The financial markets, it seems, did not wait for Christmas to open their presents. Despite a slightly quieter week due to Thanksgiving, and in fairly low volumes, the end-of-year rally, launched at the beginning of November, is taking the stock markets to their highest levels. And what about the return to favor of the technology sector, driven by the “magnificent seven” (Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla) who benefit from significant flows, particularly from hegde funds? This idyllic end to the year benefits from the equally wonderful scenario of a normalization of inflation without a marked deterioration in the job market and growth, all accompanied by expectations of monetary easing from the second quarter of 2024 If the macroeconomic data currently militates in this direction, it is nevertheless not certain that the direction of the markets, in particular rates, will not be to the taste of the central bankers. So watch out for the hawkish posture during their last monetary policy meeting of the year, mid-December, where they could try to temper investors' enthusiasm.
In the euro zone, the publication of preliminary activity indicators for the month of November partly confirms this ideal scenario with a contraction in activity less severe than expected and data even reflecting an improvement compared to the month of October. This slight rebound materializes both in services and in the manufacturing sector. Overall, the composite PMI for the zone stood at 47.1 compared to 46.8 expected and 46.5 the previous month. Faced with a contraction in demand and excess production capacity, the labor market is proving a little less resilient than a few months ago, with European companies reducing their workforce for the first time in three years. This decline mainly takes place in the manufacturing sector while employment in services remains relatively stable. Despite this weakness in the labor market, companies are nevertheless reporting increases in wage costs which have a negative impact on their production costs. Reading these data, and according to S&P Global, the euro zone should experience a further contraction of its GDP in the fourth quarter, which would constitute a technical recession, after the -0.1% drop already observed in the third quarter.
Germany perfectly illustrates Europe's difficulties, particularly in the industrial sector. Trying to support its economy as best it can (with energy support plans for example), the government finds itself, ironically, blocked by its constitutional rule of the “debt brake”. The constitutional court of Karlsruhe has in fact just invalidated the government's sleight of hand consisting of transferring unused funds for the Covid epidemic to the benefit of the energy transition, which opens the way to other revisions of this kind. The government therefore wishes to suspend its rule limiting its deficit, at least for this year. If this decision does not, of course, signal the end of German budgetary orthodoxy, we can bet that it will give the German government a little flexibility when it comes to judging the deficits of other countries. Nothing is less sure…