The central bankers' ball was not easy last week. Recent inflation figures in the United States argue for a certain prudence on the part of the Fed. CPI inflation in November has, in fact, rebounded sequentially both on the total part (+0.1% month-on-month vs. +0% in October) and on the underlying part (+0.3% vs. +0.2%), driven by non-housing services and the housing component. However, Jerome Powell adopted a particularly accommodating tone and offered the market the long-awaited pivot! Taking note of the slowdown in inflation a notch faster than expected, the Fed left the door open to several key rate cuts next year (3 according to the dot plots). Please note, however, that this timetable is still far from the market's fairly aggressive expectations of more than 125 bps of decline in 2024, the very first of which will be in March. If some explain this unexpected pivot by recent polls in the United States which are quite unflattering for Joe Biden, particularly in certain key states, the climate was in any case euphoric on the equity and credit markets while rates rose. are, once again, clearly relaxed. The American 10-year thus fell below the 4% mark while the German 10-year ended the week at around 2%.
In Europe, central banks adopted a very different posture: the time was clearly not for a pivot. If the Bank of Norway created a surprise by raising its key rates, the other central bankers (ECB, BoE and SNB) opted, once again, for a pause against a backdrop of caution regarding the speed of disinflation. Several points of attention from the ECB: 1/Christine Lagarde explicitly mentioned that rate cuts were not a subject of discussion (“no discussion, no debate on this question”), 2/she also clearly indicated that the fall in sovereign rates in recent weeks was excessive, 3/finally, monetary tightening was even reinforced by a notch through the accelerated reduction in the size of the balance sheet. The envelope of financial securities held within the framework of the PEPP is set to be reduced from H2-2024, at the rate of €7.5 billion of securities maturing not reinvested each month before interrupting all reinvestments in 2025. Note also that the ECB has lowered its growth and inflation forecasts, now anticipating average inflation of 2.7% and GDP growth of 0.6% in 2024. The PMI indicators, published on Friday, confirm elsewhere this slowdown in activity, particularly in France which disappoints on all fronts (manufacturing PMI at 42, a 43-month low and services PMI which falls to 44.3 against 45.4 in November) and in Germany with a composite PMI falling for the sixth consecutive month (46.7 against 47.8 in November). The outlook in Germany also remains gloomy, particularly since the announcement of major budget cuts in 2024 induced by the “debt brake” rule (annual budget deficit limited to 0.35% of GDP) included in the German Constitution.
In China (particularly disappointing area in 2023), the latest figures remain mixed. Retail sales as well as industrial production rebounded significantly in November (+10.1% and +6.6% year-on-year) thanks to significant base effects but investment remains under pressure, particularly in the sector real estate where the prices of new and existing housing continued to decline in November (respectively -0.4% and -0.8% month-on-month). On Friday, the People's Bank of China (PBOC) this time did not skimp on the means to revive the economy and announced that it would inject a record amount of liquidity (€187 billion) into the market through one-year loans. . While more details are awaited on the level of fiscal stimulus, the central bank's monetary easing constitutes a positive signal, but will it be enough to pull the country out of deflation?