US economy expanding along solid labour market figures
Financial markets were little changed over the week as investors digested both local and global economic data. Over the week we saw US CPI slightly above market estimates (+0.2% m/m, +2.4% y/y) with Core Inflation up 3.3% y/y. Overall, the figure prompted a market review that the Fed may look to hold off in cutting rates at its Nov meeting. This was further evidenced by the solid labour market figures later in the week, which confirmed the view that the US economy continues to expand at a solid pace. However, we also saw lower than f’cst PPI data, which again supports the view that inputs costs remain well contained.
The US presidential election may politicize next Fed meeting
Overall, we did not view the CPI print as something that would warrant any pivot in policy by the Fed. We continue to expect one further 0.25% (25bps) rate cut this year. Whether it comes at the Nov or Dec FOMC meeting we believe is irrelevant, although the November Fed meeting (6-7 th) is just after the US Presidential election, which may politicize the call depending on the closeness of the election.
Mega cap stocks driving investment performance
On the corporate front, the 3q24 US reporting season picks up with ~9% of the S&P500 (by market cap) set to report. To date, the earnings profile has been solid with EPS growth ~9% higher y/y. This has helped propel the S&P500 to another all time high. While the mega cap stocks have been the main driver of the investment performance, we expect that this will begin to broaden out as rates move lower supporting the more cyclical/smid cap part of the market. At present, market estimates point to a 15% uplift in US earnings though 2025. While this figure may move lower as the year progresses, it does point to a sound outlook. And with labour markets remaining strong, supported by lower cash rates, we remain constructive on global equities in the medium term.
Germany’s auto sector VS Chinese EV imports
This week sees a raft of housing data out of the US along with weekly jobless claims (f’cst 253k, -5k pcp). Elsewhere this week the ECB is set to cut cash rates (-0.25%) to 3.5%. Growth in Germany, Europe’s largest economy is anaemic, with the country’s auto sector particularly hard hit amid weak demand and competition from cheap Chinese EV imports. China is also set to release its 3q24 GDP (f’cst1.1% q/q, 4.5% y/y, -0.2% pcp), while domestically, the focus will be on labour markets with the Un rate set to remain steady at 4.2%.
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