During the first weeks of November, we witnessed a radical change in sentiment in the European and US stock and bond markets. Therefore, after three months of fall, where the main stock indices of these regions entered into a technical correction after losing more than 10% from their annual maximum level, marked at the end of July, the markets turned sharply upwards, and many of these indices are currently about to exit the corrective phase. In fact, the Nasdaq Composite has done just that, having appreciated 11.7% in the first half of November from its recent lows.
Behind this 180-degree turn taken by the markets are several factors, among which we will highlight the following: i) the disinflation process continues a good pace, with inflation remaining in the largest developed economies the lowest level of the current cycle, a long way from its recent highs; ii) investors believe that central banks have finalized the rate hike process; iii) part of the market begins to discount that the central banks begin to reverse the increase in their official interest during 1H2024; and iv) have high expectations that The Federal Reserve (Fed) has achieved the goal of a “soft landing” in the American economy and In the Eurozone, the recession is limited to a few countries, among them Germany, and quite soft. Until just a few months ago, the scenario facing investors was quite the opposite, because they were betting on continued high inflation, on interest rates that would continue to rise and remain high for a long time, and, because of this, to enter the economy in the main developed economies.
Currently, the latest inflation figures in the Eurozone and the United States serve to consolidate the assumption that is currently discounted by the markets, which may favor a positive end of the year. In our opinion, the biggest threat facing the stock markets today is that the macroeconomic numbers deteriorated more than expected in 4Q2023, which will once again put on the table the potential entry of recession in the largest economy of the West. In this, development plays an important role. Christmas shopping season, which officially starts next Friday (Black Friday), after celebrating Thanksgiving Day in the United States,
It is precisely this holiday that will most likely condition the evolution of the stock market week that begins today; all US markets will remain closed on Thursdaywhile on Friday they will open only half a day, leaving the European bond and stock market “orphaned” as a reference, which has been very dependent on the Americans in recent months.
For others, it should be noted that this week’s macroeconomic agenda highlights the publication on Thursday of the Eurozone and the United Kingdom in the preliminary reading for November of advanced activity indices in the manufacturing and service sectors, the PMIs prepared by S&P Global, and indexes to be announced in the United States on Friday. These indices help investors get an idea of the strength with which private activity in the largest developed economies closed the year. Moreover, on Wednesday they will publish the minutes of the November meeting of the Federal Open Market Committee (FOMC) of the Fed and on Thursday the minutes of the last meeting of the Governing Council of the ECB. Investors will try to confirm by reading them that their assumption that central banks are ending the process of raising rates is “sustainable.”
Focusing on the current session, we hope that the European stock markets will open up so that the Italian company can “celebrate” with the profit of the decision adopted on Friday by the credit rating agency Moody’s to maintain the sovereign rating in the country of “investment grade” and, in addition, to review its outlook from “negative” to “stable”, something that, we understand, is a surprise. But to say that now many important listed companies in Italy discount dividends, which, in principle, hinders the performance of FTSE Mib, Also, note that today’s macroeconomic and business agenda is relatively light, so the day may serve to consolidate the recent rise of the markets to become a mere transition.