But the prospect of a recession-free 2024 stateside and continued disinflationary impulses from struggling China and Germany leave the outlook in balance.
And the Fed’s latest ‘Beige Book’ on economic conditions suggest the picture it sees has changed little in the weeks since its December meeting bombshell projected several rate cuts this year.
So, even though Fed rate cut pricing has been dialed back a bit, futures still point to more than a 50% chance of a move as soon as March and a total of 145 basis points of easing through December.
The backup in longer-term bond yields has been sharper, with 10-year yields hitting their highest in a month at 4.12% on Wednesday, even though that’s subsided about 5 bps again today.
Treasury saw soft demand for a $13 billion auction of 20-year bonds on Wednesday ahead of an expected flood of debt issuance this year. The paper sold at a high yield of 4.423%, about 9bps above where it was trading before the sale and bid-to-cover ratio was the lowest since March.
But attention overseas remained on China after this week’s latest series of dour economic updates and worrying demographic data. China’s nominal growth last year, taking in a year of price deflation, fell to its lowest since 1976 and its population fell for the second year in a row.
Speculation about fresh stimulus and buying from state-backed investors seemed to steady the market mood there on Thursday however. After initially hitting another 5-year low as foreign net selling hit its highest in more than a year on Wednesday, China’s benchmark stock index rallied 1.4% by the close.
Several large-cap ETFs that are favored investment tools by these state-backed funds, dubbed “national team” investors, saw a spike in trading volume, signaling support from such institutions.
