“In the United States, the longest government shutdown in history interrupted the publication of many key statistics, temporarily clouding the economic picture,” says Guy Wagner, Chief Investment Officer (CIO) of BLI - Banque de Luxembourg Investments. “However, the slight slowdown expected in the fourth quarter should reverse early next year following the implementation of fiscal support measures.” In the eurozone, economic indicators remain broadly stable, reflecting moderate growth still driven by services, while industry is struggling to regain momentum. In China, signs of fragility are multiplying at the end of the year, affecting both services and manufacturing, reflecting sluggish domestic demand and a climate of uncertainty that persists despite government support measures. In Japan, GDP contracted by 0.4% in the third quarter, with both domestic consumption and net exports contributing negatively after performing well in the previous quarter.
Further key interest rate cut by the US Federal Reserve likely
Given that Federal Reserve Chairman Jerome Powell had left open the future direction of interest rates following the easing at the end of October, investors were uncertain about the outcome of the December meeting. However, in light of recent comments by several committee members and signs of a deteriorating labour market, a further cut in key interest rates now appears to be the scenario favoured by financial markets. In the eurozone, the President of the European Central Bank clearly indicated that monetary policy would remain unchanged at the last Governing Council meeting of the year.
Calm November on the bond markets
“November was relatively calm on the bond markets,” emphasizes the Luxembourgish economist. ”In the United States, the yield on 10-year Treasury bonds fell slightly at the end of the month, as investors gradually priced in the possibility of a cut in key interest rates by the Federal Reserve in December.” However, this easing of long-term US rates was not mirrored in Europe due to the ECB's current monetary status quo. The 10-year benchmark rate fell in the United States, while it rose slightly in Germany, Italy and Spain and remained virtually unchanged in France. Since the beginning of the year, the JP Morgan EMU Government Bond Index has risen by 1.3%.
Stock price declines in the middle of the month, recovery at the month-end
After another favourable month of October, stock markets consolidated their gains in November. Guy Wagner: “Questions about the high valuations of artificial intelligence stocks, combined with investor uncertainty about the likelihood of a rate cut by the Federal Reserve, led to a mid-month pullback, followed by a rebound at the end of the period.” Overall, the MSCI All Country World Index Net Total Return, denominated in euros, fell slightly. Regionally, the S&P 500 (in USD), the STOXX Europe 600 (in EUR) and Japan's Topix (in JPY) rose slightly, while the MSCI Emerging Markets fell (in USD). “By sector, healthcare, materials and consumer staples were the best performers, while industrials, consumer discretionary and technology performed the worst.”