Advice & Comments
18 Nov 2024
U.S. equity markets partially reversed the prior week’s gains as uncertainty surrounding the incoming administration’s policies weighed on sentiment.
U.S. equity markets partially reversed the prior week’s gains as uncertainty surrounding the incoming administration’s policies weighed on sentiment. The "Trump Trade" drove notable sector disparities, with financials and energy stocks gaining on optimism about deregulation and potential merger approvals. The S&P 500 briefly surpassed 6,000 points on Monday, a historic milestone, before retreating later in the week.
The U.S. Consumer Price Index (CPI) increased by 0.2% in October for the fourth consecutive month, with an annual rise of 2.6%, marking the first yearly increase since March. Core inflation, which excludes food and energy, rose 0.3% for the third month in a row, maintaining an annual rate of 3.3%. U.S. CPI data aligned closely with expectations; the data strengthens the case for a Federal Reserve rate cut in mid-December. Federal Reserve Chair Jerome Powell, speaking on Thursday, tempered market sentiment by stating that "the economy is not sending any signals that we need to be in a hurry to lower rates." His remarks suggest a cautious approach to monetary easing, even as inflation trends appear contained.
In political news, the Republican Party is expected to retain its slim majority in the U.S. House, positioning Donald Trump’s administration to control both elected branches of government. Trump has named Elon Musk and Vivek Ramaswamy to lead a newly formed Department of Government Efficiency, with a focus on reducing bureaucracy and cutting regulatory burdens.
All the major US equity indexes ended the week lower, the S&P 500 -2.08%, Dow Jones -1.24%, and the tech heavy NASDAQ composite the worse performer for the week, closing down -3.15%.
OPEC has lowered its oil demand growth forecasts for both 2023 and 2024 for a fourth straight month, reflecting a delayed recognition of slowing demand in China, the world’s largest oil consumer. The organisation now anticipates global oil consumption will grow by 1.8 million barrels per day, or nearly 2%, in 2024—107,000 barrels per day below its previous forecast.
Bank of England (BOE) Chief Economist Huw Pill indicated that potential interest rate cuts will depend on the UK economy avoiding any significant disruptions, especially given global uncertainties following Trump’s return to the U.S. presidency and renewed trade war concerns. Pill suggested that the BOE could ease monetary policy further if inflation continues to cool, but cautioned about “potential sources of big disturbances” that could impact economic stability.
The UK economy slowed more than expected in Q3, with GDP growth at 0.1%, down from 0.5% in the prior quarter and below the 0.2% forecast. A 0.1% contraction in September, driven by weaker manufacturing output, was a key factor. While the construction sector grew 0.8% and services expanded 0.1%, these gains were insufficient to offset broader economic weakness.
October saw a rise in UK grocery price inflation, with supermarket prices increasing by 2.3% year-over-year, up from 2% in September, amid high consumer activity. Additionally, wage growth in the UK remains strong, per the Office for National Statistics, which could fuel hawkish arguments for a cautious BOE approach to rate cuts given sustained price and wage pressures. The FTSE 100 index marginally declined this week, closing -0.11%.
In Europe, market sentiment was dampened by concerns over the incoming Trump administration’s trade policies and political instability in Germany. Adding to the uncertainty were cautious remarks from Federal Reserve Chair Jerome Powell regarding U.S. interest rates. Economic data bolstered optimism for a potential soft landing. Eurostat's second GDP estimate confirmed a robust 0.4% expansion in Q3. The European Commission forecasts 0.8% growth for 2024, despite expectations that Germany’s economy will shrink by 0.1%. Meanwhile, the labour market showed resilience, with employment rising 0.2% in Q3 following a 0.1% increase in the previous quarter. The Eurostoxx 50 index close lower this week, down -0.16%.
Japanese Prime Minister Shigeru Ishiba retained his position after winning a parliamentary runoff vote, leading a minority government. Ishiba expressed eagerness to meet with U.S. President-elect Trump soon. In economic developments, Japan announced plans to invest $65 billion in domestic chip plants and unveiled a substantial $87 billion stimulus package to boost economic growth. Japan's GDP growth slowed in Q3 2024, rising 0.2% quarter-on-quarter, compared to 0.5% in Q2. On an annualised basis, the economy expanded 0.9%, down from 2.2%. The growth was primarily fuelled by increased private consumption, which benefited from a one-off income tax cut and higher summer bonuses. This marked the second consecutive quarter of economic expansion. Japanese stocks experienced a decline over the week, with the Nikkei 225 Index down -2.17%.
China’s retail sales are projected to reach a record 4.5 trillion yuan ($623 billion), helped by a surge in domestic travel during a weeklong holiday. However, spending growth remains modest compared to pre-pandemic levels, as consumer caution and entrenched deflation prompt people to delay purchases in anticipation of lower prices. To further boost the struggling housing market, the Chinese government is reportedly preparing to cut deed taxes on home purchases in mega cities like Shanghai and Beijing, potentially reducing the rate from 3% to as low as 1%. Local governments would have some discretion in applying these tax cuts.
China's consumer price index (CPI) increased by a modest 0.3% year-on-year in October, down from 0.4% in September, as declining food and energy prices weighed on inflation. Meanwhile, the producer price index (PPI) fell by 2.9%, exceeding the expected 2.5% drop and deepening from September's 2.8% decline. This marks a continuation of deflation in factory gate prices that has persisted since late 2022.
Chinese equity markets ended the week lower, with the Shanghai Composite index closing -3.52% and Hong Kong’s benchmark Hang Seng Index taking a major hit closing the week down -6.58%.
Market Moves of the Week:
South Africa's Minister of Water and Sanitation, Pemmy Majodina, announced a series of measures to secure Johannesburg’s water supply. The city will focus on improved revenue collection, incentivising efficient water use, upgrading pressure management, and replacing outdated infrastructure, including pipes and water meters, to locate and address water losses more effectively.
Separately, South African authorities have temporarily halted processing at the Lebombo border post amid escalating protests in Mozambique. The Border Management Authority and Trans African Concessions, operator of the N4 highway, confirmed that no vehicles can currently cross into Mozambique at this checkpoint.
The JSE ALSI also ended the week lower, down -1.47%, driven by weak returns from the Resource sector, which was down -6.02% for the week. Financials also contributed to the broader market decline, closing down -0.92%. Industrials and Listed Property both showed some resilience this week, closing up 0.02% and 0.81% respectively. The Rand closed weaker against the Dollar, ending the week at R18.19/$, depreciating 3.42%.
Chart of the Week:
US inflation data indicates that overall inflation is under control, with energy and goods prices showing slight declines and food prices rising modestly. However, services inflation remains a concern due to its persistence and its strong link to wage growth. This "sticky" services inflation continues to anchor overall inflation at higher levels, making it a key metric to monitor in the coming months. Source: Bloomberg.