US government shutdown approaches after House rejects Trump-backed spending bill. To keep the government running, the Republican House Speaker Mike Johnson must find a way to pass legislation before midnight tonight (Dec.2). Meanwhile, the US 10-year Treausry yield shot higher again yesterday (Dec. 19), rising to 4.57%, the highest since May.
There are several reasons for adopting a cautious near-term outlook for markets, and reflation risk is arguably at the top of the list. That’s old news, but it’s a topic that’s keenly in focus after the Federal Reserve decided on Wednesday to cut interest rates for a third time.
Treasury yields rise sharply after the Federal Reserve cuts its target rate by 1/4 point–the third straight cut. The US 10-year Treasury yield shot up after the announcement, ending at 4.52%, the highest since May.
The market is confident that a 25-basis-points reduction is a done-deal for today’s policy announcement, based on Fed funds futures. But the question of whether the Fed should cut is more complicated.
US retail sales rose for a third straight month in November. Spending rose 0.7% last month, beating expectations. “We ultimately expect this will be a decent holiday sales season for retailers,” writes Tim Quinlan, an economist at Wells Fargo, in a note to clients. “It’s not going to knock anyone’s socks off in the wake of record pandemic gains, but continued consumer momentum means it’s unlikely to be overly weak either.”
Several updated nowcasts for US economic activity in the fourth quarter have been revised sharply higher recently, but the median estimate barely changed, based on the several data points from a range of sources compiled by CapitalSpectator.com. The US economy still, as a result, still looks set to slow in the final quarter of the year via the median nowcast.
US economic activity accelerated to a 33-month high in December, according to the US Composite, a survey-based GDP proxy. “Business is booming in the US services economy, where output is growing at the sharpest rate since the reopening of the economy from COVID lockdowns in 2021,” says Chris Williamson, chief business economist at S&P Global Market Intelligence. “The service sector expansion is helping drive overall growth in the economy to its fastest for nearly three years, consistent with GDP rising at an annualized rate of just over 3% in December.”
Here’s the follow-up to the first installment of our year-end review of Book Bits columns published in 2024. Happy reading!
● Shocks, Crises, and False Alarms: How to Assess True Macroeconomic Risk
Philipp Carlsson-Szlezak and Paul Swartz
Excerpt via Harvard Business Review
In 2022, when U.S. interest rates climbed, a cascade of emerging-market defaults were predicted—but they didn’t materialize. Also in 2022, and again in 2023, public discourse cast an imminent recession as “inevitable.” Instead a resilient U.S. economy not only defied the doomsayers but delivered strong growth.
For executives and investors such whiplash comes with two types of costs: financial and organizational. Consider the financial cost to automakers that reduced their semiconductor orders in 2020 because they misread the Covid-19 recession as a protracted economic depression. That meant they missed out on sales during the roaring recovery. And leaders can lose the trust of their organizations if they overreact to false alarms with abrupt reversals in strategy, operations, and communications. Clearly, getting the macro call right really matters.
Your editor is heading to Boston for a long weekend. The fun resumes on Tues., Dec. 17. Please don’t break anything while I’m gone.
The market premium for the US 10-year Treasury yield continued to rebound in November vs. a “fair value” estimate calculated by CapitalSpectator.com. The increase marks the second straight monthly increase in the premium, which is now at the highest level since May.