Global equities were higher on the week amid solid earnings reports from several mega-cap tech companies. The yield on the US 10-year Treasury note fell 0.15% to 4% but looks set to end the week well above its lowest levels. This follows concerns over the health of US regional banks reemerged at midweek, contributing to a drop in yields to as low as 3.82% on Thursday. The price of a barrel of West Texas Intermediate crude oil slumped more than $5 to $72.10. Volatility, as measured by the Cboe Volatility Index (VIX), was steady at 13.9.
CANADIAN ECONOMIC NEWS
Economic growth in Canada ticked up in November, expanding at a 1.1% annual rate, faster than the 0.9% pace set in October.
US ECONOMIC NEWS
With just 45% of the constituents of the S&P 500 Index having reported for Q4 2023, blended earnings per share, which combines reported data with estimates for those that have yet to report, shows that earnings rose 1.5% compared with the same quarter a year ago. Sales growth is up 3.4% year over year.
We have discussed in our client meetings that the US is by far the strongest equity market globally as we start the 2024 year and this proven once again by nonfarm payrolls in the United States which rose 353,000. This doubled estimates, while revisions to the prior two months added 126,000 jobs to the January tally and annual revisions added 359,000 jobs to the 2023 total. The month-over-month reading for average hourly earnings also doubled expectations, rising 0.6% from the month before while gaining 4.5% from a year ago.
Fed Chair Jerome Powell said Wednesday that members of the Federal Open Market Committee want to feel more confident that inflation is on a sustainable path toward its 2% target before cutting interest rates. We continue to expect rate cuts in the US to begin in May.
One theme we have been discussing in our client meetings is the opportunity for bonds to have equity-like returns in 2024 and 2025 as we enter this interest rate cutting cycle. US investment-grade corporate bond issuance hit a record $188 billion in January.
The Conference Board’s US consumer confidence index rose to 114.8 in January, from 108 in December to its highest level since the end of 2021. The Institute for Supply Management’s manufacturing index rose to 49.1 in January from 47.1 in December as the new orders component jumped to 52.2 from 47.
EUROPEAN ECONOMIC NEWS
European Central Bank President Christine Lagarde said this past week that the central bank’s governing council in unanimous in the view that its next move will be to cut rates, though she said more data is needed as “we’re not there yet” on inflation. Wage data will be particularly important in the ECB’s calculus, she said. It was reported this week that euro zone unemployment held steady at a record-low 6.4% in November.
A divided Bank of England held rates steady this week; two policymakers voted for a hike while one voted to cut rates.
CHINA, EMERGING MARKETS and JAPAN ECONOMIC NEWS
The presumptive Republican US presidential nominee Donald Trump is considering levying 60% tariffs on imports from China if reelected.
Unable to reach an agreement with its creditors, Chinese property developer Evergrande was ordered to liquidate by a court in Hong Kong. Chinese shares are off to a bad start in 2024, with the Shanghai composite losing 6.25% in January.
China’s composite purchasing managers’ index rose to 50.9 in January from 50.3 in December, though the manufacturing sector continued to contract.
Saudi Arabia has scrapped plans to expand the country’s oil production capacity to 13 million barrels a day from its current 12 million barrels over the coming years. At present, the kingdom is producing roughly nine million barrels a day and doesn’t see the need to increase medium-term capacity. Riyadh also announced that it is resuming defence talks with the United States that were paused at the outset of the Israel-Hamas War.