Published: Sun 10th Dec 2017
Read Time: 8 minutes
Global Markets Update - November
Despite a poor start to the month, US stocks ended November with a 2.44% increase. Earlier in the month, US equities were weak due to a fall in oil prices and disappointing corporate forecasts. There was increasing uncertainty over the ability of the Republican party to implement their tax reforms, which has been an ongoing matter since September. To add to that, weak economic data failed to boost US stocks early on, as the monthly US job report missed expectations and wages failed to grow as much as anticipated – since hourly earnings rose 2.4% as opposed to 2.7%. However, things picked up later on in November, propelled by an upwards revision of US 3rd quarter GDP growth to 3.3%. Also, an increase in shares in financial companies, fuelled by rumours of a lowering in regulation in the financial services sector, boosted US stock markets. Towards the end of the month, stocks were boosted by renewed optimism over the corporate tax reforms.
In the UK, the FTSE 350 had a poor November, falling 2.47% across the month. The FTSE was at the mercy of the pound, which had an excellent month following increased progress with Brexit negotiations. Britain will now submit their Brexit bill proposal, on how to settle the ‘divorce bill’, before the EU summit in December. This news had a strong effect on the pound and, coupled with a fall in commodity prices globally, this negatively impacted the FTSE. Additionally, political uncertainty over the current Conservative government continued to negatively impact UK stocks, since up to 40 Conservative MPs are reportedly ready to sign a no confidence vote against Theresa May.
Economic data was gloomy in November. Indeed, as expected, interest rates rose to 0.5% at the start of the month. Inflation remained at 3%, indicating that the worst of inflation may be over, however, wage growth is still below inflation at 2.2%. Retail sales continued their downward trend and fell 0.3%, which means that they have now been falling since September.
EU equities had a poor month, largely caused by an increase in the Euro, which was helped by strong manufacturing data and strong demand – as well as increased progress with Brexit talks. Political uncertainty in Germany did little to help EU equities, as talks to form a new coalition government collapsed and there remains the prospect of a fresh election. There was, however, positive economic data in Europe, as German GDP beat expectations in the 3rd quarter and rose 0.8%. Additionally, output was boosted by strong exports which continue to outpace imports.
After the BoE increased interest rates at the start of November, one would expect the price of gilts (BoE issued bonds) to drop. This inverse relationship between the price of bonds and interest rates occurs because the yield on bonds increases, making bonds with a previously lower yield less attractive to investors. However, as the announcement was followed by some conservative statements from the BoE on a future rate hike, the yield on gilts actually fell. US bonds saw a flattening of the yield curve, which is the difference between the yield of long maturity bonds and shorter maturity bonds. This is a movement normally consistent with the expectation of rising interest rates.
Cryptocurrency, Commodities, Alternatives
Bitcoin endured one of its most interesting months yet, rising 54%. However, there was a reminder of how volatile the currency is, with a sharp drop of 10% on the 29th. November perhaps signified the month where Bitcoin really hit mainstream media, and provided some fascinating insights into investor psychology. Events such as Thanksgiving Day led to more retail money being ploughed into the cryptocurrency, due to families aiming to capitalise on the high returns. However, many investors have pointed out similarities between cryptocurrencies and the dot.com bubble of the early 2000s.
Gold and Silver endured a poor end of November (which continued into the start of December), due to very high investor expectations of a rate hike in December. Rising interest rates generally raise the opportunity cost of holding gold and similar commodities, when compared to yielding assets such as bonds. Trump also plans to reduce the corporate tax rate from 35 to 22%, which would boost corporate earnings. This is negative news for gold and silver, as they are traditionally seen as a safe haven for investors - especially in times of economic uncertainty.
Oil had a strong November, with the WTI Crude Oil Index rising about 6%. OPEC’s oil production fell by 300,000 barrels per day in November, the lowest since May. This was due to a strong compliance from member countries to stick with the output reduction scheme put in place. Saudi Arabia’s Crown Prince launched an anti-corruption purge in early November, further raising the price of oil.