Summary of the week - 22 Nov 24

Interest rate

US: The US interest rate currently stands in the range of 4.50% to 4.75%. Speaking at a Dallas event, Powell noted that the economy, outperforming major peers, shows no immediate need for reductions. Markets currently price a 60% chance of a 25-basis-point cut in December, though some traders anticipate a pause, reflecting ongoing uncertainty about the Fed’s next move.

UK: The Bank of England lowered its Bank Rate to 4.75% in November 2024, its second cut this year, aiming to support the slowing economy. BoE rate-setter Alan Taylor signaled potential for faster rate cuts if economic conditions worsen, highlighting the central bank's focus on recovery despite inflationary pressures. Markets remain divided on the BoE’s next steps.

EU: The Euro fell to its lowest level since 2022, pressured by growing market expectations of aggressive rate cuts by the European Central Bank (ECB). With the ECB's current interest rate at 3.40%, traders are pricing in a 50% probability of a 50-basis-point cut in December, as economic conditions and inflation bolster the case for monetary policy adjustments.

Inflation rate

US: The annual inflation rate in the US rose to 2.6% in October 2024, up from 2.4% in September, marking a slight acceleration but remaining in line with market expectations. This uptick follows September’s inflation, which was the lowest since February 2021. Last week, Powell noted inflation is gradually approaching the Fed's 2% target, though recent data revealed slight increases in consumer and producer prices.

UK: The UK’s annual inflation rate surged to 2.3% in October 2024, the highest since April, up from 1.7% in September, exceeding both the Bank of England's 2% target and market expectations of 2.2%. The increase was primarily driven by higher electricity and gas costs in the housing and household services sector. Holiday inflation tends to rise more than expected due to a surge in consumer expenditure during the festive season, as people indulge in Christmas shopping, travel, and take advantage of seasonal deals. This spike in demand across goods and services further amplifies price pressures during this period.

EU: Annual inflation in the Euro Area climbed to 2% in October 2024, up from 1.7% in September, marking the highest level since April 2021 and aligning with preliminary estimates. On a monthly basis, the Consumer Price Index (CPI) rose 0.3%, rebounding from a 0.1% decline in September. The inflation figure now matches the European Central Bank's target.

Equity market

US:

US stocks ended the week on a strong note, with the S&P 500 climbing 1.55% by Friday afternoon to reach 5,964.98. This marks the index's best weekly performance in recent sessions, bolstered by a rotation out of technology into economically sensitive sectors like financials, industrials, and consumer discretionary. Tesla led gains among mega-cap stocks, rising 3.8%, while Meta and Amazon posted modest losses. Tech stocks faced mixed fortunes, with Nvidia falling 3% and Alphabet dropping 1.2%, the latter weighed down by ongoing antitrust concerns.

Earlier in the week, markets saw a more somber tone. On Wednesday, the S&P 500 fell 0.7%, the Dow slipped 110 points, and the Nasdaq declined 1%, as traders digested disappointing corporate earnings and rising geopolitical tensions.

Thursday brought renewed optimism, as major indexes posted modest gains of 0.2%. Nvidia rebounded 1.5% after reporting better-than-expected earnings and revenues, although the semiconductor giant's growth slowdown and tempered sales forecast raised concerns.

Markets remain watchful of geopolitical risks, including intensifying Ukraine-Russia tensions, and are closely monitoring the anticipated announcement of Donald Trump’s Treasury secretary pick, a decision expected to influence investor sentiment in the coming weeks.

UK:

The FTSE 100 Index rose to 8,262.08 on Friday, marking a 2.46% gain over the week and hitting its highest level since late October. The rally occurred despite weaker-than-expected flash PMI surveys, which revealed a contraction in UK private sector activity as services slowed sharply and manufacturing continued its decline.

The gains were instead underpinned by sector-specific drivers. A surge in gold prices boosted mining stocks like Endeavour Mining (+2.4%), while strong corporate updates provided additional momentum. B&M European Value led individual gains, rising 2.7%, followed by Sainsbury (+2.4%). In the FTSE 250, Games Workshop surged 14% after reporting robust results, sparking speculation about its potential addition to the FTSE 100.

While domestic economic indicators showed mixed signals—such as an improvement in consumer confidence alongside disappointing retail sales—the broader rally appeared driven by sector rotations and optimism around individual company performance, rather than macroeconomic strength.

EU:

The STOXX Europe 600 closed at 508.47 on Friday, up 1.15% for the week, as it rebounded from midweek volatility driven by escalating tensions in the Russia-Ukraine conflict and weaker-than-expected economic data. Wednesday's sell-off followed reports of Ukraine firing UK-supplied Storm Shadow missiles and Russia responding with nuclear rhetoric, which weighed heavily on investor sentiment. By Friday, however, the index gained 0.6%, led by strong performances in the tech sector, with ASML Holding (+2.5%), STMicroelectronics (+1.4%), and SAP (+1.9%), as well as luxury goods giant LVMH (+1.5%).

Banking stocks struggled, with Banco Santander (-2.5%), BNP Paribas (-1.5%), and Societe Generale (-1.5%) posting losses, while Thales fell 3.6% following a bribery investigation announcement. Meanwhile, preliminary PMI data revealed a contraction in Eurozone private sector activity, with Germany and France performing particularly poorly, and Germany’s Q3 GDP growth was revised down to 0.1%. Despite these challenges, the STOXX 600 ended the week higher, buoyed by gains in tech and luxury sectors, reflecting investor resilience amid geopolitical and economic headwinds.

Fixed Income market

US:

Treasuries have gained a modest 0.7% so far in 2024, rebounding slightly after a two-month slump. On Friday, the yield on the benchmark 10-year US Treasury note held steady at approximately 4.41% as investors assessed the Federal Reserve's next steps on monetary policy.

The stability comes in the wake of Thursday's labour market data, which revealed US weekly initial jobless claims unexpectedly fell to a seven-month low, underscoring the resilience of the labor market. Market participants are now turning their attention to inflation reports due next week for further signals about the economy's trajectory.

Adding to the market’s focus, Treasury yields remain bolstered by expectations that Donald Trump’s proposed policies—centered on tariffs, immigration, and tax reforms—could stoke inflationary pressures. Such developments may constrain the Federal Reserve’s ability to reduce borrowing costs, further shaping the outlook for interest rates and bond markets.

UK:

The UK 10-year gilt yield slipped below 4.4% on Friday, marking its lowest level in nearly a month as traders digested a slew of underwhelming economic data. October retail sales fell by 0.7%, a sharper decline than expected, while flash PMI readings for November indicated a marginal contraction in business activity. The slowdown was driven by a sharp deceleration in the services sector and continued contraction in manufacturing.

Adding to the economic complexity, the UK’s annual inflation rate surged to 2.3% in October, its highest level in six months, up from 1.7% in September. The figure exceeded both the Bank of England’s 2% target and market forecasts of 2.2%, underscoring the mounting price pressures.

The data has left investors speculating on the Bank of England's next moves.

EU:

Germany’s 10-year Bund yield fall to 2.2%, its lowest in nearly a month, as disappointing economic indicators deepened concerns about Europe’s economic outlook. Preliminary PMI data revealed a contraction in Eurozone private sector activity, with the services sector joining the ongoing manufacturing slump. Germany and France emerged as the weakest performers, underscoring the challenges faced by the region's two largest economies.

Adding to the bearish sentiment, Germany’s Q3 GDP growth was revised downward to 0.1%, compared to an earlier estimate of 0.2%. The weak data has significantly raised expectations of a 50 basis point cut to the European Central Bank’s interest rate next month.

Fixed income investors’ confidence was further weighed down by rising political tensions in Germany and France and escalating conflict between Russia and Ukraine. Meanwhile, the potential for major global disruptions under a possible second Donald Trump administration added another layer of uncertainty for the European economy.

Commodities

• WTI: WTI crude futures slipped below $70 per barrel on Friday but are poised to close the week with a 4.3% gain, marking their best weekly performance in two months. The rally has been fueled by escalating tensions between Russia and Ukraine, heightening concerns about energy supply disruptions.

  Markets are now looking ahead to the December 1st OPEC+ meeting, with speculation mounting that the coalition may delay planned output increases in light of the geopolitical uncertainties and fluctuating oil demand.

  
  

• Gold climbed to $2,680 per ounce on Friday, marking its fifth consecutive daily gain and positioning for a nearly 5% weekly increase. Investors have flocked to the precious metal as a safe-haven asset amid heightened geopolitical risks, including escalating tensions in the Russia-Ukraine conflict and concerns about global economic stability.

  Adding to the bullish outlook, Goldman Sachs has forecasted that gold could surge to $3,000 per ounce in 2024. The projection underscores expectations of continued demand for gold as a hedge against uncertainty, particularly with inflationary pressures, geopolitical turmoil, and potential shifts in central bank policies shaping market sentiment.

  
  

FX

• GBP/USD = The British pound slid to below $1.26 on Friday, its lowest level since mid-May, as disappointing economic data weighed on sentiment. The combination of weakening economic activity and rising price pressures has raised questions about the Bank of England's policy path, fueling bearish sentiment toward the pound amid heightened uncertainty.

  
  

• EUR/USD = The Euro dropped to $1.035 on Friday, its lowest level since November 2022, as weaker-than-expected economic data and escalating geopolitical tensions dampened investor confidence.

  
  

• USD/JNY = The Japanese yen hovered around 154.3 per dollar on Friday, stabilizing after gains in the previous session as markets processed Japan’s latest economic data. October’s headline inflation rate eased to 2.3%, the lowest in nine months, while core inflation also declined to 2.3%, marking a six-month low. Both figures came in slightly above the forecast of 2.2%, suggesting that inflationary pressures in Japan are moderating but remain elevated relative to recent norms.

Source: CNBC, Bloomberg, FTnews and Reuters.

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