Bassanese Bites: Caution can wait – December 09 2024
Global markets
Global equities continued their rebound last week, supported by encouraging comments from Fed chair Jerome Powell and a Goldilocks US employment report.
In key commentary last week, Fed chair Powell conceded the US economy was stronger than the Fed thought when it first cut rates in September, and inflation has been a little higher. He then ventured “the good news is that we can afford to be a little more cautious as we try to find neutral.”
Despite this, equities rallied on his upbeat economic views and money markets retained a high chance (85%) of a third consecutive rate cut at next week’s final Fed meeting for the year. It seems the Fed can be cautious – but caution can wait until next year!
Supporting the idea the Fed can cut rates next week, Friday’s November employment result could be considered neither too hot nor too cold. Employment rebounded broadly in line with market expectations (+227k) after being held down in October by hurricanes and strike activity – with the unemployment rate ticking up to 4.2% from 4.1%.
In other news, Trump appointed Paul S. Atkins – a known advocate of lighter financial regulation and crypto currencies – as head of the Securities and Exchange Commission (SEC), which could support the current fervour around Bitcoin and Wall Street banks. Apart from its being potentially overbought in the short-term it hard to imagine the news flow disfavouring Bitcoin anytime soon given Trump & Co.’s infatuation with all things crypto.
Last but not least were more signs of woe in Europe, with the French Government toppling in the face of fierce parliamentary opposition to budgets cuts – designed to reign in the whopping budget deficit now running at 6% of GDP.
Global week ahead
The major global highlight this week will be the US November CPI report, with markets expecting another firm 0.3% gain in core prices which would keep the annual rate steady at 3.3%. Core (i.e. ex food and energy) inflation for the Fed’s preferred inflation measure – the private consumption expenditure deflator (PCED) – has been stuck at 2.8% for the past few months.
