Market Update: Stocks higher as steady inflation paves way for US rate cut

Stocks moved higher last week as the market priced in an interest rate cut from the Federal Reserve with increasing certainty.

The NASDAQ led US indexes higher, with the S&P 500 and Russell 2000 also recording gains. Exchanges saw lighter volumes as we move to what is traditionally a quieter time of year from a trading perspective.

Following the Government shutdown, US data releases continue to play catch-up. Economic reports for September painted a mixed picture, with services performing better than manufacturing. This theme was accentuated by the ISM (a non-governmental report) Services and Manufacturing PMI data for November. 

Activity in the manufacturing sector contracted for the ninth consecutive month in November, down from 48.7 to 48.2. Input prices also increased for the 14th month in a row. Conversely, the Services figure came in at 52.6, up from 52.4 in October. 

The final notable US release of the week saw the personal consumption expenditures (PCE) index RISE 0.3% (headline) and 0.2% (core) month-on-month in September. Given this is the Fed’s preferred inflation measure, markets interpreted the release as paving the way for the Fed to cut this coming Wednesday.

Elsewhere, headline Consumer Price Index (CPI) data in the Eurozone surprised slightly to the upside, rising 2.2% of the previous 12 months. Inflation has steadied but remains in excess of the targeted 2% level. There is little expectation of an interest rate cut from the European Central Bank (ECB) at upcoming meetings. 

In Australia, GDP for Q2 came in below expectations, growing 0.4% over the quarter and 2.1% over the previous year.   

Equities

Global stocks finished up 0.1% in euro terms and up 0.5% in local terms last week. Year-to-date global markets are up by 7.3% in euro terms and up by 20.7% in local terms. The US market, the largest in the world, finished up at 0.0% in euro terms and up at 0.5% in local terms.

Fixed Income & FX

The US 10-year yield finished at 4.1% last week. The German equivalent finished at 2.8%. The Irish 10-year bond yield finished at 3.0%. The Euro/US Dollar exchange rate finished at 1.16, whilst Euro/GBP finished at 0.87.

Commodities 

Oil finished the week at $60 per barrel and is down -25.5% year to-date in euro terms. Gold finished the week at $4,198 per troy ounce and is up 42.3% year-to-date in euro terms. Copper finished the week at $11,644 per tonne and is up 19.7% year-to-date in euro terms.

The week ahead

Tuesday 9th December

US Job Openings and Labour Turnover Survey (JOLTS) for October is released.  

Wednesday 10th December

The Fed meets for its last rate decision of the year.

Friday 12th December

UK GDP for October goes to print.