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Markets last week
Summary
Global equities rose in a shortened US trading week due to Thanksgiving, supported by easing bond yields and improved investor sentiment
US market increased by 1.1% but declined -0.5% in sterling terms due to dollar weakness
European equities edged up 0.2%, while UK mid-caps outperformed with the FTSE 250 Index gaining 0.9% and the FTSE 100 Index up 0.3%
Eurozone inflation for November rose to 2.3% year-on-year, driven entirely by energy base effects, with the risks tilted to the demand side
In Europe the European Central Bank (ECB) is expected to cut rates by 25 basis points in December
Bond yields fell across the western world; 10-year US treasury yield dropped to 4.17%, German bund yield to 2.09%, and UK gilt yield to 4.24%
Japanese yen strengthened 3.3% against the US dollar on speculation of a Bank of Japan (BoJ) rate hike, with Tokyo-area inflation rising to 2.6% in November
WTI Crude oil prices fell 4.5% to US$68 per barrel following a temporary ceasefire agreement between Israel and Hezbollah.
Markets last week
Equities
Global equities continued to make progress in a shortened trading week in the US due to Thanksgiving. The rally was supported by easing bond yields and improved investor sentiment around monetary policy. The US market rose 1.1% although due to US dollar weakness, translated to a decline of -0.5% in sterling terms.
Risk sentiment was buoyed by consumer resilience, hopes for further rate cuts as well as President-elect Donald Trump’s nomination of Scott Bessent as Treasury Secretary, a move welcomed due to Bessent’s reputation for measured economic leadership.
European equities continued to lag, edging up 0.2% amid mixed economic data and lingering political uncertainties. UK equities performed well with mid-caps outperforming large caps, the FTSE 250 Index gained 0.9%, while the FTSE 100 Index gained 0.3%.
Eurozone inflation slows, growth risks persist
Preliminary eurozone inflation for November ticked up to 2.3% year-on-year although this was anticipated and entirely driven by unfriendly energy base effects. The monthly inflation reading was -0.3%, with price pressures having receded the risks are tilted to the demand side in Europe. The ECB is widely expected to cut rates by 25 basis points at its December meeting.
Bonds
Softening inflation, dovish notes from central banks and soft economic data sent yields across the western world lower; the 10-year US treasury yield dropped 23 basis points to 4.17%; eurozone yields declined, with the German 10-year bund yield retreating 15 basis points to 2.09%; the yield on the 10-year UK gilt fell 14 basis points to 4.24%.
Japan: Yen strengthens amid rate hike speculation
The Japanese yen rallied 3.3% to 149.8 against the US dollar, driven by speculation of a BoJ rate hike in December. Tokyo-area inflation rose to 2.6% year-on-year in November, exceeding expectations and rising from 1.8% the month prior. This fuelled bets on tighter monetary policy with swaps pricing in a 66% probability of a hike at the meeting later in December. BoJ Governor Ueda has signalled that future rate decisions would hinge on wage growth and inflation trends and has left markets divided on the timing of the next move. With this backdrop Japanese equities struggled with exporters facing headwinds from the stronger domestic currency. Japanese equities fell -0.6% in local currency terms but in sterling terms delivered 1.3%.
Oil retreats on Middle East truce
Crude oil prices fell sharply, with WTI Crude declining 4.5% to US$68 per barrel. The retreat followed news that Israel and Hezbollah had reached a temporary 60-day ceasefire agreement, which includes the withdrawal of Israeli forces from southern Lebanon and the deployment of the Lebanese Armed Forces and UN observers to maintain stability. Although the deal faces scepticism within Israel it positions Israel to redirect focus towards other regional threats, principally Iran’s ongoing rhetoric of aggression.
The week ahead
Wednesday: China Purchasing Managers' Indices (PMI)
Our thoughts: Policymakers will be hoping that economic output continues to improve in this week’s November PMIs following recent stimulus. The manufacturing data released this morning was stronger than anticipated and the hope will be that a similar bounce is reported in services.
Friday: US Employment report
Our thoughts: The US economy is expected to have added 200k jobs in November, an improvement from the weakness in October primarily attributed to hurricanes. The unemployment rate is anticipated to remain at 4.1%.
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