Markets continued their optimistic trajectory as rate rises look to chart a less aggressive course. Some macro data points served to aid this narrative, while others suggest difficulties remain ahead.
GLOBAL MARKETS
US MARKETS
Another strong month for US equities on the back of inflation numbers
US equities enjoyed another strong month in local currency terms, but less so for foreign (unhedged) investors as the US dollar softened meaningfully. Cyclically sensitive segments of the market benefited most, such as infrastructure and financials. Retail sales and US inflation provided positive surprises, alongside consumer goods and auto price declines. However, food and services inflation remained stickier. The market expectation is that the Federal Reserve will continue to tighten, albeit at a slower rate than previously expected, and Chairman Powell’s speech at month-end seemingly provided further fuel to this belief, as it was not deemed overly hawkish. Up 5.4% (US 500)
UK MARKETS
UK continues to shine amongst developed equity markets
The UK was one of the best performing developed equity markets through November in local currency terms. From a sector look-through, financials, retailers, and infrastructure selections drove the market. Sterling also rallied versus the dollar, and UK bonds continued their recovery. Inflation continues as the primary concern and remains stubbornly high, tracking over 11% year-on-year, led by rising food prices and energy costs, which are adding pressures to consumer spending and private investment. The Bank of England is expected to move rates higher at the upcoming December meeting, however, investors have begun to anticipate a less stringent monetary approach. Up 6.8% (UK All Share)
EUROPEAN MARKETS
Risk assets improved, as the Euro gained on the US dollar
European risk assets had a positive month on the whole, as equities moved higher, yields declined, and European currencies recovered ground against the greenback. In local currency terms, the top performers were Hungary (+12%), Poland (+11%) and Italy (+9%). Data signalled that composite PMI’s were improving, albeit still in negative territory. Consumer confidence improved and milder temperatures, as well as ample storage, have helped to avert a Russian squeeze on the gas supply across the continent. Inflation remains a major concern, and the European Central Bank (ECB) governor, Christine Lagarde, has indicated that she aims to raise rates further. Up 6.8% (Euro 600 Index)
JAPAN MARKETS
Japan continues to remain the exception to the rule on inflation
Performance of the Japanese market was more mixed, with equities trading higher thanks to retailers and consumer-driven segments; meanwhile bonds declined as the country saw inflation pick up. Japan this year has been the exception to the inflation narrative, but with price-level readings having now hit a 30-year high, tracking at 3.7% year-on-year, investors appear to be anticipating a change in monetary policy from the Bank of Japan (BOJ), serving to drive the value of the Yen. However, the BOJ has signalled that they will seek to maintain a loose monetary stance into next year. Up 2.9% (Japan Index)
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Jennifer Turner
