Global Economy & Markets, Weekly Roundup 14/11/23
Fed Chair Powell left the door open to another rate hike in the past week, albeit October’s CPI set a high bar
Key Takeaways
The S&P 500 rose by +1.3% in the past week, recording 8 consecutive sessions with gains, the largest such streak since November 2021. Market sentiment turned briefly negative on Thursday, due to hawkish comments from Fed Chair Powell that the Fed will not hesitate to further hike rates, if needed. These comments sent nominal government bond yields higher, with the 2-year US Treasury yield up by +18 bps wow to 5.05%, recording its largest weekly increase since May 2023.
Nevertheless, yields retreated on November 13th following weaker than expected US Inflation data for October. In the event, the headline CPI came out at +3.2% yoy from +3.7% yoy in September and the core index at +4.0% yoy from +4.1% yoy, versus consensus estimates for +3.3% & +4.1%, respectively.
Consequently, investors’ expectations for the onset of policy interest rate cuts by the Fed, were brought forward by circa a month, to May 2024.
Moody’s kept its US credit rating unchanged at “Aaa” but lowered the outlook from “stable” to “negative”, mentioning that the country’s fiscal deficits are expected to remain large (-5.4% of GDP on average from 2024-2030 according to the CBO), with the debt affordability consequently weakening. The agency also cited that “continued political polarization” increases the risk that successive governments will not be able to agree on a fiscal consolidation plan.
Moody's is the last of the three major rating agencies to maintain the highest possible rating for the US, as the Fitch downgraded its rating from AAA to AA+ in August, while S&P Global has an AA+ rating since 2011. Moody’s decision came as the country faces the possibility of a partial federal government shutdown. House Speaker M. Johnson proposed a 2-step stopgap funding bill to avert the shutdown, that must be signed into law before the deadline of November 17th.
According to the proposal, government funding for some departments (Veterans Affairs, Energy, Agriculture, Transportation, Housing and Urban Development) is extended until January 19th, while for the other departments it is extended until February 2nd. Nevertheless, the White House’ first reaction cast doubt on the plan, noting in a statement that the proposal is “a recipe for more Republican chaos and more shutdowns”.
The focus this week is likely to be the release of high-frequency Chinese economic activity indicators for October (retail sales, industrial production, fixed assets investment) on November 15th, after real GDP surprised to the upside in Q3:2023 (+4.9% yoy). Recall that overall credit annual growth, as measured by Total Social Financing (TSF), accelerated by +0.3 pps to +9.3% in October (12-month average of +9.5% yoy).
The recent better-than-expected GDP performance, inter alia, prompted the IMF to revise higher by +0.4 pps compared with a month ago, its projections for real GDP growth in 2023 and 2024, to +5.4% and +4.6%, respectively. The meeting on November 15th between US President Joe Biden and his Chinese counterpart Xi Jinping, will also be monitored, inter alia, for a potential better assessment of how the economic relations between the two countries evolve.
Key Takeaways
The S&P 500 rose by +1.3% in the past week, recording 8 consecutive sessions with gains, the largest such streak since November 2021. Market sentiment turned briefly negative on Thursday, due to hawkish comments from Fed Chair Powell that the Fed will not hesitate to further hike rates, if needed. These comments sent nominal government bond yields higher, with the 2-year US Treasury yield up by +18 bps wow to 5.05%, recording its largest weekly increase since May 2023.
Nevertheless, yields retreated on November 13th following weaker than expected US Inflation data for October. In the event, the headline CPI came out at +3.2% yoy from +3.7% yoy in September and the core index at +4.0% yoy from +4.1% yoy, versus consensus estimates for +3.3% & +4.1%, respectively.
Consequently, investors’ expectations for the onset of policy interest rate cuts by the Fed, were brought forward by circa a month, to May 2024.
Moody’s kept its US credit rating unchanged at “Aaa” but lowered the outlook from “stable” to “negative”, mentioning that the country’s fiscal deficits are expected to remain large (-5.4% of GDP on average from 2024-2030 according to the CBO), with the debt affordability consequently weakening. The agency also cited that “continued political polarization” increases the risk that successive governments will not be able to agree on a fiscal consolidation plan.
Moody's is the last of the three major rating agencies to maintain the highest possible rating for the US, as the Fitch downgraded its rating from AAA to AA+ in August, while S&P Global has an AA+ rating since 2011. Moody’s decision came as the country faces the possibility of a partial federal government shutdown. House Speaker M. Johnson proposed a 2-step stopgap funding bill to avert the shutdown, that must be signed into law before the deadline of November 17th.
According to the proposal, government funding for some departments (Veterans Affairs, Energy, Agriculture, Transportation, Housing and Urban Development) is extended until January 19th, while for the other departments it is extended until February 2nd. Nevertheless, the White House’ first reaction cast doubt on the plan, noting in a statement that the proposal is “a recipe for more Republican chaos and more shutdowns”.
The focus this week is likely to be the release of high-frequency Chinese economic activity indicators for October (retail sales, industrial production, fixed assets investment) on November 15th, after real GDP surprised to the upside in Q3:2023 (+4.9% yoy). Recall that overall credit annual growth, as measured by Total Social Financing (TSF), accelerated by +0.3 pps to +9.3% in October (12-month average of +9.5% yoy).
The recent better-than-expected GDP performance, inter alia, prompted the IMF to revise higher by +0.4 pps compared with a month ago, its projections for real GDP growth in 2023 and 2024, to +5.4% and +4.6%, respectively. The meeting on November 15th between US President Joe Biden and his Chinese counterpart Xi Jinping, will also be monitored, inter alia, for a potential better assessment of how the economic relations between the two countries evolve.