Summary of the week - 29 Nov 24

Interest rate

US: At the beginning of this month, The Federal Reserve, known as the Fed, has brought rates down to 4.5% from 4.75%. This week, Federal Reserve officials signalled a gradual approach to lowering interest rates, citing stronger-than-expected economic growth and improved labour market conditions, according to minutes from the November meeting. This cautious stance marks a shift from earlier urgency to reach a “neutral” rate, following September’s half-point cut. Market expectations for a December rate cut have dropped significantly, with traders now pricing in only a 50% probability, down from over 80% just weeks ago. The Fed’s balanced outlook reflects confidence in the economy’s resilience while remaining attentive to inflation and geopolitical risks.

UK: Financial markets currently see a 19% probability of a quarter-point rate cut to 4.5% at the Bank of England's upcoming meeting on December 19, and anticipate three quarter-point cuts by the end of next year. However, the Bank of England's warning about higher mortgage rates persisting for longer suggests a cautious stance, likely influenced by the recent uptick in inflation to 2.3%—above its 2% target. This could mean the BoE prioritizes controlling inflation over monetary easing, making a December rate cut less likely unless there is a significant deterioration in economic conditions.

EU: The ECB's current interest rate is at 3.40%. The ECB is expected to cut rates at its final 2024 meeting, with most anticipating a quarter-point reduction, though weak economic data has raised the odds of a larger 50bps cut. However, ECB member Isabel Schnabel warned against aggressive easing, suggesting rates are nearing neutral levels, estimated at 2%-3%. Her comments prompted markets to scale back expectations for ECB rate cuts through 2025. Global uncertainties, including trade tensions and political instability in France, added to the cautious tone. With inflation at 2.3%, divisions within the ECB underscore a delicate balance between the need to stimulate economic growth and avoiding the overuse of monetary policy tools, as the region faces mounting economic and political challenges.

Inflation rate

US: Consumer price increases accelerated in October, signaling a pause in the steady decline of inflation over the past two years. According to the Federal Reserve’s preferred inflation gauge, the PCE price index rose 2.3% year-over-year, up from 2.1% in September, though still modestly above the Fed’s 2% target. Excluding food and energy, core inflation also edged higher, climbing 2.8% year-over-year compared to 2.7% in September, highlighting persistent price pressures despite earlier progress in curbing inflation.

UK: Prices in the UK rose 2.3% in the 12 months to October, pushing inflation back above the Bank of England's 2% target, according to official statistics. Tenants faced the highest inflation rate among household groups, surpassing those with mortgages for the first time since comparable records began in 2022. Household cost inflation for renters climbed 3% in the year to September, outpacing the 2.6% rate for mortgage holders, reflecting the impact of rising rents and housing costs, the Office for National Statistics reported on Thursday.

EU: The Eurozone's annual inflation rate accelerated to 2.3% in November, up from 2% in October, in line with market expectations, according to preliminary estimates. The year-end increase was largely attributed to base effects, as last year’s steep declines in energy prices are no longer factored into the annual comparison. While energy prices decreased at a slower pace, inflation for services continued to ease, signaling mixed price dynamics across the bloc.

Equity market

US:

Global stocks kicked off the week with a rally after President-elect Donald Trump announced veteran hedge fund manager Scott Bessent as his choice for Treasury Secretary. The optimism propelled major U.S. indexes, with the S&P 500 and Nasdaq Composite surging early Monday, though both gave back 65% to 75% of their gains by the close as investors reassessed Federal Reserve policy prospects. Momentum continued as the Dow Jones Industrial Average and S&P 500 hit all-time highs, leading into the final trading week of November. The Nasdaq Composite also rose during Monday’s session, underscoring the positive market sentiment driven by the Treasury pick.

By Friday’s shortened session, U.S. stocks edged higher, with all three major indexes gaining 0.2% and posting strong gains for the month. Semiconductor stocks like Nvidia, Applied Materials, and Lam Research led the rally after reports suggested the U.S. might ease restrictions on semiconductor and AI memory chip sales to China. Retailers including Walmart, Target, and Costco also saw gains, boosted by robust Black Friday sales.

For November, the S&P 500 gained 5.1%, its best month since February, while the Dow Jones soared 7%, marking its strongest month of the year, and the Nasdaq jumped 5.3%. The gains reflect optimism that a second Trump administration will adopt a business-friendly approach, with expectations of a moderate stance on trade tariffs, providing a boost to market confidence.

UK:

FTSE 100 Faces Mixed Week Amid Tariff Threats, Corporate Updates, and Optimism in Mining Stocks this week.

The FTSE 100 struggled for direction on Wednesday, hovering near the flatline after a 0.4% decline the previous session. Investors grappled with Donald Trump’s proposed tariffs, which include a 10% levy on all Chinese imports and a 25% tariff on goods from Mexico and Canada, raising concerns about global trade disruptions.

On the earnings front, EasyJet shares rose 2% after reporting a 25% jump in full-year operating profits, while Aston Martin tumbled 4% following another profit warning.

By Friday, the FTSE 100 traded mixed but remained on track for a modest weekly gain. Mining stocks led the market, buoyed by hopes of additional economic stimulus in China, with Anglo American Plc rising 2.8% after an analyst upgrade. On the downside:

• BAE Systems PLC declined over 2.5%, becoming the session’s biggest laggard.

• Peel Hunt Ltd dropped more than 2%, citing uncertainty from the previous UK Budget in its interim results.

In the housing market, Zoopla projected significant house price growth, citing stronger-than-expected income increases. Following a 1.5% rise in house prices for the year to October, Zoopla forecast gains of 2.5% in 2025 and 7.5% over the next three years, highlighting resilience in the property sector despite broader economic uncertainties.

EU:

At the beginning of the week, European stock fell, reflecting fears that Donald Trump’s trade policies could hurt European exporters.

On Wednesday, the STOXX 50 dropped 0.5%, and the STOXX 600 edged 0.1% lower, extending losses from the prior session. Market sentiment stayed cautious as Trump continued assembling his administration, appointing Jamieson Greer as U.S. Trade Representative and Kevin Hassett as director of the National Economic Council.

French equities suffered the steepest declines, with Societe Generale, BNP Paribas, AXA falling amid concerns over the country’s political instability.

By Thursday, European markets rebounded, with the STOXX 600 climbing 0.47%. Technology stocks led the rally, gaining 1.36%, as traders shrugged off the prior day's losses.

However, Friday saw muted trading, with the STOXX 50 losing 0.2% and the STOXX 600 hovering around the flatline. Investors digested Eurozone inflation data, which showed annual inflation rising to 2.3% in November, in line with expectations, while core inflation held steady at 2.7%. Services inflation ticked lower to 4.9% but remained elevated. The data did little to alter bets for another ECB rate cut next month, although the size of the reduction remains uncertain. Autos and banks were among the worst-performing sectors, adding to the subdued sentiment.

Fixed income market

US:

The 10-year US Treasury yield dropped to a 4-week low of 4.23%. The initial fall this week followed the nomination of Scott Bessent as US Treasury Secretary, which reassured markets about policy stability under the incoming Trump administration. The drop accelerated midweek after PCE inflation data met expectations, suggesting minimal changes to the Federal Reserve’s rate outlook. Markets now see a 66.5% chance of a 25 basis point rate cut in December, up from 55.9% a week ago. Safe-haven flows further pressured yields as investors responded to escalating global trade and geopolitical tensions.

UK:

The UK 10-year gilt yield fell to 4.32%, its lowest since late October, mirroring a downward trend in German bonds. The move was driven by concerns over Donald Trump’s proposed tariff hikes, which include a 10% levy on Chinese imports and 25% tariffs on goods from Mexico and Canada, signaling a more protectionist agenda under his leadership. The reaction was compounded by weak UK economic data, with retail sales dropping 0.7% in October, more than expected, and flash PMIs pointing to a slowdown in services and contraction in manufacturing.

EU:

The yield on Germany’s 10-year Bund fell to 2.12%, an eight-week low, as markets reacted to Donald Trump’s proposed tariffs and cautious signals from the ECB. Trump’s 10% levy on Chinese imports and 25% tariffs on Mexican and Canadian goods highlighted his protectionist trade agenda, while ECB board member Isabel Schnabel warned against aggressive rate cuts, suggesting borrowing costs are nearing neutral levels.

Weak Eurozone growth and political instability in France, where Prime Minister Michel Barnier faces budget challenges, added to market caution. Despite inflation rising to 2.3%, core inflation held steady at 2.7%, underscoring economic fragility. Investors now anticipate 150 basis points of ECB rate cuts by 2025, as global uncertainties persist.

Commodities

• Gas: European natural gas futures climbed to €47.5 per megawatt-hour, driven by expectations of rising demand as colder temperatures and seasonal heating needs increase in December. Gas storage levels in Europe stand at 86.65%, over 10 percentage points lower than the same period last year, fueling supply worries.

  The situation is compounded by the conflict in Ukraine, which has driven gas prices up by 45% this year and raised fears of further supply disruptions from Moscow. With reserves rapidly depleting, Europe faces the potential of a fresh energy crisis as winter approaches.

  
  

• Oil: WTI crude oil futures climbed above $69 per barrel on Wednesday, driven by expectations that OPEC+ will delay its planned January production increase during its December 1 meeting amid concerns of a supply glut. Reports suggest the group may postpone output hikes by several months.

  Meanwhile, geopolitical risks eased after Israel and Hezbollah agreed to a US-brokered 60-day cease-fire, though renewed clashes shortly after the announcement highlighted the fragility of the deal. On the demand side, US crude inventories saw an unexpected 5.9 million barrel drop last week, the largest since August, according to API data, defying forecasts of a 0.25 million barrel increase. The combination of OPEC+ uncertainty and tighter US supply supported the upward move in oil prices.

  
  

• Gold: Gold prices climbed 1% to over $2,660 per ounce on Friday, marking a fourth consecutive session of gains. The rally was driven by a weaker US dollar and heightened geopolitical tensions, including President Putin’s warning of a nuclear-capable missile strike on Ukraine and renewed clashes between Israel and Hezbollah despite a recent ceasefire agreement.

  However, gold is on track for a 2% weekly decline as markets await additional US data to gauge the Federal Reserve's monetary policy direction. Earlier this week, core PCE inflation met expectations, keeping hopes alive for a December rate cut, though resilient economic data reinforced expectations of a cautious Fed approach in 2025. For the month, gold is poised for its first decline since June, reflecting mixed market signals amid global uncertainty.

  
  

FX

• EUR/USD = the Euro hovered near $1.05, as recent inflation data reinforced expectations of continued rate reductions to address economic stagnation in Europe. Political instability in Germany and France and fears of US tariffs have further pressured the currency, which is on track for its worst monthly performance in over a year, falling 3% in November. While hawkish ECB remarks and a shift in focus from President-elect Trump offered temporary support, ongoing concerns about weak business activity and subdued inflation in Germany keep the euro under significant pressure.

  
  

• GBP/USD = The British pound edged higher toward $1.26, recovering from six-month lows earlier this month, but investor caution persists amid concerns over Donald Trump’s renewed tariff threats, including a 10% hike on China and 25% increases on Mexico and Canada. Market sentiment is further weighed down by French political instability, shaky U.K. business and consumer confidence, and uncertainties surrounding the interest rate paths of the Federal Reserve, ECB, and Bank of England.

  
  

• USD/JPY= The Japanese yen surged 1% to around 150 per dollar on Friday, reaching a six-week high after data revealed Tokyo’s inflation climbed above 2% in November. The stronger-than-expected inflation figures heightened expectations for the Bank of Japan to raise interest rates in December, with markets now pricing in a 60% probability of a 25 basis point hike, up from 50% last week.

  Safe-haven demand also boosted the yen as President-elect Donald Trump threatened tariffs on China, Mexico, and Canada, raising global trade tensions. Additionally, the dollar weakened after the nomination of Scott Bessent as Treasury Secretary, leading to a pullback in "Trump trades."

Source: CNBC, Bloomberg, FTnews and Reuters.

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