Weekly Review: 9th December - 13th December
Market Overview:
Last week was relatively heavy in terms of macroeconomic data activity. The US drew the most attention amongst traders, with CPI printing on Wednesday and PPI on Thursday. This led to mixed equity market reactions as the Nasdaq 100 rallied +0.96% and the Nasdaq Composite broke new record highs above 20,000, meanwhile, the Dow and S&P 500 fell -1.81% and -0.52% respectively. In Europe, the UK reported its October GDP figures which indicated a slowdown in economic activity during Labour’s third month in power, while the ECB have resume their rat cutting cycle with a fourth cut of 2024, lowering the bank rate 25bps to 4.15%.
US CPI
US CPI for November was the arguable headline data print of the week with figures coming in at 0.3% on a monthly basis, taking annual CPI to 2.7% just 0.7 percentage points off of the Fed’s target level. CPI is essentially a proxy for inflation, widely used to measure and represent changes in the prices of goods and services within an economy on both a monthly and annualised basis.
While November figures failed to shock markets releasing in-line with analyst expectations, the prevailing inflation rate rose by 0.1 percentage points from the month of October’s 0.2%. Taking a broader look at annual figures, US CPI has remained volatile, ranging from lows of -0.1% in July to highs of 0.4% in February and March, as shown in the graph below.
From an equity perspective, when taking November’s data alone, there is no significant cause for concern. However, the inflation trend through the second half of 2024 is clearly negative. While sustained inflation is necessary and indicative of a healthy economy, runaway inflation introduces a number of additional risks for trader.
Firstly, during a period of rate cuts, delays may be observed to further cuts as the Central Bank has to remain cautious with regards to the directional trends of inflation. Excessive inflation can also cause Central Banks to hike interest rates, artificially stunting growth in order to cool the economy. Both of these outcomes would have a negative impact on equity pricing as the cost of borrowing and subsequently investment on both a retail and business level is raised or held at a higher level, while officials actively target a slowdown in economic activity.
Traders should now be looking ahead to the final meet of the Fed’s Monetary Policy Committee scheduled on Wednesday 18th December. The rate decision alongside any forward guidance will provide a clearer picture of inflationary trends and potential Fed concerns into 2025.
US PPI
As mentioned earlier, US data was the focal point of news throughout the trading week, with November’s PPI print coming in at 0.4% PPI tracks the price inflation of goods and services faced by producers within an economy. For example, measuring the cost increase of ingredients, machinery, and overheads faced by a bakery in order to produce goods like bread. PPI is often seen as a leading indicator of CPI, with changes in production costs frequently passed on to consumers in the form of higher prices.
November’s data came in 0.1 percentage points ahead of expectations, showing that producers faced sharper than anticipated cost increases. Furthermore, figures jumped 0.2 percentage points from October. This rise in PPI signals that while CPI may not be of immediate concern, inflationary pressures within the US should not be dismissed. Once again, a single month of data will not significantly affect equity performance, however, longer term trends and future data should be considered to best protect and shield against potential CPI increases and, subsequently, rate cut delays or even hikes.
ECB Interest Rate Decision
European markets were relatively quiet through the week, with the headline being the ECB Monetary Policy Committee’s final interest rate of 2024. Confident with their progress on inflation, officials voted to cut interest rates by a further 25 basis points, marking the ECB’s fourth rate cut of the year. This decision should provide short term positive reassurance for investors across the Eurozone in the short term, as the ECB continues to promote a relatively accommodative stance toward economic growth, tackling inflation, lowering rates and easing borrowing conditions.
UK GDP
The UK’s major development this week came in the form of Friday’s GDP print for October, which showed that the UK economy contracted by 0.1% during October - a second consecutive month of economic declines. This also marks the second monthly GDP decline under Sir Kier Starmer’s Labour government. This decline was likely driven by a widespread reluctance to spend amongst economically active individuals and entities during October, as the nation prepared for delivery of Labour’s first economic budget in over 14 years. Equity markets didn’t take the print well, with domestic equities trading lower. Notably, the FTSE 100 (FTSE), the UK’s benchmark index closed Friday at 8,300.33, down 0.1% on the week, as traders continue to show caution toward making bullish bets on UK equities.
What to Watch Tomorrow
Monday 16th December
UK Flash Manufacturing & Services PMI
EU Flash Manufacturing & Services PMI
US Flash Manufacturing & Services PMI
Tuesday 17th December
US Retail Sales (MoM)
Wednesday 18th December
UK CPI (YoY)
UK HPI
US Interest Rate Decision
US Crude Oil Inventories
US Earnings:
Micron ($MU)
General Mills ($GIS)
Birkenstock ($BIRK)
Thursday 19th December
BOJ Interest Rate Decision
US Unemployment Claims
US Final GDP
UK Interest Rate Decision
US Earnings:
Accenture ($ACN)
Nike ($NKE)
FedEx ($FDX)
Friday 20th December
UK Retail Sales (MoM)
US PCE Price Index
US Earnings:
Carnival ($CCL)
Sources:
https://uk.finance.yahoo.com/world-indices/
https://uk.finance.yahoo.com/commodities
https://www.londonstockexchange.com/indices/ftse-100
https://www.binance.com/en-GB/price/bitcoin
https://www.binance.com/en-GB/price/ethereum
https://qontigo.com/index/sxxp/
Stock Market Activity Today & Latest Stock Market Trends | Nasdaq
https://coinmarketcap.com/charts/#market-cap
https://www.forexfactory.com
Definitions:
YoY - Year on Year, or, Year over Year
MoM - Month on Month, or, Month over Month
QoQ - Quarter on Quarter, or, Quarter over Quarter
ECB - European Central Bank
BOJ - Bank of Japan
Fed - Federal Reserve
BOE - Bank of England
SNB - Swiss National Bank
DOJ - Department of Justice
SEC - Securities & Exchange Commission