The State of Markets
A brief review of all key upcoming events across the major regions of the globe & an overview of key recent market trends.
The State of Markets:
US equity markets performed well last week, given Wednesday’s decisive shift in Fed policy. About two weeks ago, Chair Powell pushed back on growing expectations of rate cuts. In Wednesday’s monetary policy statement and dot plots, though, the Fed committee fully embraced the idea, with committee members cutting their 2024 interest rate forecast by around 50bps. They also discussed the timing of cuts (as highlighted by many of Powell’s comments in the press conference).
That switch in policy triggered broad based strength in US equity markets. Cyclical parts of the market were at the centre of that strength. Nasdaq Banks, for example, rallied 6.8% on the week, while the Russell 2000 (mid-caps, also +6.8%) and S&P600 (small caps, +5.8%) were sharply higher (i.e., while tech lagged, e.g., the Nasdaq100: +3.3%). Many of those indices are now at key levels. The Russell 2000, for example, is testing the top of its range, which has been in place since mid-2022 (see chart below).
In the near term, the key question is whether those key parts of the equity market will break out/move higher. This week’s macro data and events will be watched closely in that respect. In particular, there’s a housing theme in the US, with the NAHB index due on Monday, followed by permits and starts on Tuesday. Elsewhere the Conference Board Leading Index is due on Thursday and there’s an update on personal income and spending on Friday.
Please see below for a full list of key data and events this week, as well as a summary of recently published Longview research.
(All in London time BST)
Events: N/A
Data: German IFO business expectations (Dec, 9am); US NAHB homebuilders index (Dec, 3pm).
Earnings: N/A
Events: N/A
Data: US building permits & housing starts (Nov, 1:30pm).
Earnings: Accenture, FedEx.
Events: PBoC policy rate decision (1:15am).
Data: UK headline & core CPI (Nov, 7am); EZ European Commission consumer confidence (December first estimate, 3pm); US Conference Board consumer confidence (Dec, 3pm).
Earnings: Micron.
Events: N/A
Data: US Conference Board leading index (Nov, 3pm).
Earnings: Nike.
Events: N/A
Data: US personal income & spending (Nov, 1:30pm); US headline & core PCE inflation (Nov, 1:30pm); US durable goods orders (November first estimate, 1:30pm).
Earnings: N/A
Extract from Quarterly Asset Allocation No. 56, 14th December 2023:
“China: In a Balance Sheet Recession?”
Chinese real estate has been in one of the largest bubbles in the world in recent history.
Not only are certain Chinese cities some of the most expensive in the world (i.e. when measured per square metre as well as on a price to income multiple) but added to that, the real estate sector has grown to 30% of Chinese GDP and has, therefore, become a key imbalance (sign of excess) in the economy. As that bubble has built, it’s been a major driver of: (i) High levels of leverage in the economy; (ii) the record high investment share of GDP (reaching 47% at its peak); & (iii) a significant misallocation of capital.
That bubble, though, has burst and is now deflating. In summary, though, highly leveraged property companies have failed, and construction & investment activity has therefore collapsed (with sharply weaker land sales, lower housing starts and private investment spending, and so on, e.g. see figs 8j & 8k).
Events: N/A
Data: New York Fed service business activity (Dec, 1:30pm); US NAHB homebuilders index (Dec, 3pm).
Earnings: N/A
Events: Speech by the Fed’s Bostic on US economy & business outlook (5:30pm).
Data: US building permits & housing starts (Nov, 1:30pm); Canadian headline & core CPI (Nov, 1:30pm).
Earnings: Accenture, FedEx.
Events: N/A
Data: US weekly MBA mortgage applications (12pm); US existing home sales (Nov, 3pm); US Conference Board consumer confidence (Dec, 3pm).
Earnings: Micron, General Mills.
Events: N/A
Data: Canadian SEPH payroll change (Oct, 1:30pm); Canadian retail sales (Oct, 1:30pm); US GDP (Q3 third estimate, 1:30pm); US weekly jobless claims (1:30pm); Philadelphia Fed business outlook (Dec, 1:30pm); US Conference Board leading index (Nov, 3pm); Kansas City Fed manufacturing activity (Dec, 4pm).
Earnings: Nike, Cintas, Paychex, Carnival.
Events: N/A
Data: Canadian GDP (Oct, 1:30pm); US personal income & spending (Nov, 1:30pm); US headline & core PCE inflation (Nov, 1:30pm); US durable goods orders (November first estimate, 1:30pm); US new home sales (Nov, 3pm); Michigan sentiment (December final estimate, 3pm); Kansas City Fed services activity (Dec, 4pm).
Earnings: N/A
Events: Speeches by the ECB’s Vujcic on decade of opportunities and new challenges (10:45am), Wunsch at even presenting Belgian central bank’s economic forecasts (12pm), Schnabel at fiscal policy conference (1:30pm) & Lane at fiscal policy conference (3pm).
Data: German IFO business expectations (Dec, 9am).
Earnings: N/A
Events: Speeches by the ECB’s Simkus presenting new economic forecast in Vilnius (8am), Kazimir on Slovak economic outlook (9am) & Vujcic in Zagreb (10am).
Data: EZ headline & core CPI (November final estimate, 10am).
Earnings: N/A
Events: Speech by the ECB’s Lane in Dublin (2pm).
Data: German PPI (Nov, 7am); German GfK consumer confidence (Jan, 7am); EZ new car sales (Nov, 7am); ECB current account (Oct, 9am); EZ construction output (Oct, 10am); EZ European Commission consumer confidence (December first estimate, 3pm).
Earnings: N/A
Events: Speech by the ECB’s Lane in Dublin (4pm).
Data: French INSEE business & manufacturing confidence (Dec, 7:45am); Italian PPI (Nov, 10am).
Earnings: N/A
Events: N/A
Data: French INSEE consumer confidence (Dec, 7:45am); French PPI (Nov, 7:45am); Italian ISTAT consumer & manufacturing confidence (Dec, 9am); Italian industrial sales (Oct, 11am).
Earnings: N/A
Events: Speech by the Bank of England’s Broadbent at London Business School (10:30am).
Data: N/A
Earnings: N/A
Events: Speech by the Bank of England’s Breeden at the IIF talking policy series (Tues, 1pm).
Data: CBI industrial trends survey (Dec, 11am).
Earnings: N/A
Events: N/A
Data: Headline & core CPI, RPI & PPI (Nov, 7am); Land Registry house price index (Oct, 9:30am).
Earnings: N/A
Events: N/A
Data: Lloyds’ business barometer (Dec, 12:01am); public sector finances (Nov, 7am); CBI distributive sales orders (Dec, 11am).
Earnings: N/A
Events: N/A
Data: Retail sales (Nov, 7am); GDP (Q3 final estimate, 7am); current account balance (Q3, 7am).
Earnings: N/A
Events: N/A
Data: N/A
Earnings: N/A
Events: RBA minutes of December policy meeting (12:30am).
Data: Australian Westpac leading indicator (Nov, 11:30pm); Japanese exports & imports (Nov, 11:50pm).
Earnings: N/A
Events: PBoC policy rate decision (1:15am).
Data: N/A
Earnings: N/A
Events: N/A
Data: Japanese headline & core CPI (Nov, 11:30pm).
Earnings: N/A
Events: N/A
Data: Australian private sector credit (Nov, 12:30am).
Earnings: N/A
(Long)View from London, 15th December 2023:
“20 years of Longview” – see email attached for more detail
Extract from Quarterly Asset Allocation No. 56, 14th December 2023:
“China: In a Balance Sheet Recession?”
Commodity Fundamentals Report No. 172, 12th December 2023:
“Natural Gas: Key Risks to European Stockpiles”
Extract from Quarterly Asset Allocation No. 56, 11th December 2023:
“Eurozone: Teetering…”
(Long)View on Friday, 8th December 2023:
“Inflation: Sticky – or Not? Drivers and Theories”
Extract from Quarterly Asset Allocation No. 56, 7th December 2023:
“US Labour Market Cracks Emerging”
Quant Monthly Appendix 2, 5th December 2023:
“Sector Valuation Overview”
Tactical Equity Asset Allocation No. 239, 5th December 2023:
“Stay (modestly) Overweight Equities, a.k.a. Risk Reward Shifting Swiftly (though)”