Resilient US Labor Market Blurs Outlook For Rate Cuts

Ahead of Friday’s payrolls data for May the crowd was newly confident, again, that the Fed would soon start cutting interest rates. Treasury yields were sliding and expectations were rising that policy easing was near. But the May jobs report flipped the script with news of stronger-than-expected hiring.

Nonfarm payrolls rose 272,000 in May, rebounding sharply from April’s gain with a gain that was well above the consensus forecast. The week-long drop in Treasury yields reversed and the game of forecasting the Fed’s next move was once more back in play.

The news certainly complicates the outlook for this week’s Federal Reserve policy announcement on Wednesday, June 12. Although the market has long expected no change in policy for this meeting, the payrolls data has refocused attention on the central bank’s revised economic projections that will be released on Wednesday. Meanwhile, Fed Chairman Jerome Powell’s press conference will take on new import as markets digest the latest sign of labor market resilience.

The Fed funds futures market this morning is pricing in modest odds that the first rate cut will now arrive at the November 7 FOMC meeting. A September rate cut, which was considered moderately likely before Friday’s jobs data, is now estimated as a coin flip.

The policy-sensitive 2-year Treasury yield continues to trade well below the current Fed funds rate, but the market in recent weeks has pared the spread. In other words, this key Treasury yield is also pricing in lower odds that a rate cut is near relative to recent history.

A simple model for estimating the current state of monetary policy suggests that a moderately hawkish bias still prevails. The implication: policy is still putting downside pressure on inflation.

The joker in the deck is Wednesday’s consumer price data for May, which will be published several hours ahead of the Fed’s announcement that day. Economists are expecting inflation’s pace will remain comparable to April’s rise. Sticky inflation, in sum, is still the crowd’s outlook. That leaves the burning question: How will the Fed react?

Future of Investment Festival in pictures

As sustainable investment moves into the mainstream, the Future of Investment Festival built on the success of the Sustainable Investment Festival to explore how this part of the market is evolving, identify investment opportunities, and help delegates respond to new regulations, including SDR in the UK.   The Festival also focused on how investors can sustainably take advantage of global megatrends such as the energy transition, societal change and digitalisation, including the rapid development of AI. Delegates had the opportunity to interact with expert speakers and companies from …

Candriam launches Article 9 sustainable equity water fund

The Candriam Sustainable Equity Water fund will invest in companies that treat, transport, distribute and valorise water, as well as companies that seek to reduce water intensity in high water sectors. It will managed by Bastien Dublanc and David Czupryna, with support from Candriam’s thematic global equity team. Candriam expands sustainable equity range with EM ex-China fund launch Dublanc is a senior fund manager within the global thematic equity team. Prior to joining Candriam, he worked as investment director and head of sustainable investing at Clim8 Invest. Czupryna joined…

Liontrust bolsters UK distribution team with triple hire

Higgs joins as appointed business development manager, after a four year stint at Royal London AM in the same role. He will be working report to head of UK distribution Kristian Cook, working with wealth managers, discretionary fund managers, multi- managers, private banks, and family offices in London and the Channel Islands. Barwell, who has joined from Janus Henderson Investors also takes on the role of business development manager for southeast England, reporting to Mark Wight, head of UK regional distribution. Liontrust appoints head of UK strategic partners to boost funds dis…

Ashtead weighs switch to US listing in latest blow to London market

The potential plans are still in their early stages, according to The Telegraph, but a review is being conducted due to board-level concerns about the pay disparity between the group and its publicly listed American counterparts. The FTSE 100 giant, which has a market cap of over £24bn, currently conducts the majority of its business on the other side of the Atlantic. A spokesperson for the firm told Investment Week: “Ashtead reviews its capital structure regularly, including its domicile, recognising the fact that 90% of its business is in the US.” Superdry proposes delisting from…

FCA to approve listings regime overhaul as early as this month – reports

People familiar with the matter told the FT that the regulator’s board has earmarked a meeting on 27 June to decide whether to approve the final version of the rules, which aim to boost the UK’s struggling stock market.  FCA unveils listings regime proposals to simplify market access for companies Once the changes are confirmed publicly, they will take effect after a two-week implementation period.  The FCA is not expected to make any announcements until after the general election, with the exact timing is yet to be determined. However, the FT said some City advisers anticipate the…

Markets Brief: Meme Stocks Return

Insights into key market performance and economic trends from Dan Kemp, Morningstar’s global chief research and investment officer.

Meme stocks were back in the headlines last week as GameStop (GME) first rose 101% and subsequently fell 39% on Friday to finish flat on the week. This followed the announcement of a 29% decline in year-over-year sales and the second capital raising in a month. This reminds us that while capital markets are designed to enable investment, they are often used for speculation and investors can be confused between the two. The essential difference is that Investment is always focused on the long term, supported by research, and enjoys a positive expected return. Speculation is any activity that does not comply with those rules. To understand why we get drawn into speculation and how to avoid it, check out this article by Morningstar behavioural scientist Danielle Labotka.

Small-Cap Stocks Struggle

Elsewhere, the price of US equities rose sharply with the Morningstar US Market index up 1.06% over the week. The path of larger, growth-oriented companies differed sharply from smaller, value-orientated companies as evidenced by the Morningstar Small Value index which fell 2.88%. In such an environment, it is worth digging deeper into the opportunities provided by a market. Morningstar’s new sector pages can help you do this.

US Job Boom

The US employment report on Friday showed revealed higher growth than expected, with 272,000 new jobs created in May. While commentators made much of this news and the impact of the future path of interest rates, investors were nonplussed, as indicated by the CME FedWatch tool which shows that interest rate expectations for December were virtually unchanged over the week. To put these latest results in a longer-term investing context read Philip Straehl, Morningstar wealth’s chief investment officer for the Americas’ comments on the release here.

Don’t Ignore Bonds

In contrast to equities, core bond prices have changed little this year as investors have vacillated about the direction of the economy and interest rates. Following a period of falling prices, this lackluster outcome for bondholders can encourage investors to ignore this asset class. However, with higher yields and lower inflation, it is a good time to consider the contrarian view. To help you do this, Morningstar writer Danny Noonan presents the case for bonds in this article.

All Eyes on the Fed this Week

The focus of market commentators will be firmly fixed on

France leads European market sell-off after Macron calls snap poll

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Markets Brief: Fed Interest Rate Decision Looms

Insights into key market performance and economic trends from Dan Kemp, Morningstar’s global chief research and investment officer.

Meme stocks were back in the headlines last week as GameStop (GME) first rose 101% and subsequently fell 39% on Friday to finish flat on the week. This followed the announcement of a 29% decline in year-over-year sales and the second capital raising in a month. This reminds us that while capital markets are designed to enable investment, they are often used for speculation and investors can be confused between the two. The essential difference is that Investment is always focused on the long term, supported by research, and enjoys a positive expected return. Speculation is any activity that does not comply with those rules. To understand why we get drawn into speculation and how to avoid it, check out this article by Morningstar behavioural scientist Danielle Labotka.

Small-Cap Stocks Struggle

Elsewhere, the price of US equities rose sharply with the Morningstar US Market index up 1.06% over the week. The path of larger, growth-oriented companies differed sharply from smaller, value-orientated companies as evidenced by the Morningstar Small Value index which fell 2.88%. In such an environment, it is worth digging deeper into the opportunities provided by a market. Morningstar’s new sector pages can help you do this.

US Job Boom

The US employment report on Friday showed revealed higher growth than expected, with 272,000 new jobs created in May. While commentators made much of this news and the impact of the future path of interest rates, investors were nonplussed, as indicated by the CME FedWatch tool which shows that interest rate expectations for December were virtually unchanged over the week. To put these latest results in a longer-term investing context read Philip Straehl, Morningstar wealth’s chief investment officer for the Americas’ comments on the release here.

Don’t Ignore Bonds

In contrast to equities, core bond prices have changed little this year as investors have vacillated about the direction of the economy and interest rates. Following a period of falling prices, this lackluster outcome for bondholders can encourage investors to ignore this asset class. However, with higher yields and lower inflation, it is a good time to consider the contrarian view. To help you do this, Morningstar writer Danny Noonan presents the case for bonds in this article.

All Eyes on the Fed this Week

The focus of market commentators will be firmly fixed on

Our Consensus Forecasts suggest Novo Nordisk will continue to drive Denmark’s GDP growth

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Scandinavia’s top performer

Our panelists see Denmark’s GDP growth being the highest in Scandinavia this year and next, after a region-beating performance in 2023. And Novo Nordisk—the Danish pharmaceutical giant with a market capitalization larger than Denmark’s GDP—has a significant part to play in these rosy projections. The company is behind the blockbuster drugs Ozempic and Wegovy, which tackle diabetes and obesity, respectively. Surging sales of the drugs saw Novo Nordisk’s profits rise by half last year, and potentially by a further quarter in 2024.

The Novo factor

Rising drug sales led Denmark’s exports to increase by a massive 13.4% year on year in 2023, and our panelists pencil in a further 7.4% rise for 2024. But it’s not just the external sector that Novo Nordisk is benefiting: The company is also spending billions of euros to expand its manufacturing capacity within Denmark, and its growing corporate tax payments are helping fund public spending priorities from defense to the green transition. The company paid close to EUR 3 billion in tax last year, more than double the level of four years ago. To really put into perspective the importance of Novo Nordisk for the economy, consider that Denmark’s GDP growth of 1.9% last year would have been roughly zero without the firm’s outsized contribution.

The danger of overreliance

In the early 21st century, telecoms giant Nokia dominated Finland’s local economic landscape and was at the forefront of the mobile phone market. But the firm fell behind technologically in the late 2000s and had to lay off thousands of Finnish employees, with the company’s decline contributing to half the fall in Finnish GDP in 2009. It’s a cautionary tale which bears a certain resemblance to Denmark’s current situation. Like Nokia, Novo Nordisk relies on a narrow set of products to generate revenue. And like Nokia—whose bête noire was Apple and the iPhone—Novo Nordisk has a growing set of rivals; U.S. company Eli Lilly is already selling its own anti-obesity drug, and a host of other pharmaceutical firms are racing to grab a slice of the market.

With this in mind, Denmark’s government would be wise to use the economic proceeds from Novo Nordisk’s rise to build out the wider pharma ecosystem and turbocharge other economic sectors. If it simply pockets the proceeds, the economy’s time in the sun may not last long.

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