2024-01-09 03:30:44
A correction movement also occurred on the bond market: the American 10-year rate which had fallen below 3.80% (its lowest level since July) and rose last Friday to 4.10%, a rebound of 30 basis points, largely erasing the détente that appeared following Jerome Powell’s press conference on December 13. Same observation for rates in Europe and in particular the German 10-year which rose to 2.20% on Friday once morest 1.89% a few days earlier.
We can clearly speak of a healthy market correction, whether that observed on the stock or bond markets. Indeed, while financial conditions in the United States had already largely relaxed before the Fed meeting (the American 10-year rate had fallen by more than 90 basis points between the end of October and mid-December), financial conditions the most flexible since January 2022 according to the National Financial Conditions Index (NFCI), an index compiled by the Chicago Fed, Jerome Powell pleasantly surprised the markets by raising for the first time the possibility of discussions on rate cuts.
An area that Christine Lagarde did not dare to venture into the next day, during the ECB meeting, even though the economic situation in the euro zone is significantly weaker than in the United States.
This “gift” from Jerome Powell to the markets surprised some observers because it did not seem essential at this time of the year, when there was no particular nervousness on the markets, which financial conditions had already relaxed since. almost two months and the American macroeconomic figures continued to show good resilience.
Several US employment figures published last week have pushed the markets to adjust their focus: weekly unemployment registrations fell to their lowest level since mid-October (202,000), job creations stood at 216,000 once morest a consensus of 170,000, the unemployment rate remained stable in December at 3.7% while the consensus was counting on a small rebound…and the increase in average hourly wages was greater than expected at 4.1% in annual data while the consensus was forecasting 3.9%.
Also knowing that the Atlanta Fed anticipates American growth of 2.5% in the fourth quarter, it is rather healthy to see the markets correcting what can be described as excess anticipation in December, markets which have evacuated a little too quickly the notion of “higher for longer” from central banks, this transitional phase which precedes the first rate cuts.
The rebound in inflation in the euro zone is also a reminder to the markets that, even if very significant progress has been made in recent months, there is always a “last mile” to go. There will be several rate cuts from the Fed and the ECB in 2024, that is absolutely certain, but a first rate cut in March is not guaranteed at this stage.
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