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Markets last week
Summary
Summary
Global equities rebounded 2.2% with all sectors in positive territory
Energy and materials outperformed while communication services and consumer discretionary lagged
The US market rose 2.5%, driven by positive sentiment from President-elect Donald Trump’s growth-oriented policy agenda and supported by a strong dollar
UK equities performed well, especially the large cap FTSE 100 index
European equities were weak as Purchasing Managers Index (PMIs) - economic indicators that measure the health of key sectors of the economy - signalled economic contraction across the Eurozone
Oil prices surged with West Texas Intermediate (WTI) oil up 6.3% to $71.24 a barrel, driven by the Russia-Ukraine conflict escalation
UK inflation was persistent, surprising to the upside although an underlying disinflationary trend could be detected in the stickiest areas, productivity was weaker than anticipated as PMIs slipped into contractionary territory
Dollar strength continued, aligning with the dollar smile theory (explained below)
Bitcoin neared $100k, peaking at $99,542, driven by positive risk sentiment and political support from the incoming Trump administration
Upcoming this week: key events to watch include the Federal Open Market Committee (FOMC) minutes on Tuesday, US core PCE Inflation on Wednesday, and euro area inflation on Friday.
Markets last week
Markets last week
Equities
Global equities rebounded 2.2% in a mostly stable week for news flow. The rally was broad based as every sector ended in positive territory. Energy and materials outperformed while communication services and consumer discretionary lagged.
The US market continued to lead rising 2.5%, supported by a strong dollar and positive sentiment on the back of Trump’s growth-oriented policy agenda. UK equities performed well as large caps outperformed. Signs of economic slowdown in Europe persisted: PMIs were weaker than anticipated with economic output slipping into contraction across the Eurozone. As a result, European equities were relatively weak.
Oil price surge
Oil prices surged with WTI up 6.3% to close at $71.24 a barrel. Driving the rally was the escalation of the Russia-Ukraine conflict. Russia continues to make gains on the battlefield having taken 160 square miles of territory in October, the most in any month since July 2022. Although the incoming Trump administration had promised to end the war within weeks of him entering the White House, this seems increasingly difficult given Russian gains and recent escalation. Ukraine launched Western-supplied missiles into Russian territory for the first time, including UK Storm Shadow missiles. Following this, Putin signed a decree permitting the launch of nuclear weapons in the event of a large attack on Russian soil. Oil prices have been volatile this year without a clear trend.
UK economy
Economic data in the UK painted a stagflationary picture of rising price pressures combined with a slowdown in economic productivity. Preliminary PMIs for November surprised to the downside, showing economic output slipping into contractionary territory. Headline inflation in October rose from 0.0% to 0.6% month-on-month, although a large portion of this rise was down to unfavourable base effects.
Nonetheless, the increase was more than economists anticipated. Core inflation, which excludes volatile food and energy prices, rose further, driven mainly by services inflation. If we exclude the most volatile components of services inflation, what the Bank of England (BoE) calls ‘core-services’, price growth continued to dissipate. This should keep the BoE on the path of gradually easing policy next year.
US Dollar and Bitcoin
Dollar strength continued and has been a consistent pattern since the re-election of President-elect Trump. The dollar smile theory that suggests that the dollar is strong when the economy is performing well and a haven during periods of volatility has so far been proven accurate as the equity market rebounded from weakness last week.
Bitcoin continues to benefit from the result of the US election, rising towards the $100k barrier. Many investors view Bitcoin as a leveraged bet on risk sentiment, boosted by Trump’s victory, with the Trump administration showing a clear political alignment toward crypto assets. Bitcoin peaked at $99,542 on Friday but has so far failed to breach the $100k mark.
d gold's safe-haven appeal. While long-term drivers such as fiscal concerns, inflation risks, and geopolitical uncertainty may revive the bull market trend, current market sentiment favours equities and other growth-oriented assets.
The week ahead
Tuesday: FOMC Minutes
Our thoughts: The minutes from the November US Federal Reserve (Fed) meeting will be released and are not expected to come with any great revelations. Policymakers’ views may have adjusted given the surprising strength of US economic performance in recent months.
Wednesday: US core PCE Inflation
Our thoughts: The Fed’s favoured inflation gauge is expected to marginally rise to 2.8% year-on-year from 2.7%.
Friday: Euro area inflation
Our thoughts: Inflation across the Eurozone is expected to tick up mildly thanks largely to unfriendly base effects. This should keep the European Central Bank on path to cut in December and further in 2025.
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