Equity markets continued making gains last week, their nerves calmed by the continued slowdown in inflation in the US and Europe.

As a result, bond yields continued to ease, with the 10-year Treasury dipping to 4.45% and its German equivalent to 2.60%.

Stateside, 12-month inflation fell by more than expected to 3.2% in October, down from 3.7% in September, reinforcing the prospect for the Fed to leave rates unchanged when it meets in December and to start cutting as early as the first half of 2024.

Core inflation, which excludes food and energy prices, was 4.0% on a 12-month basis – the lowest reading for almost two years. Part of the reason was the slipping oil price, hit by slowing demand.

The labour market is likewise showing signs of faltering momentum. Initial jobless claims for the week beginning 6 November came to 231,000. This was 13,000 higher than in the previous week.

Finally in the US, industrial production fell more than expected in October, decreasing by 0.6% after edging up by 0.1% in September. Manufacturing output was down 0.7% after rising by a revised 0.2% in September.

In Europe, 12-month inflation for October slowed in line with expectations, as evidenced by an HICP inflation easing to 2.9%, having increased by 4.3% in September. Month over month, inflation slowed to 0.1%. Excluding food and energy, inflation last month slowed to 5.0% year on year and 0.2% month on month.

In China, macroeconomic data last week pointed to an upswing in economic activity. The solid retail sales reported for October were greeted with a recovery in European luxury goods stocks, which had been under pressure since the summer. Industrial production rose by 4.6% after increasing by 4.5% in September. The rate of unemployment in urban areas was stable at 5.0%.

Against this backdrop, the S&P 500 ended the week ahead by 2.24% while the tech-focused Nasdaq gained 2.37%. The Stoxx 600 Europe put on 2.82%.

The latest information available provides further evidence that policy interest rates have peaked and central bankers may ponder making rate cuts as early as the first half of 2024, which has the potential of supporting market gains in the quarters ahead.

Source: Bonhôte

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