Summary of the week - 15 Nov 24

Interest rate

• US: The Fed has brought rates down to 4.5% from 4.75% last week. Currently, investors believe that Trump's policies could drive inflation, prompting the Federal Reserve to adopt a cautious approach to further rate cuts. Fed Chair Jerome Powell appears unhurried to lower U.S. interest rates. While he made no specific remarks about easing in December, market expectations for a quarter-point rate cut have dropped to less than 60% from 80% just a day earlier.

  
  

• UK: The Bank of England has implemented two interest rate cuts this year, the latest being last week when the base rate was lowered to 4.75%. Despite these reductions, borrowing costs continue to be significantly higher than pre-pandemic levels, and market signals suggest that another rate cut in December is unlikely due slow growth in Q3 2024.

  
  

• EU: The European Central Bank (ECB) reduced its three key interest rates by 25 basis points in October 2024 and has indicated growing openness to further rate cuts, as reflected in the minutes of its November meeting. While a decline in energy prices is expected to help ease inflation, policymakers remain wary of persistent domestic inflationary pressures driven by strong wage growth and slow labour productivity.

  
  

Inflation rate

• US: U.S. inflation remained resilient in October, with the core consumer price index rising by 0.3% for the third consecutive month, reflecting an annualized increase of 3.6% over the past three months, the highest since April. This persistence limits the Federal Reserve's flexibility in achieving a soft economic landing.

  
  

• UK: The annual inflation rate in the UK decreased to 1.7% in September 2024, marking its lowest level since April 2021, down from 2.2% in the preceding two months and below market expectations of 1.9%. Next week, the Consumer Price Index (CPI) data for October will be released, which could provide further insights into inflation trends and potentially influence market expectations for monetary policy adjustments.

  
  

• EU: The Consumer Price Index (CPI) in the European Union decreased by 0.10% in September 2024 compared to the previous month. The upcoming release of the October inflation rate next Tuesday is anticipated to offer additional insights into the current inflationary trends, which may impact market expectations for future monetary policy actions.

  
  

Equity market

• US: U.S. stocks closed sharply lower this week, with the S&P 500 falling 1.3%, the Dow Jones Industrial Average losing 0.91%, and the Nasdaq declining by 2.2%. The drop came as investors responded to hawkish comments from Federal Reserve Chair Jerome Powell, who highlighted the economy's strength, a resilient labor market, and persistent inflation concerns, reducing the likelihood of near-term rate cuts. October retail sales outpaced expectations with a 0.4% increase, providing further evidence of economic resilience. Over the week, the S&P 500 dropped 2.2%, the Dow was down 2.3%, and the Nasdaq fell 2.9%, reversing gains from a post-election rally spurred by optimism about President-elect Trump's proposed policies.

  
  

• UK: The UK equity market experienced a modest decline over the past five days, with a slight drop of 0.11%, closing at 8,063.61 on November 15. The FTSE100 saw notable fluctuations during the week, particularly influenced by economic data indicating unexpected UK economic contraction and cautious investor sentiment following hawkish commentary from Federal Reserve Chair Jerome Powell.

  
  

  Manufacturing sector weakness weighed on overall UK economic growth, while major pharmaceutical stocks, including AstraZeneca (dropped 3.3%) and GSK (dropped 3.6%), contributed to losses following reactions to President-elect Donald Trump’s proposed healthcare appointments. However, gains in sectors like Land Securities and some commodity-sensitive stocks balancing out the negative impacts from pharma. EasyJet also emerged as a top performer, benefiting from a weekly drop in oil prices driven by mixed economic data from China and concerns over a potential supply glut in the market next year.

  
  

• EU: The European equity market index declined by 1.15% over the past five days, closing at 503.12, reflecting a week marked by cautious investor sentiment and mixed market signals.

  
  

  European equities headed for a fourth consecutive week of losses, underperforming compared to their U.S. counterparts and seeing a year-to-date rise of just 5.4% against the S&P 500's robust 25% increase. Concerns about potential U.S. trade policies under President-elect Trump and hawkish comments from Federal Reserve Chair Jerome Powell dampened hopes for imminent rate cuts, contributing to broad-based declines across major European bourses, including a 0.6% drop in the STOXX 600 on Friday. The shift in sentiment followed Thursday's gains, where major indices had rebounded over 1%, highlighting the prevailing market volatility.

  
  

Fixed income market

• US: The yield on the 10-year US Treasury note rebounded to hover around 4.45% on Friday, remaining near its highest level since June. This movement reflects market expectations that the Federal Reserve may implement fewer rate cuts than previously anticipated next year. Supporting this outlook, data showed that retail sales increased by 0.4% in October, marking the fourth consecutive month of growth and highlighting the resilience of US consumer spending despite restrictive interest rates. This strength provides additional room for the Federal Reserve to keep borrowing costs elevated, particularly amid persistent inflationary pressures and potential pro-inflationary policies from the incoming Trump administration.

  
  

• UK: Following weaker-than-expected GDP data, which revealed the UK economy's modest 0.1% expansion in the third quarter and an unexpected contraction in September due to decreased manufacturing output and reduced activity in the information and communication sector, 10-year gilt yields edged slightly higher to 4.5%.

  
  

• EU: The yield on the 10-year German Bund decreased to 2.3%, marking a significant pullback from its three-month high of 2.45% reached on November 7th. This drop contrasts sharply with movements in US debt markets, reflecting growing expectations of a more dovish monetary response from the European Central Bank due to mounting signs of economic slowdown in the Eurozone.

  
  

Commodities

• WTI: WTI crude oil rose close to $69 per barrel following US data revealing a decline in national gasoline inventories. However, gains were limited by the International Energy Agency's projection of a substantial crude surplus next year. Oil prices have fluctuated weekly since mid-October, as traders assess OPEC+ production decisions, US monetary policy shifts, and potential risks to global oil demand growth, particularly from China.

  
  

• Gold hovered around $2,560 per ounce on Friday, on track for its steepest weekly decline since June 2021. The drop was primarily driven by a strengthening US dollar and waning expectations of further rate cuts from the Federal Reserve, diminishing the attractiveness of non-interest-bearing gold as an investment.

  
  

FX

• EUR/USD = The Euro fell below $1.06, marking its weakest level since October 2023, as a strong dollar surged following Donald Trump's U.S. election victory. Currency strategists are revising their outlooks for the euro, predicting a potential slide toward parity with the dollar in response to expected shifts in U.S. policy and economic impacts stemming from Trump's win.

  
  

• GBP/USD = GBP fell to a 19-week low of $1.26, reflecting recent downward pressure. Over the last four weeks, the British Pound has lost 2.78% against the US Dollar, though it has still shown a 1.81% increase over the past 12 months.

  
  

• JNY/USD = The yen weakened past $0.0065 for the first time since July, heightening the risk that Japanese authorities might intervene in the currency market to curb its rapid depreciation and stabilize the exchange rate.

Source: CNBC, Bloomberg, FTnews and Reuters.

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