Unadorned Notes: November 14-17, 2024
Powell Advocates Cautious Rate Cuts; Trump Policies Reshape Global Economy; Crypto Surge Fuels Market Speculation; Biden and Xi Hold Talks; Europe Warms to Trump Peace
Economics, Finance, and Business
Retail Sales Strengthen: U.S. retail sales rose 0.4% in October 2024, exceeding expectations and benefiting from higher auto and electronics purchases, while September 2024’s figures were sharply revised upward. Core retail sales dipped 0.1% after a strong 1.2% gain in September 2024 but still suggest solid consumer spending momentum. The economy grew at a 2.8% annualized rate in Q3 2024, and early signs indicate a 3% consumer spending growth rate for Q4 2024.1
Jobless Claims Decline: U.S. unemployment claims fell by 4,000 to a seasonally adjusted 217,000 for the week ending November 9, 2024, signaling resilience in the labor market despite an October 2024 slowdown in job growth. The decline follows earlier disruptions caused by Hurricanes Helene and Milton and a strike at Boeing, which had temporarily boosted claims. Continuing claims, a measure of ongoing benefit recipients, dropped by 11,000 to 1.873 million, reflecting the easing of Boeing furloughs and hurricane recovery. Economists expect job growth to rebound in November 2024 as conditions stabilize.2
Producer Prices Accelerate: U.S. producer prices rose 0.2% in October 2024, driven by higher service costs such as portfolio management and airline fares, with year-over-year growth climbing to 2.4%. The data, alongside steady consumer inflation, suggests slowing progress in reducing price pressures, prompting economists to reassess inflation outlooks. The Federal Reserve, having recently cut interest rates to 4.50%-4.75%, may adopt a slower rate-cutting cycle due to persistent inflation and stable economic activity. Markets are increasingly skeptical about another rate cut in December 2024, with odds falling to roughly 60%.3
Powell Advocates Cautious Rate Cuts: Federal Reserve Chair Jerome Powell stated that the U.S. economy’s strong performance allows for a gradual approach to interest rate cuts, emphasizing no urgency for immediate action. Speaking in Dallas, Powell highlighted uncertainty about the neutral rate level and reiterated the need for careful adjustments to avoid policy missteps. Core inflation remains elevated at 0.3% monthly growth, keeping inflation closer to the Fed’s 2% target but not fully aligned. Powell also addressed potential economic impacts from President-elect Donald Trump’s policies, stating that the Fed will wait to assess their effects before adjusting policy.4
Trump Policies Reshape Global Economy: President-elect Donald Trump’s proposed policies on trade, capital, and migration are set to disrupt global economic flows, with significant consequences for countries like Mexico, China, and the European Union. Plans for steep tariffs on imports could slash trade surpluses with the U.S., while capital markets shift toward American assets, driven by anticipated tax cuts and deregulation. Deportations and restrictions on migration may harm economies reliant on U.S. remittances and labor mobility, particularly in Central America and Mexico. Meanwhile, allies like Britain and smaller Asian exporters could benefit from trade diversions and exemptions. However, the unpredictability of Trump’s policymaking raises concerns over global retaliation, protectionism, and lobbying-driven favoritism.5
Money Market Funds Hit Record: U.S. money market fund assets exceeded $7 trillion for the first time, as investors continue favoring low-risk returns amid declining interest rates. Despite Federal Reserve rate cuts and strong stock market performance, institutional and retail investors are maintaining cash holdings due to yields near 4.5%, which remain competitive with other options. Banks’ reductions in savings account rates have further bolstered the appeal of money funds, which saw $91 billion in inflows last week. Analysts predict inflows will slow in 2025 as rates fall further and corporate cash is redeployed. However, companies and investors are likely to retain substantial cash reserves, supporting continued money-fund activity.6
U.S. Equity Funds Surge: U.S. equity funds saw $37.37 billion in net inflows for the week ending November 13, 2024, the largest weekly gain since 2014, driven by optimism over Donald Trump’s pro-business policies. Small-cap funds received $7.43 billion, while large-cap funds attracted $18.89 billion, with financial sector funds recording their highest inflows in a decade at $4.42 billion. Bond funds also extended their streak of inflows to 24 weeks, adding $5.71 billion, led by taxable fixed income and loan participation funds.7
Crypto Surge Fuels Market Speculation: The Saylor-Buffett Ratio, comparing Berkshire Hathaway’s performance to MicroStrategy’s, has surged, reflecting heightened market speculation. MicroStrategy’s stock has risen over 400% this year, fueled by Bitcoin’s rally, compared to Berkshire’s 31% gain. Investors poured a record $6 billion into crypto funds last week, bolstered by optimism over President-elect Donald Trump’s pro-crypto regulatory agenda. Analysts warn of speculative bubbles in both cryptocurrencies and artificial intelligence, with concerns growing over their combined impact on markets. The S&P 500 and Nasdaq have declined recently, indicating cooling enthusiasm in traditional equities.8
Goldman Sachs Gains on Optimism: Goldman Sachs shares rose nearly 15% in November 2024, outperforming peers, amid expectations of increased dealmaking, regulatory easing, and growth in private credit markets under the Trump administration. The bank’s strategic focus on asset management and private credit, including $140 billion in managed private-credit assets, positions it for significant fee-based revenue growth. Rising Treasury yields and a favorable regulatory environment are expected to further boost private credit demand. Goldman is also releasing capital by selling on-balance-sheet positions and pursuing $1 billion in annual performance fee revenue. However, risks such as market volatility, tariffs, and regulatory uncertainty could temper these gains.9
Pharma Stocks Drop on RFK Jr. Nomination: Pharmaceutical and biotech stocks declined after President-elect Donald Trump nominated vaccine skeptic Robert F. Kennedy Jr. to lead the Department of Health and Human Services. The SPDR S&P Biotech ETF fell 3.7%, with major companies like Pfizer, Amgen, and Eli Lilly experiencing losses of over 4%. Kennedy’s stated priorities, including reducing drug prices and reallocating NIH funds toward alternative health approaches, have raised industry concerns. Public health experts and Democrats criticized the choice, warning it could undermine vaccine confidence and disrupt federal health agencies. The pharmaceutical trade group PhRMA expressed willingness to work with the administration but refrained from commenting on market reactions.10
U.S. Economics and Geopolitics
Trump’s Cabinet Picks Face Scrutiny: President-elect Donald Trump’s Cabinet nominees are under intense scrutiny, including misconduct allegations against Secretary of Defense pick Pete Hegseth and Attorney General nominee Matt Gaetz. Hegseth denies a 2017 sexual assault allegation and criticism over a tattoo linked to extremist groups, while Gaetz resigned from Congress amid allegations of sexual misconduct and misuse of campaign funds. Secretary of Health and Human Services nominee Robert F. Kennedy Jr. faces backlash for his vaccine skepticism, sparking concerns among public health experts and sharp declines in healthcare stocks. The Senate, controlled by Republicans, will vet the nominees in bipartisan confirmation hearings. Trump has yet to address the controversies surrounding his appointments.11
Biden and Xi Hold Talks: U.S. President Joe Biden and Chinese leader Xi Jinping met on the sidelines of the APEC summit in Lima, Peru, for their final face-to-face meeting during Biden’s presidency. The leaders discussed stabilizing U.S.-China relations, with Xi emphasizing the importance of mutual partnership and global benefits of cooperation. Key topics included joint measures on AI safety, affirming the need for human oversight in nuclear weapon use, and countering narcotics. Biden condemned North Korea’s troop deployments to Russia and called for reduced Chinese military activity near Taiwan. The meeting also addressed the resolution of cases involving detained U.S. citizens in China.12
Biden Approves Limited ATACMS Use: President Joe Biden has authorized Ukraine to use U.S.-supplied ATACMS missiles for targeted strikes inside Russia, marking a significant policy shift aimed at countering North Korea’s deployment of troops to aid Moscow. The decision follows the arrival of 10,000 North Korean forces in Russia’s Kursk region, which has intensified concerns over Pyongyang’s growing role in the conflict. The Biden administration aims to strengthen Ukraine’s position ahead of anticipated peace talks under President-elect Donald Trump, while addressing North Korea’s involvement as a strategic misstep. Concerns remain over potential Russian retaliation, but U.S. officials view the limited use of ATACMS as necessary to deter further escalation. The move underscores Biden’s effort to provide Ukraine with a tactical advantage in the final weeks of his presidency.13
Europe Warms to Trump Peace: President-elect Donald Trump’s push for peace negotiations between Russia and Ukraine is gaining traction in Europe amid concerns over Ukraine’s ability to counter intensified Russian attacks. European leaders are preparing contingency plans in case U.S. support for Kyiv is reduced, while some officials cautiously align with Trump’s call for talks, provided they extract meaningful concessions from Moscow. Ukraine remains focused on regaining occupied territories but faces growing domestic and international acknowledgment of potential territorial compromises. German Chancellor Olaf Scholz and other European leaders emphasize the need for a “just and durable peace”, though fears persist over Trump’s approach potentially limiting Ukraine’s agency. Meanwhile, Russia’s recent missile and drone attacks on Ukraine’s energy infrastructure signal continued resistance to diplomatic resolutions.14
Far-Right Parties Expand Across Europe: Far-right political movements are proliferating across Europe, with 15 EU member states now hosting at least two nationalist parties with elected representatives. In the Balkans, Bulgaria has seen four far-right parties enter parliament since 2021, while Greece’s ultranationalist forces, such as Spartans and Greek Solution, continue to gain ground. Similar trends are reshaping politics in countries like France, the Netherlands, Poland, and Hungary, where traditional right-wing parties increasingly rely on extreme nationalist groups for support. These movements often differ in policy and style, creating varied coalitions and influencing migration and governance. Ireland remains one of the few EU nations without a strong far-right presence but faces emerging challenges with rising anti-immigrant rhetoric.15