european futures increases
Fundamental Analysis

Equities Take a Breath After Thanksgiving

  • Investors paused after Thanksgiving ahead of crucial economic data.
  • Financial markets indicate a 99.4% probability that the Fed will maintain rates next month.
  • Data revealed a slower pace of profit growth in China’s industrial firms in October.

Equities drifted lower on Monday as investors paused after Thanksgiving, anticipating crucial economic data during the bustling holiday shopping season. 

According to Adobe Analytics, Cyber Monday is projected to drive record spending of $12 billion, enticing shoppers with online deals. This upbeat sign reflects the strength of the American consumer, who contributes about 70% to the US GDP. 

Greg Bassuk, CEO at AXS Investments in New York, noted a brief respite for investors after a strong market activity period. Attention is now shifting to upcoming inflation data, consumer confidence, and spending.

Meanwhile, financial markets indicate a 99.4% probability that the central bank will maintain the Fed funds target rate next month. Furthermore, the possibility of a rate cut in mid-2024 is gaining ground, as per CME’s FedWatch tool. Analysts will closely examine remarks from Fed policymakers later in the week for insights into the duration of the central bank’s restrictive policy.

US new home sales (Source: US Census Bureau and Department of Housing and Urban Development)

US new home sales (Source: US Census Bureau and Department of Housing and Urban Development)

A larger-than-expected drop in new home sales contributed to the subdued sentiment in the market. However, this setback is likely temporary because of a persistent shortage of previously owned houses.

Additionally, market participants await the Commerce Department’s second take on third-quarter GDP and the Personal Consumption Expenditures (PCE) report later in the week. 

European equities slipped on Monday due to a drop in healthcare stocks. Meanwhile, European Central Bank President Christine Lagarde mentioned easing inflation pressures in the Eurozone, coupled with solid wage growth and an uncertain outlook. Moreover, she indicated that the ECB would continue its fight to control price growth.

Earlier this year, the ECB raised rates to a record high of 4% to curb price growth. However, the central bank has indicated a stable policy for the next few quarters. Consequently, markets are beginning to position themselves for a potential rate cut, with expectations pointing to a move as early as April or June.

Investors will closely watch inflation data from Germany and the broader region this week. Simultaneously, they will track the ongoing budget developments in the country following a constitutional court ruling this month that disrupted Berlin’s financial plans. 

Globally, concerns arose as data revealed a slower pace of profit growth at China’s industrial firms in October. It raised worries about the recovery in the world’s second-largest economy.