The Davy Digest - 18th November 2024

Last week, global markets continued to adjust in the wake of the US election. A red sweep was confirmed as Republicans secured a majority in the House of Representatives. US Treasury bond yields continued to press higher due to concerns around Trump’s expansionary fiscal policies, with the 10-year yield finishing more than 10 basis points higher over the week. Global equities fell, losing their momentum following a string of recent all-time highs for the S&P 500. In Europe, volatility was exacerbated by the announcement of a snap election in Germany. The country’s coalition government, led by the Social Democratic Party, collapsed following the resignation of the finance minister amidst conflict around their controversial debt brake. Meanwhile, Q3 Gross Domestic Product (GDP) data was released for the Eurozone and grew at a rate of 0.9% year-on-year, in line with consensus. In Asia, Japan recorded their first quarter of positive GDP growth this year, coming in 0.3% year-on-year for Q3, while in China, a positive surprise in retail sales serves as a promising trend for Chinese consumer health.

Last week's highlights

	Inflation (CPI) (13/11) – Increased moderately to 2.6% in October, in line with consensus. Producer Price Index (14/11) – Increased to 2.4% YoY in October. Retail Sales (15/11) – Decreased 0.1% MoM, below expectations.
	Germany confirms snap election for February 23rd as coalition led by SPD collapses. Eurozone Q3 GDP (14/11) – 0.9% increase year-on-year, in line with expectations.
	Mansion House Speech (14/11) – BoE Governor Bailey encouraged UK to rebuild EU relations, while Chancellor Rachel Reeves criticised post-GFC risk regulations.
	Japan Q3 GDP (14/11) – 0.3% YoY for Q3. China Industrial Production (15/11) – Fell to 5.3% YoY for October. China Retail Sales (15/11) – Increased to 4.8% YoY, above consensus. Positive sign for Chinese consumer health.

World leaders will convene this week at the 2024 G20 Summit in Rio de Janeiro, at which the outcome of the US election is expected to dominate discussions. In the US, we will see data on housing starts and building permits, providing a signal about the continuing health of the economy there. Meanwhile in the Eurozone, October prints for the Producer Price Index and Unemployment Rate will headline the macro data. Finally, in Japan, an uptick in Thursday night’s inflation data may facilitate a much-anticipated interest hike at the Bank of Japan’s December meeting.

What's on the radar

	Housing Starts (19/11) Building Permits (19/11)
	Eurozone Producer Price Index (20/11) Eurozone Unemployment Rate (21/11)
	UK Inflation (20/11)
	Japan Inflation (21/11)

Chart of the moment

Fed Up

Source: Bloomberg, Federal Reserve as of 15/11/2024  

• Every quarter, the Federal Reserve releases its Summary of Economic Projections, containing averaged internal forecasts on US growth, inflation, and unemployment.
• Since the Fed started raising interest rates in March 2022, its leading members have consistently predicted that a slowdown in US economic activity was approaching.
• However, this slowdown has not yet materialised. Last quarter, US Gross Domestic Product (GDP) grew at 2.7% year-on-year, and real time estimates of Q4 growth are currently forecasting a print of 2.5%.
• The long and variable lags of monetary policy transmission are appearing to be longer (and more variable) across this interest rate cycle. Despite this, the Federal Reserve has begun to cut rates amidst continued disinflation and resilient output.
• A potential explanation for this is easy fiscal policy. The US is running a budget deficit of 6% and will continue its prolific spending through the Inflation Reduction Act, the CHIPS Act, and its defence budget – likely buoying US economic growth for the foreseeable future.