US Federal Reserve
After a prior strong period post the US Presidential election, markets recalibrated lower over the week as bond yields continued to push higher. The move in yields was notable in the US as investors began to digest the key appointments from the incoming administration. The move in Treasury markets also reflected solid retail sales data that continues to point to a sound economic outlook. Adding the potential for additional fiscal spending along with a higher tariff regime and potential corporate tax cuts in 2025 only adds further pressure on the US Federal Reserve easing cycle. With US consumer price index data coming in line with market estimates at the midpoint of the US Federal Reserve’s target band (@ 2.6% y/y), we believe the US Federal Reserve will take a cautious approach going forward, with the potential for no further rate cuts in 2024.
US Economy
This week the major focus in the US will be the (S&P) purchase managers index data, which is forecast to show continued healthy expansion across the economy in addition to housing data. From a housing perspective while the average US 30yr mortgage remains above 6% (at 6.09%), market estimates show ~80% of all US mortgages are below 5%. This continues to point to a sound outlook for consumer spending heading into the Xmas period given the jobless rate remains at 4.1%. So, while we expect that markets will continue to remain volatile in the near term given the broader macro and geopolitical backdrop, we remain constructive on the medium-term outlook, although the impact of the change of political administration through 2025 cannot be underestimated.
The Reserve Bank of Australia
In Australia, the release of the November Reserve Bank of Australia minutes will be the major highlight. Investors will be looking for signs around a potential rate cut. However, recent commentary and the hawkish tone from the Reserve Bank of Australia continues to point to 2025 for any rate cut. Clearly the longer the Reserve Bank of Australia holds out from cutting cash rates the more politicalised any rate cut will become given the Federal election in 2025.
China’s Economy
In China, further policy announcements regarding the ‘rolling over’ of local debt to consolidate loans reflects another attempt by the Chinese govt to stabilise the property market. While economic activity is slowing recovering, the property market remains the last bastion for the broader market and economic stability in China. The big question is whether this latest reform will work. We remain sceptical.
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