Equity markets rose again last week. This was egged on by The Fed chief’s speech signalling the likelihood of some moderation in the pace of rate hikes as the US economy stages its orderly landing. Also, lowering the risk premium, which were the first signs of easing in China’s zero-covid policy.

Bond yields eased significantly in response, with the US 10-year back at 3.5% and the Bund at 1.85%.

The US economy continues to lose traction, pinned back by the central bank’s policy of steady rate rises since the beginning of the year. Take, for example, the contraction in manufacturing activity, with the ISM’s manufacturing PMI clocking in below expectations at 49.0 down from 50.2 in October. The rising cost of borrowing is hurting producers of goods.

Inflation slowed slightly in October. All the while, Americans continued to spend, taking advantage of wage increases and abundant savings. Consumer prices rose 6.0% year on year following an increase of 6.3% in September.

The number of jobless claims fell slightly in the week ending 26 November, dipping to 225,000 from 241,000. In contrast, the total number of jobseekers now exceeds the 1.6 million mark, following the latest increase of 57,000. The latest monthly non-farm payrolls report confirmed the strength of the labour market. In November, the US continued to create jobs, adding 263,000. The average hourly wage was up by 0.6%.

The S&P 500 ended the week up by 1.13% while the tech-heavy Nasdaq, more sensitive to interest rate expectations, advanced by 2.09%.

In Europe, the ECB left nothing off the table in regards the size and number of future rate hikes with Christine Lagarde stating “everything depends on a number of variables”.

In the Eurozone, year-on-year inflation slowed to 10% in November, down from 10.6% in the previous month. Core inflation was steady at 5%. All suggestive that pricing pressures have eased. Finally, manufacturing activity contracted slightly with the PMI ebbing to 47.1, down from 47.3 in October.

It is anticipated that market participants will be watching for real signs of the promised covid policy easing in China, and the impact of this on the economy, plus publication of services PMI indices.

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