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- This Week in Financial Markets: 12.17.2023
This Week in Financial Markets: The Top 5
1. FOMC Meeting: Dovish Powell
The Fed has solidified their pivot away from a hawkish posture and risk assets love it. After leaving the policy rate unchanged on Wednesday, the Fed’s SEP (Summary of Economic Projections) pointed to nearly 3 rate expected rate cuts in 2024. The Nasdaq and the S&P 500 both continued to surge and are now just below ALL-TIME highs.
Meanwhile, Fed Funds futures (above) are now pricing close to SIX rate cuts in 2024 after the dovish FOMC SEP and presser!
2. US Data Says ‘Soft Landing’
Retail sales came in at +0.3% M/M vs. an expected print of -0.1%
Core retail sales were +0.2% M/M vs. -0.1% expected
Initial Jobless Claims were strong at 202K vs. estimates of 221K
US PPI (Producer Prices) rose +0.9% YoY vs. 1.0% estimates
US CPI (Consumer Prices) YoY 3.1% vs. 3.1% estimates
US Core CPI 0.3% M/M vs. 0.3% estimates
Inflation continues to fall, labor markets are not cracking, retail sales beat - every piece of US economic data is screaming soft landing.
3. China Record Stimulus
The Fed isn’t the only one sharply shifting to a more accommodative monetary position. The PBOC is injecting a record amount of stimulus. Equities in China have been a large underperformer in the past few years with the severe slowdown in their real estate industry and regulatory crackdowns across mega-cap corporations.
Watch out for green-shoots at the beginning of 2024 out of China.
4. OpEx Could Lead to Bigger Moves
Friday was the largest OpEx (options expiration) in history. It was $3 TRILLION+ in size. A record $8B of dealer (option market maker) gamma will collapse to zero. Large gamma means market makers were constantly buying back hedges, leading to large passive equity flows throughout the past few weeks. These are now gone. This is likely to lead to increased volatility, especially once the holidays pass.
5. Looking Ahead: Santa Rally?
We know what you are thinking… wow it is almost 2024. There is now 2 weeks left of trading which tend to be strong and have very low volume. Look for falling volatility to lead to dip-buying into year-end.
Looking Ahead:
Tuesday: BOJ Meeting, RBA Meeting
Wednesday: US Consumer Confidence, UK CPI
Thursday: US Q3 GDP, Unemployment Claims
Friday: Core PCE, UK Retail Sales
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