Market Commentary 12th November 2024 – from Charlie Hancock

Posted by melaniebond
Market Commentary 12th November 2024
Equity Indices
UK
UK equity indices were mixed last week, with the FTSE 100 index falling by 1.28%, whilst the mid-cap FTSE 250 gained 0.19%.

Investors paid close attention to the outcome of the Bank of England (BoE)’s policy meeting on Thursday, with the bank’s monetary policy committee voting to reduce interest rates by 0.25%. The committee voted 8-1 to lower rates, with the central bank’s governor, Andrew Bailey, stating that “if the economy evolves as we expect it’s likely that interest rates will continue to fall gradually from here”.

The BoE warned that the measures announced by Rachel Reeves in her October budget could be inflationary, whilst economic growth is likely to be boosted in the short term before the impact fades in two or three years’ time.

Europe
All of the major European equity indices moved lower last week and the FTSE All World Index – Europe ex UK lost 1.83%. Germany’s DAX index fell by 0.21%, France’s CAC 40 lost 0.95% whilst the Swiss Market Index moved 1.42% lower.

Economic growth estimates for the Eurozone were lowered last week, with economists citing the impact of a Trump administration in the US. It is widely expected that President Trump will implement protectionist trade policies, with the European Union (EU) potentially being subject to Tariffs on exports to the US as a result.

Political instability in Germany appeared to impact investor sentiment last week, with Chancellor Olaf Scholz sacking the finance minister following disagreements on spending and economic reform. The decision to fire the finance minister effectively brought the coalition government to an end, with opposition leaders calling for a snap election as a result.

US
Equity indices in the US rallied last week following Donald Trump’s victory in the presidential elections. The S&P 500 index gained 4.66%, the Dow Jones Industrial Average rose by 4.61%, whilst the NASDAQ 100 moved 5.41% higher.

The election dominated newsflow for much of the week. President Trump won by a relatively large margin, whilst the Republicans also looked set to gain control of both the House and Senate. Whilst it remains uncertain as to what policy measures President Trump will seek to introduce, it is widely expected that he will pursue protectionist policies in an attempt to boost domestic businesses.

The Federal Reserve’s Open Market Committee voted unanimously to cut interest rates by 0.25% following their November policy meeting. The Fed’s Chair, Jerome Powell, stated that “in the near term, the election will have no effect on our policy decisions”. Powell did not react to speculation that Trump’s policies could prove to be inflationary, adding that “we don’t guess, we don’t speculate, and we don’t assume”.

Asia
Equity indices in Asia moved higher last week and the broad FTSE All World Index – Asia Pacific gained 2.14%. China’s Shanghai Composite index rallied by 5.51%, whilst Japan’s Nikkei 225 rose by 3.80%.

Stimulus measures continued to be rolled out in China. Policymakers in Beijing raised borrowing limits for local governments for the first time since the limits were introduced in 2015, whilst the finance minister said that fiscal policy in 2025 would be “more forceful”. A programme to refinance some existing local government debt was also announced. Economic data was generally positive, with exports rising by a better than expected 12.7% year-on-year in October.

The Japanese Yen strengthened versus the US Dollar across the week, with currency traders speculating that the Bank of Japan (BoJ) will hike rates in the coming months. The nation’s finance minister stated that authorities will closely monitor the impact of Trump’s election victory on Japan’s economy and finances.

Bond Yields
UK
The 10-Year Gilt yield was broadly flat across the week, falling by 0.01% to 4.43%.

Yields rose during the first half of the week, before falling following the week’s US presidential election and the announcement of interest rate cuts by the BoE and Fed.

Europe
The 10-Year German Bund yield moved from 2.40% to 2.37% last week.

Whilst Eurozone government bond yields declined across the week, the political developments in Germany did appear to contribute to yields spiking during the middle of the week.

US
The 10-Year Treasury yield declined from 4.39% to 4.31%. Concerns around President Trump implementing inflationary policies measures faded somewhat as the week drew to a close, with government bond yields declining as a result.

Whilst President Trump has been highly critical of the Fed Chair, Jerome Powell, Powell re-iterated last week that the central bank must remain independent, stating that he would not resign if asked to do so by Trump.

Currency
GBP / USD – Current 1.2921 Previous 1.2924

GBP / EUR – Current 1.2055 Previous 1.1933

The Pound was broadly flat against the US Dollar last week (-0.02%). The Pound gained 1.02% against the Euro, with the political uncertainty in Germany prompting bearishness on the Euro amongst currency traders.

Commodities
Gold
The Gold spot price declined by 1.89% last week to $2,684.77 per ounce. Optimism around the outlook for the US economy following President Trump’s victory appeared to contribute to investors reducing their exposure to the ‘safe haven’ asset. Hopes that Trump could have a positive impact on the conflict in Ukraine and the Middle East also appeared to prompt investors to reduce their exposure to Gold.
Oil
Oil prices were relatively stable last week, with the Brent Crude spot price gaining 1.05% to reach $73.87 per barrel. It remains uncertain as to what impact the Trump administration will have on commodity prices, however, Trump has previously hinted at rolling back some of the environmental protections which have limited oil exploration projects in the US.