Commentary
Equity markets delivered mixed results last week. In the US, stocks delivered modest gains, with small-caps continuing their outperformance of past month. Energy stocks declined however, due to the fall in oil prices. European stocks have continued to rally, as Stoxx 600 has gained 10.0% since late October 2023. Meanwhile, Asian equities were notable underperformers, as economic activity proves weaker than expected in Japan and China.
This week has a heavy economic calendar and Western central banks will be in the center of investors’ attention. While it is almost certain that the US Fed will keep the base rate unchanged at this meeting (markets are pricing in a 0.2% probability of a 25bps hike), investors will primarily focus on the interest rate and economic projections. As of today, markets are anticipating a strong cutting cycle in 2024. The market-implied probability of the Fed rate falling to 4.0-4.5% range by December 2024 is 60%, with 20% chance of rates dropping below that level. Importantly, this view is not quite in line with the Fed’s own forecasts that foresee rates at 5.0-5.25% by the same period. On Wednesday, the Fed will renew forecasts which may align more closely with that of markets.
