The Davy Digest - 2nd December 2024

Last week, US Treasuries rallied ahead of Thanksgiving, as markets found reassurance in Trump's selection of Scott Bessent as Treasury Secretary. The S&P 500 reacted positively to the announcement by rising 1%, hitting a new high and closing above 6,000 on Tuesday. The Mexican peso and Canadian dollar fell last week after Trump vowed to introduce 25% tariffs on all goods from Mexico and Canada. Core US Inflation rose to 2.8% year-on-year in October, in line with expectations. Elsewhere, headline Eurozone inflation rose 2.3% year-on-year in November, up from 2% in October. This figure exceeds the European Central Bank’s inflation target for the first time in three months. Germany continues to face a sharp downturn in consumer spending as retail sales plunge by 1.5% month-on-month in October.

French sovereign bonds and stocks fell on Wednesday, and French 10-year yields now trade at the same level as Greece, as investors have increasing concerns over a belt-tightening draft budget that could bring down PM Michel Barnier’s government. In the UK, the Bank of England’s Lombardelli and Dhingra made speeches urging caution with rate cuts and emphasizing the uncertainty of the UK’s economic future. Elsewhere, China's central bank injected 900 billion yuan ($124.3 billion) into the banking system on Monday, as local governments step up selling bonds to ease debt burdens. Japan’s services PPI for October came in at 2.9% year-on-year, above expectations. Tokyo CPI spiked to 2.6% year-on-year and the Yen jumped in anticipation of a 25 basis point rate hike in December.

Last week's highlights

	FOMC Minutes (26/11) - May indicate the start of a debate on the extent of future rate cuts.  US Inflation (Core PCE) (27/11) - Rose to 2.8% in October, in line with expectations.
	German Inflation (CPI) (28/11) - Rose to 2.2% in November, below expectations.  Eurozone Inflation (HICP) (29/11) - Rose above the ECB target to 2.3% year-on-year in November, up from 2% in October.
	BOE's Lombardelli & Dhingra speeches (25/11) - Lombardelli urged caution with rate cuts fearing wage growth and stickier inflation, while Dhingra emphasised the uncertainty of the UK's economic future, noting that predicting inflation trends is challenging.
	Australia Inflation (CPI) (27/11) - Remains steady at 2.1% year-on-year.  Tokyo Inflation (CPI) (28/11) - Rose to 2.6% year-on-year on a headline basis. Yen jumped in anticipation of a rate hike in December.

Looking ahead to next week, we look to the US for data on Manufacturing and Services PMIs, as well as Nonfarm Payrolls. Meanwhile, we will see Producer Price Index and Retail Sales figures from the Eurozone. In the UK, the Bank of England’s Governor Bailey will make a speech and data on the BRC Like-For-Like Retail Sales will be released. Elsewhere, China will release its Caixin Manufacturing and Services PMI figures.

What's on the radar

	Manufacturing PMI (02/12) Services PMI (04/12) Nonfarm Payrolls (06/12)
	Eurozone Producer Price Index (04/12) Eurozone Retail Sales (05/12)
	BRC Like-for-Like Retail Sales (03/12) BoE's Governor Bailey speech (04/12)
	China Manufacturing PMI (02/12) China Services PMI (04/12)

Chart of the moment

The price is right? 

Source: DataStream, Davy as of 31/10/2024

To understand relative equity valuations across various global regions, we plot their 12-month forward price-to-earnings ratio against their consensus annualised earnings growth over the next two years. By doing this, we account for differences in expected growth and can start to explain many of the extreme valuations seen in the US as well as in Big Tech.

Emerging Market equities, and Chinese equities in particular, stand out as being attractively valued in this analysis. However, it is important to note that earnings growth forecasts can be missed, and many of the more expensive equities are priced for perfection here over the coming years.