Global Economy & Markets, Weekly Roundup 18/11/24
Financial markets are increasingly focused on US trade policy, with the USD (DXY) at an 1-year high
Equity markets moderated in all regions, with the MSCI ACWI down by -2.4% wow. US stocks gave back a significant portion (c. 40%) of the Trump-fueled rally (+5%), given that clarity as to how and to what extent campaign pledges will transform into political action, will only start to emerge in the first months of 2025 (the new Administration assumes office on January 20th, 2025).
Lighter regulation, and lower taxes could support economic growth, albeit the intention for substantially higher import tariffs, combined with the eventuality of a respective tit-for-tat with trading partners, points to some growth and inflation uncertainty.
Chair Powell pointed to “no rush” in reducing the federal funds rate, while also noting that the possible impact of tariffs and other campaign proposals will take time to understand and won't become clear until respective legislation is approved. At the same time, inflation has stopped decelerating in recent months.
In that context, investors have grown somewhat more cautious regarding the speed of monetary policy easing, pricing-in the FFR at the range of 3.75% - 4.0% by end-2025, versus expectations for 3.25% - 3.50% a month ago. US Treasury yields have roughly mirrored that movement, alongside higher term premia due to fiscal policy uncertainty, with the 10-Year Treasury yield up by +43 bps mom to 4.45% and its 2-year pear by +35 bps mom to 4.30%, both at c. 4-month highs.
Attention turns to the Q3:2024 results report from Nvidia, a major Artificial Intelligence (AI) bellwether, due on November 20th. Regarding EPS, consensus estimates stand $0.75 from $0.40 in Q3:2023, representing another whopping annual growth of +85%. Recall that Nvidia’s stock price stands at +190% yoy, with its market capitalization at $3.48 trillion (7% of S&P500).
The European Commission retained its forecasts for euro area real GDP growth, at +0.8% in 2024, +1.3% in 2025 and +1.6% in 2026, from +0.5% in 2023, as its previous outlook, largely played out.
That outlook is closely linked with an assumed less cautious stance towards consumption. Households have been particularly reluctant to spend in 2023 and H1:2024, due to the prolonged inflation episode and the respective repercussions for their purchasing power, as well as due to political uncertainty.
However, by mid-2024, the purchasing power of households had recouped almost half of the loss caused by high inflation, in view of a healthy expansion of employment (+1.7% in Q2:2024 versus Q4:2022, with a further +0.2% qoq following in Q3:2024, in terms of number of workers) and a continued recovery in real wages.
Regarding the latter, the compensation of employees (per capita), in constant price terms, will grow by +1.8% in 2024, +0.9% in 2025 and +0.5% in 2026, following losses of -2.1% yoy in 2022 and -0.9% yoy in 2023.
Moreover, the household gross saving rate, i.e. the gross savings divided by gross disposable income has been particularly elevated at 14.5% on average since 2023 and 15.7% in Q2:2024, well above an average of 13.5% since 1999.
Equity markets moderated in all regions, with the MSCI ACWI down by -2.4% wow. US stocks gave back a significant portion (c. 40%) of the Trump-fueled rally (+5%), given that clarity as to how and to what extent campaign pledges will transform into political action, will only start to emerge in the first months of 2025 (the new Administration assumes office on January 20th, 2025).
Lighter regulation, and lower taxes could support economic growth, albeit the intention for substantially higher import tariffs, combined with the eventuality of a respective tit-for-tat with trading partners, points to some growth and inflation uncertainty.
Chair Powell pointed to “no rush” in reducing the federal funds rate, while also noting that the possible impact of tariffs and other campaign proposals will take time to understand and won't become clear until respective legislation is approved. At the same time, inflation has stopped decelerating in recent months.
In that context, investors have grown somewhat more cautious regarding the speed of monetary policy easing, pricing-in the FFR at the range of 3.75% - 4.0% by end-2025, versus expectations for 3.25% - 3.50% a month ago. US Treasury yields have roughly mirrored that movement, alongside higher term premia due to fiscal policy uncertainty, with the 10-Year Treasury yield up by +43 bps mom to 4.45% and its 2-year pear by +35 bps mom to 4.30%, both at c. 4-month highs.
Attention turns to the Q3:2024 results report from Nvidia, a major Artificial Intelligence (AI) bellwether, due on November 20th. Regarding EPS, consensus estimates stand $0.75 from $0.40 in Q3:2023, representing another whopping annual growth of +85%. Recall that Nvidia’s stock price stands at +190% yoy, with its market capitalization at $3.48 trillion (7% of S&P500).
The European Commission retained its forecasts for euro area real GDP growth, at +0.8% in 2024, +1.3% in 2025 and +1.6% in 2026, from +0.5% in 2023, as its previous outlook, largely played out.
That outlook is closely linked with an assumed less cautious stance towards consumption. Households have been particularly reluctant to spend in 2023 and H1:2024, due to the prolonged inflation episode and the respective repercussions for their purchasing power, as well as due to political uncertainty.
However, by mid-2024, the purchasing power of households had recouped almost half of the loss caused by high inflation, in view of a healthy expansion of employment (+1.7% in Q2:2024 versus Q4:2022, with a further +0.2% qoq following in Q3:2024, in terms of number of workers) and a continued recovery in real wages.
Regarding the latter, the compensation of employees (per capita), in constant price terms, will grow by +1.8% in 2024, +0.9% in 2025 and +0.5% in 2026, following losses of -2.1% yoy in 2022 and -0.9% yoy in 2023.
Moreover, the household gross saving rate, i.e. the gross savings divided by gross disposable income has been particularly elevated at 14.5% on average since 2023 and 15.7% in Q2:2024, well above an average of 13.5% since 1999.