Market Watch: December 6, 2024

In the U.S., Federal Reserve (Fed) officials’ indecision on further rate cuts and mixed labour market data, including a rise in job openings and a slight increase in the quits rate, created uncertainty. European markets were affected by political instability in France, where a no-confidence vote threatened the government. Meanwhile, Canada’s declining labour productivity and rising unit labour costs raised concerns about inflation. Global markets also reacted to South Korea’s political developments and China’s weaker-than-expected services PMI. Additionally, fluctuating crude oil prices and stable gold prices added to the market’s volatility.

Highlights:

U.S. markets were somewhat muted, returning 0.99%¹ for the week following Fed officials’ indecision on rate cuts, mixed labor market data, and anticipation of key economic reports, creating a cautious atmosphere among investors.
Canadian markets rose 0.21%² for the week, influenced by declining labor productivity, rising unit labor costs, and the resulting inflation concerns, which led to increased volatility and investor caution amid expectations of potential policy adjustments.
European markets returned 1.94%³ for the week despite political instability in France, including a no-confidence vote against the government, and cautious trading ahead of key economic reports in the coming week.
Emerging markets closed 2.14%⁴ higher amid geopolitical developments in South Korea, weaker-than-expected economic data from China, and investor caution ahead of key policy meetings and economic reports.

Indecisive Fed, jobs reports drive volatility in fixed income markets

Federal Reserve officials’ uncertainty about future rate cuts and mixed labour market data, including the Job Openings and Labor Turnover (JOLTS) and nonfarm payroll reports, created a cautious environment. Canadian labour productivity declines and rising unit labour costs heightened inflation concerns, leading to upward pressure on Canadian bond yields despite the strong November jobs report. Credit spreads remained tight due to strong demand outpacing supply, while speculative grade supply was notably light. Geopolitical events in France, including a no-confidence vote, led to increase volatility in the European bond markets.

Highlights:

The 2- and 10-year U.S. Treasury yields were 8 and 9 basis point (bp) lower respectively. In Canada, the 2- and 10-year bond yields fell 15 bps and 14 bps respectively.
Primary markets have been relatively quiet, with new issuance running slightly below weekly projections at $23.2bn USD versus $25.0bn USD.
For the week ahead, we have a new set of U.S. inflation numbers, CPI and PPI, due Wednesday and Thursday respectively which will likely set the tone in the rates markets for the rest of the month and into January.

Weekly dashboard

Economic snapshot

Canadian manufacturing activity rose at fastest pace in 21 months in November

Canadian manufacturing activity increased at the fastest pace in 21 months in November as the Bank of Canada’s interest-rate-cutting campaign boosted domestic demand and despite port strikes that worsened delivery delays. The S&P Global Canada Manufacturing Purchasing Managers’ Index (PMI) rose to 52.0 in November from 51.1 in October, its highest level since February 2023 and the third straight month above the 50.0 no-change mark.

Highlights:

The output index rose to 53.1 from 52.2 in October, while the new orders measure was at 52.7, up from 50.5. New export orders declined for the 15th successive month.
Average lead times for the delivery of inputs lengthened for the fifth straight month and by the most since August, which firms blamed on rail delays and port stoppages.
Input cost inflation accelerated to its highest level since April 2023. The output price index also rose but remained below its recent peak in August.

U.S. services sector slows as firms gauge trump policies

U.S. services activity cooled last month as demand slowed and firms registered concerns about the consequences of President-elect Donald Trump’s policies, including promised tariffs. The Institute for Supply Management reported its services-activity purchasing managers’ index ticked down to 52.1 in November from 56.0 in October, well below economists’ expectations of 55.6.

Highlights:

The result still marks an expansion, albeit slower growth than in October. The services sector has registered expansion for 51 of the previous 54 months, ISM said.
According to the report, all four of the indicator’s main gauges drove the decrease: weaker business activity, new orders, and employment, alongside shorter supplier deliveries.
However, most sectors reported business activity growth, reinforcing the view that the services sector has returned to sustained growth despite some seasonal impacts in recent months.

China’s central bank pledges supportive policies for economy

China’s central bank has pledged to adopt a supportive policy stance next year, marking the latest effort by policymakers to bolster an ailing economy. The People’s Bank of China (PBOC) announced this week that it will further reduce financing costs for companies and households and employ a variety of monetary policy tools to strengthen countercyclical adjustments and maintain adequate liquidity.

Highlights:

The central bank will also deploy structural monetary policy tools to support scientific and technological innovation, green finance, consumer finance and the stability of the real estate and capital markets.
Earlier this year, the central bank resumed treasury bond trading on secondary markets as part of its efforts to boost liquidity and elevate the role of shorter-term policy rates.
Separately, the PBOC announced plans to broaden its money supply gauge, M1, to include personal demand deposits and client provisions at nonbank payment institutions, effective January, aligning it more closely with global practices.

The global week ahead

Whose Job is it Anyway?

This week’s risk dashboard:

BoC: Probably 50bps, but a stronger case for less
Canada can’t & shouldn’t solve an immigration problem with monetary policy
US CPI A high bar for the FOMC to skip
ECB to cut another quarter point
The SNB is fast approaching the lower bound

Read the full publication here.

BSB expected to deliver a mega hike
BCRP might cut again, nearing the end
RBA still isn’t ready to do anything
China’s targets and stimulus plans may be unveiled
Key indicators: Aussie jobs, Chinese exports, UK macro, Tankan, Mexico CPI

by Scotia Wealth Management

Market Watch: December 6, 2024

Week in review

Weekly dashboard

Economic snapshot

The global week ahead

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