The State of Markets: “Equities: What Next? Santa Rally – or Pullback?”
Powell’s commentary this week (at his press conference after the FOMC meeting), coupled with the SEP ‘Dot Plots’, reinforced the growing conviction in markets that the Fed isn’t going to cut rates meaningfully next year. On the back of that, risk assets sold off sharply (on Wednesday, and also somewhat on Thursday*). That is, all major US equity indices closed down, Treasury yields were higher across the curve, the dollar strengthened, while gold, silver, and other liquidity barometers (like Bitcoin), were sharply lower.
The key question in the near term is, therefore: Will there still be a Santa rally? Or, has Fed hawkishness triggered the start of a pullback in equities and other risk assets? Put another way, US 10 year yields are higher by nearly 100bps in just the past three months (see chart below). Will that cause something in markets to ‘break’, in the near term? We outline our views on those issues in recent research (e.g. see the ‘Daily Risk Appetite’ and ‘Longview on Friday’ publications for full analysis, available HERE).
Unsurprisingly, macro data in the US/globally will be light over the next two weeks. Key data releases include the US Conference Board consumer confidence (on Monday) and durable goods orders and new home sales on Tuesday (Christmas eve). The following week is also light, but US ISM Manufacturing is published on Friday 3rd January. Please see below for a full list of key/upcoming data points in the next two weeks. The next ‘State of Markets’ email will be published at the start of January.
Key chart: US 10 year Treasury yield (%), shown with 50, 90, & 200 day moving averages
*before recovering today following the softer than expected PCE inflation data.
Upcoming important data/events this week:
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Events: |
N/A |
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Monday: |
US Conference Board consumer confidence (Dec, 3pm). |
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Tuesday: |
US durable goods orders (November first estimate, 1:30pm); US new home sales (Nov, 3pm). |
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Wednesday: |
N/A |
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Thursday: |
N/A |
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Friday: |
N/A |
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Key earnings: |
N/A |
The Following Week (30th December - 3rd January)
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Events: |
N/A |
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Monday: |
US Chicago PMI (Dec, 2:45pm). |
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Tuesday: |
Chinese manufacturing & service sector PMIs (Dec, 1:30am). |
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Wednesday: |
N/A |
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Thursday: |
Chinese Caixin manufacturing sector PMI (Dec, 1:45am); Eurozone M3 money supply (Nov, 9am); |
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Friday: |
UK net consumer credit, mortgage approvals, mortgage lending & M4 money supply (Nov, 9:30am); US ISM manufacturing (Dec, 3pm). |
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Key earnings: |
N/A |
Key Research
Quarterly Asset Allocation No. 60, 18th December 2024:
“US Mid Cycle Slowdown Expected (2025)”
US macro data, in recent months, has been surprising to the upside. The Citi US economic surprise index has climbed from as low as negative 45 in July, reaching +43 by mid-November; Q3 real GDP growth was +2.8% (annualised growth rate, fig 7k), while the Atlanta Fed GDPNow for Q4 is tracking at 3.3% (above the Blue Chip consensus estimate of growth for the quarter). Furthermore, Trump’s election in early November boosted the small business sector with the NFIB small business survey jumping sharply on the month (as reported last week).
Superficially, therefore, growth appears robust.
Under the surface, though, and digging into the detail of the economy, the probability of a mid-cycle (growth) slowdown is building.
Key North American macro data & events:
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Events: |
N/A |
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Monday: |
Canadian GDP (Oct, 1:30pm); US Chicago Fed national activity (Nov, 1:30pm); US Conference Board consumer confidence (Dec, 3pm). |
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Tuesday: |
US building permits (November final estimate, 1pm); US Philadelphia Fed service sector activity (Dec, 1:30pm); US durable goods orders (November first estimate, 1:30pm); US new home sales (Nov, 3pm); US Richmond Fed manufacturing index (Dec, 3pm). |
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Wednesday: |
N/A |
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Thursday: |
US weekly jobless claims (1:30pm). |
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Friday: |
US wholesale & retail inventories (November first estimate, 1:30pm). |
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Key earnings: |
N/A |
The Following Week (30th December - 3rd January)
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Events: |
Speech by the Fed’s Barkin at an event hosted by the Maryland Bankers Association (Fri, 4pm). |
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Monday: |
US Chicago PMI (Dec, 2:45pm); US pending home sales (Nov, 3pm); US Dallas Fed manufacturing sector activity (Dec, 3:30pm). |
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Tuesday: |
US FHFA house price index (Oct, 2pm); US S&P/Case-Shiller 20-city & national house prices (Oct, 2pm); US Dallas Fed service sector activity (Dec, 3:30m). |
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Wednesday: |
N/A |
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Thursday: |
US weekly jobless claims (1:30pm); Canadian S&P manufacturing sector PMI (Dec, 2:30pm); US S&P manufacturing sector PMI (December final estimate, 2:45pm); US construction spending (Nov, 3pm). |
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Friday: |
US ISM manufacturing (Dec, 3pm). |
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Key earnings: |
N/A |
Fig B: US ISM manufacturing (index)
Key European macro data & events
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Events: |
N/A |
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Monday: |
Spanish GDP (Q3 final estimate, 8am). |
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Tuesday: |
N/A |
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Wednesday: |
N/A |
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Thursday: |
Spanish PPI (Nov, 8am). |
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Friday: |
Spanish retail sales (Nov, 8am). |
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Key earnings: |
N/A |
The Following Week (30th December - 3rd January)
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Events: |
Riksbank publishes minutes from December meeting (Thurs, 8:30am). |
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Monday: |
Spanish headline & core CPI (December first estimate, 8am). |
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Tuesday: |
N/A |
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Wednesday: |
N/A |
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Thursday: |
HCOB service sector PMIs for Spain (8:15am), Italy (8:45am), France (8:50am), Germany (8:55am) & Eurozone (9am) – all December final estimates apart from Spain & Italy; Eurozone M3 money supply (Nov, 9am); Italian new car sales (Dec, 5pm). |
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Friday: |
Spanish unemployment change (Dec, 8am). |
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Key earnings: |
N/A |
Fig C: Eurozone M3 money supply (Y-o-Y %)
Key UK macro data & events
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Events: |
N/A |
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Monday: |
Lloyds business barometer (Dec, 12:01am); GDP (Q3 final estimate, 7am). |
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Tuesday: |
N/A |
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Wednesday: |
N/A |
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Thursday: |
N/A |
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Friday: |
N/A |
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Key earnings: |
N/A |
The Following Week (30th December - 3rd January)
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Events: |
N/A |
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Monday: |
N/A |
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Tuesday: |
N/A |
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Wednesday: |
N/A |
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Thursday: |
Nationwide house prices (Dec, 7am); S&P manufacturing sector PMI (December final estimate, 9:30am). |
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Friday: |
Net consumer credit, mortgage approvals, mortgage lending & M4 money supply (Nov, 9:30am). |
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Key earnings: |
N/A |
Fig D: UK Nationwide house prices (Y-o-Y %)
Key Asia-Pacific macro data & events
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Events: |
BOJ publishes minutes from October meeting (Mon, 11:50pm); RBA publishes minutes from December meeting (Tues, 12:30am); BOJ summary of opinions (Thurs, 11:50pm). |
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Monday: |
N/A |
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Tuesday: |
Japanese PPI services (Nov, 11:50pm). |
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Wednesday: |
Japanese ESRI leading index (October final estimate, 5am); Japanese machine tool orders (November final estimate, 6am). |
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Thursday: |
Japanese housing starts (Nov, 5am); Japanese jobless rate (Nov, 11:30pm); Japanese retail sales & industrial production (Nov, 11:50pm). |
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Friday: |
Chinese industrial profits (Nov, 1:30pm). |
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Key earnings: |
N/A |
The Following Week (30th December - 3rd January)
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Events: |
Speech by RBA’s Jones in Fireside chat (Mon, 3:20am). |
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Monday: |
Japanese Jibun Bank manufacturing sector PMI (December final estimate, 12:30am).
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Tuesday: |
Chinese manufacturing & service sector PMIs (Dec, 1:30am).
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Wednesday: |
Australian S&P manufacturing sector PMI (December final estimate, 10pm). |
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Thursday: |
Chinese Caixin manufacturing sector PMI (Dec, 1:45am). |
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Friday: |
N/A |
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Key earnings: |
N/A |
Fig E: China manufacturing & service sector PMIs (NBS)
Last week:
Longview on Friday, 20th December 2024:
“How Good is the Fed at Forecasting Inflation?”
Quarterly Asset Allocation No. 60, 20th December 2024:
“US: Almost Everything is Expensive”
Quarterly Asset Allocation No. 60, 18th December 2024:
“US Mid Cycle Slowdown Expected (2025)”
Quarterly Asset Allocation No. 60, 17th December 2024:
“China: Lost Decade Ahead”
Prior week:
Longview on Friday, 13th December 2024:
“Will US Outperformance Continue? Or Will UK/EZ Step Up?”
Quarterly Asset Allocation No. 60, 12th December 2024:
“Eurozone: How Bad is the Economy? Recession or Reacceleration? A.k.a. ‘North-South’ Divide Ongoing”
Quant Monthly Appendix, 12th December 2024:
“Eurozone Broad Index Sector Valuation Overview”
The SHORT VIEW (& market positioning), 10th December 2024:
“GBP: Finding Support? Positive Outlook?”