Jp Morgan Email Newsletter: Economic & Market Update (January 29, 2024)

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FOR THE WEEK OF january 29, 2024

Macro update
Real GDP surprised to the upside in 4Q, increasing at a 3.3% seasonally adjusted annual rate. This brought full year 2023 growth to 3.1%, solidly above the US economy’s long-term trend growth of 1.8%, and nowhere near the recessionary conditions widely expected earlier in the year. Domestic consumption including momentum in consumer spending was a key driver of economic activity in the fourth quarter and full year. Only the most interest rate sensitive sectors of the economy like equipment spending and residential investment were notable laggards.

Recent upside strength in the economy will likely start to fade in the coming quarters as the effects of tighter monetary policy, slowing loan growth, and depleted excess household savings exert more of a drag on overall demand. At the same time, we expect inflationary pressures will continue to cool. The core PCE deflator – the Fed’s preferred inflation metric – came in at 2.9% in December, the closest to the Fed’s 2% targeted level since March 2021.

It is widely expected the FOMC will leave the Fed Funds Target range at 5.25-5.5% at its meeting this week and communicate a neutral policy stance. Separately, note that the Federal Reserve Board recently took steps to slow the usage of the Fed’s Bank Term Funding Program and announced the end of the program at the earliest possible date: March 11. The BTFP was created last March during the regional banking crisis to provide secured loans to banks on favorable terms.

Outside of the US, ongoing military tensions in the middle east are contributing to supply chain disruptions around the Red Sea and Suez Canal, causing shipping patterns to be altered, delivery times extended and volatility in ocean freight prices.

China’s central bank has announced several stimulus measures to boost its economic performance amid headwinds from an extended real estate slump, lingering disinflation, and $6tr equity market selloff. Plans include a decision to reduce the Reserve Ratio Requirement and to direct credit into areas of national importance like technology, agriculture, and small business.

Manufacturing PMI: Latest 5030.0%; Prior 4790.0% Services PMI: Latest 5290.0%; Prior 5140.0% Real GDP - annualized (QoQ): Latest 0.033; Prior 0.049 Core PCE deflator (YoY): Latest 0.029; Prior 0.032 Source: Source: S&P Global, Bureau of Economic Analysis, Bureau of Labor Statistics.

Markets update
It was a relatively uneventful week in markets as equities climbed modestly, hitting fresh all-time highs in four of the five trading days. Volatility stayed low with the VIX consistently under 15 since November.

Oil prices rose to the highest level since early November amid continued military tensions in the middle east.

In FX markets, the dollar has strengthened modestly over the past month, primarily reflecting appreciation vs the euro and yen. We continue to expect the dollar to strengthen modestly against the euro and sterling over the coming months, while tighter monetary policy in Japan could support the yen.

S&P 500: 01/26/2024 4,891; week over week 1.1%; month over month 2.2%; year to date 2.5%; year over year 20.2% Nasdaq: 01/26/2024 15,455; week over week 0.9%; month over month 2.4%; year to date 2.5%; year over year 33.0% VIX: 01/26/2024 13; week over week (0.3%); month over month 6.3%; year to date 2.5%; year over year (28.4%) WTI ($/bbl): 01/26/2024 79; week over week 6.3%; month over month 8.7%; year to date 2.5%; year over year (2.1%) Brent ($/bbl): 01/26/2024 $84.15; week over week 6.4%; month over month 6.6%; year to date 2.5%; year over year (3.6%) Natural Gas ($/mmBtu): 01/26/2024 $2.71; week over week 7.7%; month over month 6.1%; year to date 2.5%; year over year (12.8%) Gold ($/oz): 01/26/2024 $2,024; week over week (0.5%); month over month (2.3%); year to date
2.5%; year over year 4.7% US IG Yield: 01/26/2024 5.35%; week over week (2)bp; month over month 21bp; year to date 2.5%; year over year 26bp US HY YTW: 01/26/2024 7.87%; week over week (14)bp; month over month 7bp; year to date 2.5%; year over year (56)bp USD Spot Index: 01/26/2024 104; week over week 0.1%; month over month 2.2%; year to date 2.5%; year over year 1.5% Bitcoin: 01/26/2024 B42,050; week over week 0.5%; month over month (1.2%); year to date 2.5%; year over year 82.4% Source: Bloomberg. Closing prices on January 26, 2024.

Rates markets were notably calm ahead of the Fed meeting this week. We are also watchful of upcoming Treasury funding plans. We look for Treasury to announce a final round of increases to nominal auction sizes as Treasury remains underfinanced. The T-bill share of government debt issuance is likely to remain above 20%.

Fed Funds: 01/26/2024 5.25-5.50%; week over week 0bp; month over month 0bp; year to date 0bp; year over year 100bp 1M CME SOFR: 01/26/2024 ; week over week 0bp; month over month (2)bp; year to date (2)bp; year over year 78bp 3M US Tbill: 01/26/2024 ; week over week 2bp; month over month (2)bp; year to date (1)bp; year over year 69bp 2yr US Treasury: 01/26/2024 ; week over week (4)bp; month over month 7bp; year to date 9bp; year over year 15bp 10yr US Treasury: 01/26/2024 ; week over week 1bp; month over month 29bp; year to date 25bp; year over year 63bp 30-yr fixed rate mortgage: 01/26/2024 ; week over week (4)bp; month over month 4bp; year to date 0bp; year over year 55bp Source: Bloomberg. Closing prices January 26, 2024.

Issuance / M&A volumes
Private capital markets for later stage equity raises remain active as companies that postponed IPOs in 2022 and 2023 assess the 2024 outlook. Secondary transactions continue to gain momentum as early investors and institutional shareholders look for liquidity. In this environment, structured solutions continue to be prevalent including investors’ increased focus on downside protection and contractual returns. An increasing number of businesses are looking toward raising hybrid capital that sits between equity and debt, attracting interest from convertible funds, hedge funds and credit funds.

IPO: $19 billion in 2023 vs. $8 billion in 2022 (138%) SPACs: $4 billion in 2023 vs. $13 billion in 2022 (-69%) Venture Capital: $171 billion in 2023 vs. $242 billion in 2022 (-29%) Investment Grade: $1,207 billion in 2023 vs. $1,215 billion in 2022 (-1%) High Yield: $179 billion in 2023 vs. $107 billion in 2022 (67%) Leveraged Loans: $368 billion in 2023 vs. $253 billion in 2022 (45%) M&A: $1,860 billion in 2023 vs. $1,908 billion in 2022 (-3%) Source: Bloomberg, JPMorgan. Note: All issuance and M&A figures for North America. To be updated monthly.

J.P. Morgan content & research highlights

Medical Complications; Michael Cembalest, Chairman of Market and Investment Strategy for J.P. Morgan Asset & Wealth Management
What’s the Deal? | Insights from J.P. Morgan’s 42nd Healthcare Conference; Making Sense podcast
Household Pulse: The State of Cash Balances through October 2023; J.P Morgan Chase Institute

Business resources

Managing Corporate Market Risk; Learn how J.P. Morgan’s corporate risk management capabilities spanning foreign exchange (FX), interest rates, commodities and equities can support your business.
Foreign Exchange Budgeting can be an important aspect of a broader risk management strategy.

Chart of the week
Core PCE Deflator vs Fed’s 2% target, percent change year over year

Line chart showing the core PCE deflator versus the Fed’s 2% target, percent change year over year. Source: Bureau of Labor Statistics.

Ginger Chambless

Head of Research, JPMorgan Chase Commercial Banking

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