Weekly Market Pulse - Week ending December 6, 2024

Market developments

Equities: U.S. markets hovered near all-time highs as Friday's employment data fueled rate cut expectations, with the S&P 500 adding 0.96% for the week and Canada's S&P/TSX rising 0.17%. The S&P 500 is on track for its best annual performance since 2019, though strategists at major banks are increasingly warning about stretched valuations heading into 2025.

Fixed Income: Government bond yields declined across North America. U.S. Treasury 10-year yield fell to 4.15%, while Canadian 10-year yields reached 2.98%. The Canadian bond rally intensified after employment data showed a significant rise in unemployment despite job gains, as labour force participation returned to normal levels. This shifted market expectations toward a higher probability of a 50 basis point rate cut at next week's Bank of Canada meeting.

Commodities: Oil prices dropped to a three-week low, with WTI settling at $67.2 per barrel despite OPEC+ agreeing to delay production increases. Technical selling pressures and algorithmic trading contributed to the decline, while concerns about a potential supply glut in 2025 persisted.

Performance (price return)

Macro developments

Canada – PMIs Show Manufacturing and Services Growth, Employment Gains Paired with Rising Unemployment

Canadian manufacturing PMI rose to 52.0 in November from 51.1 in October, marking the strongest factory activity growth since February 2023. Output saw its best increase in two and a half years, while new orders grew at the fastest pace in 21 months, despite declining export orders. Services PMI improved to 51.2 from 50.4, reaching its highest level since April 2023, though new business remained largely unchanged as export activity contracted.

The unemployment rate increased to 6.8% in November from 6.5%, above market expectations of 6.6% and reaching its highest level since September 2021. The unemployed population grew by 87,300 to 1,516,300, while employment rose by 51,000, the largest gain in seven months and exceeding forecasts of 25,000. Full-time positions increased by 54,000, while part-time employment remains unchanged. Service sectors led the employment gains, particularly in wholesale and retail trade (+39,000), while manufacturing (-29,000) and transportation (-19,000) saw notable declines. The participation rate rose 0.3 percentage points to 65.1%.

U.S. – Manufacturing Contracts Less, Services Growth Slows, Labor Market Shows Mixed Signals

The ISM Manufacturing PMI improved to 48.4 in November from 46.5 in October, surpassing expectations of 47.5 while remaining in contractionary territory. New orders rebounded after seven months of decline (50.4 vs 47.1), while production (46.8 vs 46.2), employment (48.1 vs 44.4), and inventories (48.1 vs 42.6) contracted at slower rates. The ISM Services PMI decreased to 52.1 from 56.0, falling below the 55.5 forecast and indicating the slowest expansion in three months, with declines across business activity, new orders, and employment components.

The economy added 227,000 jobs in November, rebounding from October's upwardly revised gain of 36,000 and exceeding expectations of 200,000. Health care (+54,000), leisure and hospitality (+53,000), and transportation equipment manufacturing (+32,000) led the gains, while retail trade lost 28,000 jobs. The unemployment rate rose to 4.2% from 4.1%, as expected, with the number of unemployed increasing by 161,000 to 7.145 million. The labor force participation rate edged down to 62.5%, and the employment-population ratio decreased to 59.8%.

International – Eurozone Manufacturing Weakens Further as China's Services Growth Moderates

The HCOB Eurozone Manufacturing PMI fell to 45.2 in November, showing sharper contractions across production, new orders, and employment, which saw its steepest decline since August 2020. The Services PMI was revised up to 49.5 from 49.2, marking the first output decrease since January. The unemployment rate remained stable at 6.3% in October, maintaining its record low level.

China's annual inflation rate eased to 0.3% in October, below September's 0.4%, marking the ninth consecutive month of consumer inflation but at its lowest since June. The Caixin Services PMI declined to 51.5 in November from October's three-month high of 52.0, missing forecasts of 52.5, as new business and foreign sales growth slowed. Input price inflation fell to a 53-month low, while output prices decreased for the third time in four months amid intensified competition. Business confidence reached a seven-month high, supported by optimism about economic conditions and government policies.

As of December 6, 2024