Shaw and Partners

Wall Street saw mixed performance, with technology stocks as some of the best performers, while value sectors lagged. The week saw the Nasdaq Composite cross the 20,000 mark for the first time, rising 0.3% in its fourth consecutive weekly gain. Meanwhile, the S&P 500 and Dow Jones industrial Average ended down by 0.6% and 1.8% respectively. Entering the final weeks of what has been a solid year for US equity market returns, markets took a breather, with rising bond yields also weighing on performance. The yield on the 10-year Treasury note rose by a quarter percentage point to 4.398%, its biggest weekly gain since October 2023. Wednesday’s inflation report came in line with expectations, boosting the belief that the Federal Reserve will cuts interest rates by 25 basis points this week. However, the subsequent producer price report came in slightly hotter, with concerns that this could keep rates higher for longer next year.

The pan-European STOXX 600 snapped a three-week winning streak, falling 0.8%. Central banks took the stage, with the Swiss National Bank (SNB) cutting its key rate by 50 basis points to 0.5%, surprising markets who had expected just a quarter point cut. The SNB noted that inflationary pressures had further eased. Later on Thursday, the European Central Bank cut its deposit rate by 25 basis points, its fourth cut of the year. The UK FTSE 100 was down around 0.1% for the week, with the economy unexpectedly declining 0.1% in October. There were some signs of political stabilisation, with Francois Bayrou appointed as the new French prime minister, while Germany is set to have a vote of confidence on Monday, paving the way for February’s election.

Chinese equities were particularly weak on Friday as investors were left disappointed by a lack of details on supportive policy out of the Central Economic Work Conference. For the week overall, the Shanghai Composite ended 0.4% lower however, the Hong Kong Hang Seng gained 0.5%. The latest data out of China didn’t paint a particularly strong picture, with exports increasing by a lower-than-expected 6.7% last month, while imports dropped 3.9% and the producer price index remained in deflationary territory for its 26th month. Japan’s Nikkei was up around 1%, with a weaker yen on a growing possibility that the Bank of Japan may not hike rates this week. Meanwhile in Brazil, its central bank did hike rates on Wednesday, raising its Selic rate to 12.25% from 11.25% with increasing inflation expectations. The Bovespa index ended 1.1% lower.

Weekly macro highlights

US CPI inflation rises in November

US consumer price index (CPI) inflation rose 2.7% year-on-year (YoY) in November, according to data published by Bureau of Labor Statistics (BLS). The data was in line with market expectations and above the 2.6% YoY registered in October. In month-on-month (MoM) terms, CPI inflation increased 0.3% in November, above the 0.2% in October. The index for shelter rose 0.3% MoM, accounting for almost 40% of the MoM increase in headline inflation. Average prices for food rose 0.4% over the month, reflecting 0.5% and 0.3% respective MoM increases in food at home and food away from home. Energy prices rose 0.2% MoM, with a 0.5% increase in energy commodity prices, partially offset by a 0.1% decline in energy services prices. Excluding food and energy, core CPI inflation rose 0.3% MoM in November. This contributed to the core index rising 3.3% in YoY terms, unchanged from October’s print and in line with market expectations.

SNB cuts rates in December

The Swiss National Bank (SNB) reduced its policy interest rate by 50 basis points to 0.5% at its meeting on 12 December. In its post-meeting statement, the SNB highlighted that underlying inflationary pressures have decreased in the fourth quarter. Having forecast average inflation of 1.0% year-on-year in Q4 at its September meeting, the SNB revised lower its forecast to 0.7% at its meeting last week. In addition, the forecasts for the first three quarters of 2025 were all revised lower, despite being conditioned on a policy rate of 0.5% instead of the 1% the September inflation forecasts were conditioned on. The SNB anticipates gross domestic product growth of around 1% in 2024, and of between 1% and 1.5% in 2025, with subdued global activity acting as a headwind. In this environment, the central bank expects unemployment to continue to rise slightly. The 2.6% recorded in November represented the highest unemployment rate in Switzerland since October 2021.

ECB cuts rates in December

The European Central Bank (ECB) reduced the deposit facility rate by 25 basis points to 3% at its meeting on 12 December. The decision represented the third consecutive rate cut by the ECB’s Governing Council. In its post-meeting statement, the Governing Council highlighted that its decision reflected both a continuation of the disinflation process as well as a slower economic recovery than was previously expected. ECB staff see headline inflation averaging 2.4% and 2.1% in 2024 and 2025 respectively. In addition, ECB staff now expect a slower economic recovery, with projections of 0.7% and 1.1% GDP growth in 2024 and 2025 respectively. In her post-meeting press conference, ECB President Lagarde acknowledged “there were some discussions” about a larger 50 basis point rate cut, but that consensus was for the 25 basis point move which was enacted. The ECB stated it will follow a data-dependent and meeting-by-meeting approach to determining future monetary policy decisions.