Key markets at a glance:
1 November to 30 November 2024
World Markets Summary
In fitting fashion, firework season went off with a bang as Donald Trump resoundingly saw off Kamala Harris to secure his second term in office. In doing, so he became the second Republican since 1988 to win the popular vote. The Republican victory sent a rocket into US indices with the small-cap Russell 2000 climbing over 6% on the day, the S&P 500 up 2.5% and the DOW registered its best day since 2022. As Americans sat down to tuck into their Thanksgiving turkey, all major US indices traded around their all-time-highs.
Come Inauguration Day on 20 January 2025, the Republicans will hold the ‘Trifecta’, controlling both Chambers of Congress. This puts Trump and his team in a solid position to implement the mandate he has promised, albeit with slim majorities. The policies will include tariffs, which Trump has already said will hit Mexico, Canada and China on day one. Also likely to feature will be deportation of migrants, extension of tax cuts he enacted in 2017, cutting climate regulations and on the international stage, Trump insinuates he will be able to end the war in Ukraine. There will no doubt be volatility and this will only be further aided by the strong views from many of his colourful team which include vaccine-sceptic Robert Kennedy Jr and Tesla’s Elon Musk.
The UK continued to grapple with the fall out of Rachel Reeves’ budget, with companies costing the increase in national insurance employer contribution rate and rise in the living wage. Economic data deteriorated in the lead-up to the budget, and the coming months will tell if it was just the uncertainty or something more permanent. Conversely, in some ways bad news has become good news in that the Bank of England (BoE) may now enact another interest rate cut in December, helping Reeves with her borrowing costs. This interpretation saw the FTSE 100 briefly slip to a three-month low before recovering to end November up over 2%.
The French CAC was weak in November as political instability hit sentiment. Currently the minority government, headed by Michel Barnier, is on the brink of collapse following dissent over his austerity budget which aimed to address France’s growing fiscal deficit. The proposed £60bn of spending cuts and tax rises have been met with a firm ‘non’, with various factions threatening to bring down the government if concessions are not met. The French 10-year Government Bond borrowing cost briefly rose above Greece for the first time ever.
In China, attention will turn to what sort of trading relationship the US and China will share under Trump. Steep tariffs on Chinese goods have been promised but the threat of a new trade war will be in neither’s interests. Some positive signs following the stimulus have emerged and the Shanghai Composite ended the month higher. BRICS, a cohort of non-NATO nations, have also been threatened with 100% tariffs in response to talks around a new currency to replace the dollar.
United Kingdom (UK)
UK indices enjoyed a positive November after a strong rally in the second half was ignited by hopes of a December rate cut on the back of a series of weaker economic data. This also lowered the yield on the UK 10-year Government Bond, offering some relief, as this is being closely watched to see if Labour is spending plans are feasible or not.
Q3 Gross Domestic Product (GDP) slowed from 0.5% to 0.1%, coming in below the 0.2% consensus. Monthly data for September was also poor, with the economy shrinking by 0.1% and well below the 0.2% growth expected. Purchasing Managers Index (PMI) surprisingly contracted in November with business activity hitting a 13-month low. Manufacturing has seen a sharp slowdown with orders from both domestic and overseas buyers falling. We have also seen the unemployment rate rise by more than forecast from 4% to 4.3% and retail sales falling sharper than expected and clearly not the news flow Reeves would have hoped for.
The headline inflation rate also did nothing to lift the mood, rising at the fastest pace in two years. Consumer Price Index (CPI) came in at 2.3% from 1.7% in the previous month and slightly ahead of the 2.2% expected. This was largely driven by the rise of the energy price cap and airfares once again ticking higher. On the plus side for homeowners, in November, house prices hit their highest average price on record and grew at their fastest pace in two years.
Given depressed UK valuations, we continue to see a lot of takeover activity with Aviva being rebuffed by Direct Line and waste management firm Renewi accepting Macquarie’s improved bid. We also saw 102-year-old Oxford-based TI Fluid Systems accepting an offer from a Canadian peer, and finally, AIM-listed hospitality group Loungers succumbing to Private Equity Interest.
United States (US)
November was a blockbuster month for US stocks, delivering the market’s best performance of the year, fuelled by a surge of optimism following Donald Trump’s election victory. The “red sweep” unleashed animal spirits, propelling small-caps, financials, and struggling energy stocks to strong gains. The US economy remains robust, with GDP growing at a 2.8% annualised rate in Q3. PMI rose to 55.3 (above the neutral 50 mark) in November, its highest level in two-and-a-half years. Additionally, strong retail sales further reinforce the economy’s strength and support expectations for continued solid performance.
Trump’s win sparked upward revisions in US growth forecasts, driven by expectations of deregulation, tax cuts, and tariffs under his “America First” second-term agenda. Goldman Sachs now projects 2.5% GDP growth for the year, compared with the consensus of 1.9%, which would mark the third consecutive year of US growth outpacing other developed economies. Trump’s swift Cabinet appointments included Elon Musk to lead efficiency reforms, former independent presidential candidate Kennedy to oversee healthcare, and Wall Street investor Scott Bessent as Treasury Secretary. With Trump’s picks largely in place, attention is shifting back to economic data and key central bank meetings. December will bring one final employment report and two inflation updates ahead of the Federal Open Market Committee (FOMC) meeting. A positive labour market surprise is needed to prevent a rate cut in December.
Europe
Despite the ECB’s Schnabel pushing back on calls for more aggressive rate cuts, the German economy remains weak. There is an increasingly prevalent school of thought that Europe’s problems are structural by nature and that meaningful reform is required. If inflation remains sticky, then any additional monetary easing beyond the neutral rate of 2% (which rates may reach with reform in the coming quarters) will be problematic. The major question is whether a continuation of the Draghi plan accelerating a route towards fiscal union and a single market will be rejected by Berlin, who may seek to maintain control of its own spending out of fear of future profligacy. A steeper European yield curve is likely alongside an increasingly weak euro as economic weakness, political risk and the threat of tariffs ensue.
The political temperature continues to rise in France with Le Pen now threatening a no-confidence vote amid discussions around the French Budget. Given the excessive deficit procedures, there is an institutional obligation for the French to reduce the deficit which is currently expected to surpass 6% of GDP by year-end. Le Pen’s actions come as something of a surprise; however, given her populist nature, any attempt to block Le Pen would likely only serve to boost her popularity off the back of Barnier’s more unpopular proposals. The yield on the French 10-year Government Bond now sits at the same level as the Greek equivalent, and it is difficult to be overly optimistic on the trajectory for France. It is worth noting that with more major overseas investors in countries such as Japan, there may well be more selling pressure. Credit is on a downward trajectory with little sign of change, however for the time being it is likely the current moves will be contained at a spread of 100 basis points.
Asia and Emerging Markets
Emerging Markets had a challenging month, driven by a stronger US dollar and rising risk aversion. The FTSE Emerging Markets index dropped 3% in sterling terms. In Brazil, the central bank surprised markets by raising its key interest rate by 0.50% to 11.25% to address currency depreciation, while Mexico took a dovish approach, cutting rates by 0.25% to 10.25%. India’s economy grew at its slowest pace in nearly two years, falling well short of central bank expectations, which could prompt a 0.25% rate cut in December.
In China, the Shanghai Composite gained modestly, while Hong Kong’s Hang Seng lagged. China introduced a $1.4 trillion debt-swap program (around 13% of GDP) to address local governments’ off-balance-sheet debt. While markets were disappointed by the absence of property support or consumer stimulus, the initiative helps reduce tail risks from hidden debt and stabilises the broader economy. The People’s Bank of China (PBOC) is likely to cut the Reserve Requirement Ratio (RRR) in December and possibly interest rates once yuan pressure eases. Although macroeconomic data remains mixed, there are some bright spots, including stronger-than-expected retail sales, smaller declines in property activity, and growth in factory activity among smaller firms. Geopolitical tensions persist, but Trump tweeting about a 10% tariffs on Chinese goods eased fears over US chip controls.
Japan’s stock market also struggled, losing 2.2%. However, the yen received a boost from higher-than-expected inflation in Tokyo, raising expectations of a rate hike in December. While retail sales showed modest growth, stronger-than-expected industrial production suggests Japan’s economic recovery remains on track, despite consumer caution amid rising costs.
Fixed Income
US election results pushed yields higher across short and long maturities, driven by expectations of persistent inflation and increased Treasury issuance under Trump’s policies. Credit spreads tightened sharply post-election but widened slightly amid heavy issuance, though they remain historically tight, supported by low unemployment and resilient asset quality. In Europe, France’s budget struggles and a no-confidence vote led by Le Pen widened the French-German 10-year yield spread to a decade-high of 0.90%. Inflation rose across the US, EU, and UK due to base effects, with UK inflation surpassing expectations, particularly in core and services prices. Base effects refers to the impact of the corresponding ‘base’ or period of the previous year. The Fed, ECB, and BoE each delivered 0.25% cuts in their most recent meeting, but their approaches are diverging.
Looking ahead, markets are pricing in 0.75% of cuts in the US and UK with 1.50% in the Eurozone by the end of 2025. The Fed is likely to cut another 0.25% in December before pausing to assess economic trends. The ECB may accelerate the pace of cutting given weaker growth and inflation nearing target levels. The BoE, constrained by the Budget adding nearly 0.5% to inflation forecasts, is expected to maintain a gradual pace, with the next cut anticipated in February 2025.
In Japan, monetary policy remains critical as inflation risks skew higher. A 0.25% rate hike is increasingly likely in December, which would take rates to 0.50% by year-end. Markets expect clearer signals from the Bank of Japan (BoJ) before the blackout period to mitigate carry-trade unwinding pressures. A carry trade strategy involves borrowing from a lower interest rate and reinvesting the proceeds in a currency or asset with a higher rate of return.
Alternatives
A potent concoction of economic and geopolitical factors has seen some significant price swings in gold and silver this month. News that outgoing President Joe Biden authorised Ukraine to use long-range missiles against targets in Russia illustrated a major intensification in the conflict and saw gold bounce to a three-week high. Despite the announced ceasefire in Lebanon towards the end of the month, Trump indicated that tariffs will be placed on goods from Canada, China and Mexico put pressure on stock markets, and the dollar subsequently strengthened. This dollar strength stems from the fact that tariffs will drive prices higher in the US, increasing inflation and reducing the Fed’s capacity for cutting rates. The price of silver will likely be impacted by potential trade wars and the limits it may place on industrial demand. A 6% increase in gold followed by a 5% drop over two weeks is unusual, to say the least, but a reflection of the geopolitical state of the world; this volatility will likely continue amidst the inauguration of Donald Trump in January. The outlook for gold remains attractive, and it is likely to add to its 30% increase over the last 12 months.
Similarly, oil prices are reflecting the heightened concerns of global risk and uncertainty, particularly over the ongoing war in Ukraine, setting the stage for the Organization of the Petroleum Exporting Countries (OPEC+) meeting on 1 December 2024. The group is expected to postpone a production increase for the third time. Major buyers such as China and India remain cautious due to elevated spot prices, but the severity of winter conditions will be a key factor in influencing trading activity.
Property
Borrowing constraints remain a challenge for many buyers as markets expect the Bank of England to cut rates more slowly than previously anticipated, which could keep mortgage costs higher for longer. Policies such as higher stamp duty for second-home buyers and a return to previous thresholds for first-time buyers may also have a bearing on demand. House price growth is expected to grow at a modest pace for the remainder of the year and into the first half of 2025.
For now, house price growth remains strong, according to Nationwide, with house prices rising 3.7% in November against the consensus of 2.4%, equating to the fastest pace for two years. The acceleration is somewhat surprising since affordability remains stretched with elevated mortgage rates and house prices relative to average incomes. However, the data is unlikely to be impacted by the upcoming stamp duty charges since most of the mortgage applications that the index is based upon commenced prior to the budget announcement.
Construction orders shrank approximately 10% in Q3 whilst output contracted by 0.4% in September, marginally beating estimates of a 0.5% decline. It was the sixth decrease of the year, dragged down by a further decreasing in new work as well as a slowdown in maintenance and repair activity. Finally, construction PMI fell below expectations albeit still in expansionary territory, above the neutral 50 mark.
Important Information
All Index data figures are sourced by Morningstar and correct as at 30 September 2024, unless otherwise stated.