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

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.

The Week Ahead

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.