Market Commentary 3rd December 2024

Data from the Confederation of British Industry (CBI) showed that retail sales declined by more than expected during November, with retailers expecting further weakness in December. The Bank of England (BoE) reported weak consumer credit growth during October, with little appetite for increased borrowing amongst households.

Activity in the housing market appeared to improve during October, with mortgage approvals for purchases rising to the highest level since August 2022. Remortgaging activity remained steady.

Eurozone inflation data showed that annual inflation accelerated for the second consecutive month during November, with headline prices rising by 2.3% year-on-year. Core inflation, excluding food and energy prices, remained unchanged from the previous month at 2.7%. It is widely expected that the European Central Bank (ECB) will proceed with a further interest rate cut this month.

German economic data continued to point to a weak growth environment, with retail sales declining by much more than expected during October. The labour market remained stable in November and the unemployment rate was unchanged at 6.1%.

Investors paid close attention to comments made by president-elect Donald Trump last week. Trump announced via social media that he plans to implement 25% tariffs on imports from Canada and Mexico shortly after taking office. In addition, Trump said he would hike the existing tariffs on imports from China.

US economic data was mixed. The number of pending home sales increased during October, which defied economist expectations for a decline. The manufacturing sector remained weak, with new orders growing by less than expected and business investment in the sector declining.

The threat of increased tariffs on exports to the US resulted in growing calls for further stimulus efforts in China. President Xi’s recent comments suggesting he is keen to promote greater global free trade appeared to have little impact on Trump’s “America first” ambition. A spokesman from China’s embassy in the US stated that “no-one will win a trade war or a tariff war”. Rising expectations for looser monetary policy measures contributed to gains in Chinese equities last week.

Japan’s newly appointed Prime Minister, Shigeru Ishiba, delivered a speech to parliament last week which called for a new stimulus package aimed at boosting economic growth, particularly in rural areas. The proposals include increases to tax free allowances, cash handouts to low-income households and subsidies for energy bills. Ishiba’s policy ambitions have been interpreted as a sign that he is seeking to continue promoting greater inflation across the Japanese economy.

UK economic data was mixed, but weakness in the retail sector appeared to contribute to growing expectations for further Bank of England (BoE) rate cuts in early 2025.

Although last week’s inflation data showed the headline rate of Eurozone inflation accelerating during November, this was widely expected based on the change in energy prices over the previous 12 months. The data therefore had little impact on expectations for the ECB to cut rates again in December.

Donald Trump’s decision to choose hedge fund manager, Scott Bessant, as his pick for Treasury secretary, contributed to government bond yields declining. Bessant has previously stated that he would “address the debt burden from four years of reckless spending” and so expectations for reduced government spending dragged bond yields lower last week.

GBP / EUR – Current 1.2038 Previous 1.2032

The Pound regained some ground against the US Dollar last week, rising by 1.64%. The Dollar weakened against most major currencies. Against the Euro, the Pound was broadly flat (+0.05%).