Market Overview: The market is trading positively based on news from the new government, including (1) deregulation, (2) lower taxes, and (3) anticipated Fed rate cuts, for now overlooking potential risks such as (1) higher fiscal deficits, (2) inflationary pressures, and (3) trade conflicts. However, recent sessions have shown a mix of profit-taking and cautious waiting for announcements regarding Trump’s new team, particularly in the economic sector.
Latest Market Updates: Market Last Week Post-Trump Election: - S&P 500 saw its best weekly performance of 2024 (year-to-date), rising nearly 5% (+4.7%). - Index reached the 6,000-point milestone for the first time. - An inflow of USD 20 billion into American stocks occurred on Wednesday, the largest daily flow in five months. - Small-cap stocks, benefiting from Trump’s protectionist stance, attracted the highest inflow since March. - Notably, about 1/3 of stocks underperformed, with sectors like Consumer (due to higher tariffs), Real Estate (higher interest rates), and Health (reduced incentives for oligopolies/insurers) lagging. - Treasuries saw significant gains, with 10-year yields down by 8-10 basis points (4.38% vs. 4.30%). - The Dollar Index (DXY) marked its sixth consecutive week of gains. - Cryptocurrency rallied, with Bitcoin up 10-15% in recent sessions. - Tesla reached a USD 1 trillion market cap. - A Bank of America survey showed the highest fund manager exposure to U.S. stocks in 11 years.
This Week: - S&P is experiencing volatility, with slight profit-taking, hovering around 5,994 points vs. 5,995 at last Friday’s close. - Treasuries also highly volatile, with daily swings of 8-10 basis points, while the 10-year rose 15 basis points to 4.40%. - The 30-year bond rose 16 basis points to 4.60%. - Real yields on TIPS (inflation-linked bonds) increased by 15 basis points for the week, with the 10-year offering “Inflation + 2.10%,” the highest in months. - The Dollar Index (DXY) continues its upward trend, gaining 1.35% for the week. - Bitcoin surged 15-20% for the week.
Trump Administration Team: - Republicans secured the House of Representatives with at least 218 seats. - Key appointments: - Marco Rubio as Secretary of State (current Senator from Florida) - Mike Huckabee as Ambassador to Israel - Mike Waltz to lead National Security; known for a “hardline” stance on China, Iran, Russia, and immigration - Pete Hegseth as Secretary of Defense, also with a “hardline” approach - Elon Musk and Vivek Ramaswamy in a new government cost-cutting department, targeting cuts of up to USD 2 trillion - Tulsi Gabbard as Director of National Intelligence - Matt Gaetz (Florida congressman) as Attorney General
Interest Rate Pricing: - The market now prices an 80% probability of a 25-basis-point cut in December (18th). - Previously, a 100% chance of a 25bps cut was anticipated in early November, but this fell to 55% last Tuesday. - Total projected cuts until the end of 2025 are now expected to be 75bps, with a terminal rate in the 3.75-3.875% range, compared to 3.00-3.25% expected 1-2 months ago. - Long-term rates (30 years) are trending downward relative to the broader curve. - The yield curve has flattened, with the 2-year Treasury moving from 3.55% to around 4.35/4.40%, a nearly 100bps increase, becoming attractive. - The 4.50-5.00% level in the 30-year bond is drawing interest from “real money” investors like insurers and pension funds, with implied inflation at 2.30% and real rates between 2.00-2.50%, levels attractive over the last 15-20 years.
U.S. Macro Data This Week: CPI Report: - Year-on-year CPI aligned with expectations, at 2.6%, up from 2.4% in the prior month. - Core CPI, excluding energy and food, remained at 3.3% year-on-year. - Monthly figures were 0.2% overall and 0.3% core, both meeting expectations. - The CPI report, coupled with strong consumer spending and resilient growth, indicates the Fed may delay a December cut, though the likelihood has increased given stable inflation data. - Awaiting the next payroll data in early December, with 80% of the market still pricing in a 25bps cut for December. - Minneapolis Fed President Neel Kashkari expressed confidence that inflation is “headed in the right direction.”
China This Week: - Announced fiscal support for the real estate sector, with markets monitoring additional measures. - Last week, China unveiled a USD 1.4 trillion debt swap, but this did not significantly boost markets. - Chinese stocks and the Yuan declined post-announcement. - China appears to be waiting to react to Trump’s initial policy moves in a calculated “chess game” approach.
Detailed Stimulus: - The government plans a USD 1.4 trillion credit line for local governments and will perform a debt swap with hidden local government debts. - This measure targets one of the three major economic and financial risks identified by the government. - Local governments, previously diverting funds from growth-oriented projects to debt repayment, are awaiting further consumer-oriented stimulus in December, with more clarity on the Trump administration’s policies.
Additional Updates: Federal Reserve: - The Fed cut rates by 25bps as anticipated on Thursday, maintaining a “data-dependent” approach with a slightly less dovish tone. - Fed Chair Powell confirmed that Treasury movements are not necessarily driven by rising inflation expectations. - Powell emphasized his intention to remain in office despite any political pressures, noting this decision is governed by laws that protect Fed independence. - The Fed has removed the phrase “greater confidence that inflation is sustainably approaching 2%,” though it acknowledged progress toward this target.
Recent Macro Data: - Michigan Consumer Sentiment rose to 73 (from an expected 71), the highest since April, reflecting stronger consumer outlook. - Last unemployment report showed a decrease to 4.1% (from 4.3%), a relatively low level.
New Bond Issue: - MSU Energy S.A., an established power generation company in Argentina, part of MSU Group, has appointed Citi, Itaú BBA, J.P. Morgan, and Santander as joint bookrunners and dealer managers to organize investor meetings starting Monday, November 18, 2024.
