The three wise men meet a little early

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The much anticipated US jobs report on Friday, which came in slightly stronger than expected saw different reactions from equity and bond markets. The equity market seemed to focus on the positives; the slightly stronger number was more as a result of strikers returning to work, and despite a fall in the unemployment rate, the underlying employment growth continues to fade. There is nothing here to deter the idea that the Fed are likely to cut rates sooner in 2024 than later. Most US indexes closed the week and the day in positive territory. Goldilocks porridge is just about right.

On the other hand, bond investors appeared to take another view, shorter-dated bond yields rose and longer-dated ones fell, indicating fixed-income markets anticipated that perhaps these numbers may make the Fed remain more cautious about cutting rates too quickly, and, therefore, the risks of an economic recession increase modestly. The dollar rose against the basket of other currencies. The Vix index fell to new lows, suggesting confidence the rally in stocks has further legs to go.

Equity markets were possibly helped by some positive noises coming from China regarding adding further stimulus to their economy. This helped China exposed sectors, luxury as one example, outperforming on Friday. In addition, the Michigan Consumer Confidence monthly survey came in higher than expected, continuing to suggest that US consumer spending has not yet run out of firepower.

So the week ahead, as we run up to Christmas, it’s one that will keep followers of global markets close to their screens as the Fed, the Bank of England and the ECB all meet for the last time this year. Ahead of the Fed meeting, we get the latest US inflation data. Expectations are for little change in either the core CPI rate or the headline rate. Core Producer prices out on Wednesday are expected to show another fall. No one expects the Fed to change interest rate policy at the meeting, the tone of Powell’s press conference will be of interest, but no matter what Powell says, it feels like the markets have convinced themselves that the first cut is coming in Spring.

It’s a busy week for the UK economy; as we get the latest jobs report, the unemployment rate is expected to rise again, from 4.2% to 4.3%. On Wednesday, we will get the latest GDP report as well as monthly industrial and manufacturing data. This data precedes the Bank of England’s final meeting on Thursday, where, like the Fed, rates are likely to remain unchanged, and the tone of Andrew Bailey’s post-meeting press conference will be important. The first-rate cut from the Bank of England is expected in August 2024.

To finish the week of the ECB meeting on Thursday, again, no change is expected, but with the general state of the European economy, a more dovish tone compared to the others might be due from the accompanying press release. Equity markets look like opening Monday on a modestly positive note.