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Data Validates Our View That the ECB will Cut First

Data Validates Our View That the ECB will Cut Rates First

Exclusive Insights Report, New York, NY ~ The US job report was relatively strong today with jobs coming in at 216k with a tick down to 3.7% on the unemployment rate and an increase in wages of .4% vs. expectations of .3%.  Stocks and bonds are weak this morning as market expectations for Fed rate cuts got ahead of the data.  We continue to believe that the US will avoid a recession and achieve GDP growth of 2% this year as a resilient housing market and infrastructure support business investment, which is the area that always precipitates recessions.


European data this morning, however, was extraordinarily weak, with German retail sales for November coming in at negative 2.5% vs. expectations at negative .5% and year-over-year came in at negative 2% vs. expectations of negative .5%.  Euro Zone CPI for December came in at .2% with year-over-year flat at 3.4%, but PPI, which is a leading indicator of CPI, plunged by .3% with year-over-year at negative 8.8%.  Euro Zone GDP Now shows a 1.2% decline indicating that the Euro Zone is in a recession, led by Germany which has been in a recession over the last year with GDP growth of negative .8%.  The German recession is accelerating with housing prices plunging almost 10%, Construction PMIs below 40, retail sales plummeting, and unemployment rising.  Today’s very weak Euro Zone economic data combined with rapidly decelerating inflation validates our view that the ECB will be forced to cut rates in the first half of 2024.  The Euro Zone cuts will validate market expectations for global rate cuts with interest rate futures markets implying that every OECD country except Japan will cut rates with an average cut of over 1.25%.


We believe that today’s data validates our view that the US 10-year will drop into the 3-3.5% in 2024 while US GDP growth remains strong.  Our S&P target remains 5,500 based on 20.5x 2025 S&P EPS of 270.



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