Pictet Group
Weekly house view | Hawkish Fed cut
The week in review
A fading of post-election sentiment was evident in S&P 500’s -0.6% [i] performance last week (in USD). In addition, a 25 bps rate cut by the Fed this week is already baked in, while data showed inflation remains an issue, complicating the Fed’s task thereafter. The Nasdaq fared better, but the more rate-sensitive Russell 2000 [ii] dropped 2.6%. The stimulus commitments in the Chinese Communist Party’s annual ‘Central Economic Work Conference’ were seen as lacking detail, sending the CSI 300 [iii] 1.3% lower last week (in USD). But Chinese long-term bond yields dropped to a record low given conference pointers to lower interest rates. The appointment of a new French prime minister failed to ignite the CAC 40 [iv], which returned -0.65% last week (in euros), while Moody’s downgraded France’s credit rating. US inflation numbers hit Treasuries last week. Despite an ECB rate cut—plus clear indications of more cuts to come—euro bond yields also rose as markets questioned whether enough was being done for the sluggish euro area economy. The euro lost ground against the US dollar and sterling, while the Swiss National Bank’s 50 bp rate cut had a similar effect on the Swiss franc.
Geopolitics
The premier of Canada's most populous province, Ontario, threatened to stop energy exports to the U.S. if President-elect Donald Trump imposes sweeping tariffs on Canadian products, highlighting the risk of escalation.
Key data
The US consumer price index (CPI) ticked up to an annual rate of 2.7% in November from 2.6% in October. The annual core CPI (excluding food and energy) was 3.3%, unchanged for the fourth consecutive month. The US producer price index (PPI) rose to an annual 3% in November from 2.6% in October. The National Federation of Independent Business’s Small Business Confidence Index for November rose to its highest level since June 2021. The Chinese CPI dropped to an annual rate of 0.2% in November, a five-month low. Chinese exports grew 6.7% from a year before in November (down from 12.7% in October), while imports fell by 3.9%. Industrial production in the EU was flat on the month in October.