Market Pulse - The week in review - Nov. 20th
Duncan Presant - Nov 20, 2023
U.S. inflation in October dropped to 3.2%, lower than expectations and marking the first decline in four months.
THIS WEEK’S RECAP:
U.S. inflation in October dropped to 3.2%, lower than expectations and marking the first decline in four months. This decrease, compared to 3.7% in September, led to a fall in Treasury yields and a rally in equities as markets focus quickly shifted from rate hikes to potential interest rate cuts in 2024. Global bonds followed the move lower in US rates, which dropped more than 20 bps across the curve.
While the inflation news was welcomed, the dramatic move across asset classes was magnified by a market caught wrong-footed, where deep, multi-month selloffs in interest-rate sensitive assets such as small cap equities and REITS (among others) were quick to reverse course making sizeable gains. Though earnings growth will be a challenge in a slowing economy, the equity market tends to be forward looking and grew quite excited at the prospect of lower rates in 2024.
Resilience in the labor market is one of the remaining strong-holds in the current economic landscape. Employers, partly influenced by labour shortages during the pandemic, are retaining staff longer than in previous downturns. Unemployment rates in both Canada and the U.S. remain low. However, recent data such as job openings in Canada and weekly jobless claims in the U.S. indicate some softening on the labour front. A labour slowdown is an outcome policymakers have been anticipating, seen as a necessary evil to curb inflation.
In Taiwan's upcoming 2024 presidential election, the two current opposition parties have formed an alliance and have agreed to run as one platform. Previously, the pro-independence incumbent party was anticipated to remain in power due to a divided opposition. The newly united opposition party, known for its China-friendly stance, now presents a significant challenge. If the coalition succeeds in winning the election it is expected to lead to a reduction in tensions between Taiwan and China.
ON DECK FOR NEXT WEEK:
In Canada, the latest read on inflation will be released Tuesday, where we expect the trend to continue with a slow grind lower. On Friday, Retail Sales for September should reaffirm weaker household consumption that has already been highlighted in soft GDP data.
Global financial markets will be quieter than usual with US Thanksgiving holidays starting to take hold by Wednesday afternoon. US markets will be closed Thursday and much quieter than usual on Friday.
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