the employment subcomponent back to levels last seen in 2020. The combination of the ISM survey and non-farm payroll report shows a mixed picture. However, markets latched onto the headline number of new jobs created, creating a sombre mood even if the US Equity Index did manage to post a very small gain by the end of the day.
Thursday will see the US CPI report released for December, with market expectations pointing to a headline 0.2% month-on-month gain and a 3.2% year-on-year gain. For the core CPI figures, the consensus expects 0.25% month-on-month and 3.8% year-on-year. The year-on-year numbers continue to fall, however it is clear that the ‘last mile’ to bring the CPI numbers back to the Fed’s target are going to be difficult.
With the US equity market having had a negative week, after a very impressive nine consecutive weeks of gains, sentiment is clearly a little shaken ahead of the US CPI release. This week, alongside the CPI report are a series of Fed speakers, a number of Treasury auctions which will test appetite for US Treasuries at the current yield levels and also the latest New York Fed 1-year inflation expectations.
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Charlotte Clarke
09/01/2024