Dear Investors,
Fixed income – what to know – (9 Yields Updates) Goldman Sachs
Digesting an increasingly benign inflation trajectory
Annual US core PCE inflation eased from 3.7% to 3.5% in October, reaffirming the disinflation trend reflected in core CPI inflation data released earlier in the month.
Data releases over November support the view that central banks may have tamed inflation without inducing a recession.
Core inflation slowed for the fourth month in a row, reflecting easing core goods price pressures.
Divergent growth momentum
The US manufacturing sector remains weak with the ISM manufacturing index in contracting territory for the thirteenth consecutive month.
However, third quarter GDP growth expanded by the fastest pace in two years.
Yields ease on dovish fed comments and disinflation – fixed income
Stronger conviction that the next move for the Fed will likely be a rate cut saw the US 10-year Treasury yield exit November 60bps lower, having started the month way up at 4.9%.
Meanwhile, the US Treasury bond yield curve between 2- and 10-year maturities steepened by 19bps.
Fixed Income, Disinflation progress and dovish comments from Fed Governor Waller, who has historically leaned hawkish, saw investors pull forward the expected timeline for central bank policy rate cuts.
Market-implied pricing points to the first move lower arriving in March 2024 for both the US and Europe.
The end of 2023 – what to look ahead – (9 New Year Updates) RBC
Despite gloomy projections heading into 2023, another push higher in interest rates, and geopolitical upheaval, the world economy managed to exceed expectations.
Inflation receded considerably from worrisome levels in most economies thanks to a combination of lower energy prices, base effects from year-over-year comparisons, and slower demand for goods and services.
This has allowed most major central banks, including the Federal Reserve, to shift to a more balanced stance on the trade-offs between the path of interest rates, inflation, and growth.
Credit conditions challeging
Higher rates and a reduced willingness of banks to extend loans suggest to us that credit conditions for households and businesses are likely to remain challenging in the near term.
Restrictive borrowing costs and tougher access to credit tend to act as drags on economic activity.
After consistent positive revisions this year, the current consensus projections are for global and U.S. real GDP growth to moderate to 2.7 percent and 1.2 percent in 2024, on a year-over-year basis, respectively, from 2.9 percent and 2.4 percent this year.
What’s behind 2023? fixed income & equities
The story for much of 2023 has been a macro environment that has generally surprised in a constructive way.
Sustained economic growth and central banks that are now less motivated to hike again provided a more supportive environment for equity markets to scale the proverbial “wall of worry.”
Consensus estimates are currently projecting low double digit profit growth for major equity indexes in 2024.