Weekly Commentary: 19 November 2024

Summary

  • Equity markets edged lower as investors weighed the implications of the Trump administration’s evolving cabinet
  • Financials and energy sectors extended gains on hopes of economic growth, deregulation, and mergers
  • Healthcare retreated after Robert F. Kennedy Jr. was nominated for Health and Human Services Secretary
  • The electric vehicle (EV) sector faced turbulence due to plans to eliminate consumer tax credits for EVs
  • US equities fell -2.1% in dollar terms but were flat in sterling terms, buoyed by a stronger dollar
  • The yield on the 10-year US Treasury note rose 0.14% to close at 4.44%, reflecting inflationary concerns surrounding Trump’s policy agenda
  • European equities slipped -0.2% in local currency terms amid potential trade tensions and sluggish regional growth
  • US exceptionalism hit a new milestone as the market capitalisation of the ‘magnificent seven’ stocks in the US overtook the entire market capitalisation of the European equity market
  • Gold has fallen -7.81% since the all-time high reached in the final days before Trump’s re-election and suffered its worst performance in at least 13 US election cycles, according to Deutsche Bank. Gold fell -4.5% last week
  • This week UK inflation is expected to rise back above the Bank of England’s (BoE) target while Japanese inflation will be key in determining whether the Bank of Japan (BoJ) decide to hike rates again in December


Markets last week

Trump Trade evolves from broad rally into dispersion

Equity markets edged lower last week as investors weighed the implications of the Trump administration’s evolving cabinet. Financials and energy sectors extended gains on hopes of economic growth, deregulation and mergers, while healthcare retreated after Robert F. Kennedy Jr. was nominated for Health and Human Services Secretary, sparking fears of tighter scrutiny on pharmaceuticals and vaccines.

The electric vehicle sector also faced turbulence. Initial optimism from Elon Musk’s involvement in the new administration was tempered by plans to eliminate consumer tax credits for EVs. US equities fell -2.1% in dollar terms but were flat in sterling terms, buoyed by a stronger dollar.

The yield on the 10-year US Treasury note rose 0.14% to close at 4.44%; almost a five-month high, reflecting inflationary concerns tied to Trump’s fiscal policies. Corporate bond issuance surged as issuers acted opportunistically before rates potentially climb further. High-yield spreads widened slightly under supply pressures but remain near historically tight levels.                                                             

UK and Europe

European equities slipped -0.2% in local currency terms as investors fretted over potential trade tensions under Trump and sluggish regional growth. While Germany’s economic struggles remained a focal point, pockets of resilience were evident elsewhere in the eurozone.

US exceptionalism hit a new milestone as the market capitalisation of the ‘magnificent seven’ stocks in the US overtook the entire market capitalisation of the European equity market, according to analysis from Berenberg research.

UK equities edged down -0.1% as weaker-than-expected economic data painted a challenging picture. The UK economy contracted in September, with Q3 growth slowing to 0.1% from 0.5% in Q2. Industrial and manufacturing output missed forecasts, while sticky wage growth added to concerns.

China

In China, deflationary pressures persisted as consumer and producer price indices undershot expectations. However, robust retail sales provided a glimmer of hope, supported by recent stimulus measures. The property market showed tentative signs of stabilisation, but uncertainty over US trade relations clouds the broader outlook. With this backdrop Chinese shares fell -3.3% while the Hong Kong market declined -6.3%.

Gold

Gold has faced significant headwinds since Trump’s re-election, losing -7.81% since the high on 30 October. Gold suffered its worst performance in at least 13 US election cycles, according to Deutsche Bank. The precious metal has fallen from an all-time high of $2,789.04/oz on 30 October to $2,563.25/oz last Friday, declining -4.5% last week.

A stronger dollar, rising bond yields and robust risk appetite have overshadowed 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

Wednesday: UK inflation

Our thoughts: October inflation is expected to rise to 0.5% from 0.0% in September, with annual inflation anticipated to rise to 2.2%. Services inflation is expected to remain at 4.9%. Such data would support the gradual approach to easing preferred by the BoE, with markets pricing only a 15% probability of a cut in December.

Thursday: Japan Consumer Price Index Inflation

Our thoughts: Annual inflation in October is anticipated to have softened slightly to 2.3% however economists expect that domestically generated core inflation – which excludes fresh food and energy – ticked higher. Unlike most central banks the BoJ are in the midst of a gradual hiking cycle having abandoned ultraloose policies earlier this year. Governor Ueda has kept his options open on when to next hike rates ahead of their December policy meeting. The market is pricing a 52.7% probability of a hike in December.

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