The Davy Digest - 9th December 2024

US equities finished the week higher as nonfarm payrolls came in slightly higher than expected at 227k versus 220k forecast. The initial reaction on interest rate expectations was muted, with markets still expecting a 25 basis points (bps) cut from the Fed in December. The US manufacturing PMI increased to 48.4 in November but remains in contractionary territory, below 50. US Services PMI slowed to 52.1 after surging to 56.0 in October. In Europe, equities finished the week higher despite some political uncertainty in France as Prime Minister Michel Barnier lost a no confidence vote. Despite this, there is some growing sentiment that the impact of the government falling might not be that large from an economic perspective. A roll over of the 2024 budget would only modestly increase deficit expectations for next year, with a minimal impact on growth forecasts. This was reflected in Wednesday’s market reaction as French equities moved higher and a further sell-off in French government bonds failed to materialise. In the UK, retail sales fell 3.3% for November, partly because of a later “Black Friday”. “Black Friday” sales will be included in the December figures this year. There was further improvement in Chinese manufacturing data with the PMI beating expectations at 51.5, hitting a 5-month high. The Chinese services PMI, on the other hand, dropped to 51.5 in November vs 52.5 expected.

Last week's highlights

	Manufacturing & Services PMI (02/12) – Manufacturing PMI increased to 48.4 in November, still in contraction territory. Services slowed to 52.1 after surging to 56.0 in October.  Nonfarm Payrolls (06/12) – 227k vs 220k expected, muted reaction for rates expectations.
	Eurozone Producer Price Index (04/12) – Increased 0.40%, in line with estimates.  Eurozone Retail Sales (05/12) – Declined 0.5% month on month in October, reversing the 0.5% rise in September.
	BRC Retail Sales (03/12) – Retail sales fell 3.3%, partly because of a later “Black Friday”.
	China Manufacturing PMI (02/12) – Beat expectations coming in at 51.5, a 5-month high.  China Services PMI (04/12) – Dropped to 51.5 in November vs 52.5 expected.

Looking ahead to this week, the Fed will be watching closely as US inflation is released on Wednesday. Markets are expecting another 25 bps cut at their December meeting. The US producer price index for November is due out on Thursday, after producer prices picked up in October. In Europe, the main event is the ECB meeting on Thursday. Markets are expecting another 25 bps rate cut given the downward trajectory of inflation across Europe. In the UK, consumer confidence will be released on Friday. Confidence has been recovering recently after falling ahead of the budget. Finally, in China, inflation and export data will be released. The annual Central Economic Work Conference takes place in China this week, where economic targets and stimulus plans for 2025 will be mapped out. Chinese equities have been moving higher over the last week in anticipation of more stimulus announcements.

What's on the radar

	US inflation (11/12) US producer price index (12/12)
	Eurogroup meeting (10/12) German inflation (10/12) ECB meeting (12/12)
	UK consumer confidence (13/12)
	China inflation (09/12) China export data (10/12)

Chart of the moment

Swiss policy rate

Source: DataStream, Davy as of 04/12/2024

• Disinflation is on the agenda again in Switzerland, with inflation near the low end of the Swiss National Bank’s target range. 
• Due to its safe haven status, the Swiss franc has been appreciating in response to political uncertainty in France and Germany. 
• To offset a rising Swiss franc and downside risks to inflation, markets expect the SNB to cut rates aggressively and are pricing a return to zero rates by December 2025.