Monthly Market Roundup cov. November 2023

Following three consecutive monthly declines, European equity markets ended November on a positive note, propelled by falling inflation expectations and encouraging economic data. Real estate and technology were among the strongest performing sectors, while a decrease in oil prices led to declines in the energy sector.

Inflation fell to 2.4% in November — the lowest monthly figure since July 2021 — driven by falling energy prices and lower food costs. The lower-than-anticipated inflation reading has heightened expectations for an earlier interest rate cut by the European Central Bank (ECB).

The European Commission recently revised its 2023 growth forecast for the eurozone downward to 0.6%. The flash Purchasing Managers' Composite Index (PMI) demonstrated a modest uptick in November but continues to indicate a contraction in business activity in the eurozone. Meanwhile, unemployment climbed from record lows to reach 6.5%. 

The UK equity market finished the month higher as inflation fell sharply to 4.6% in October, down from 6.7% in September. Lower energy and food prices were the main contributors to this decline.

The Bank of England (BoE) anticipates flat GDP growth over the balance of 2023. Surprisingly, the BoE also signalled that its restrictive policy is likely to remain in place despite the backdrop of stagnant growth and falling inflation. Interest rates were held at 5.25%, a 15-year high.

UK wage growth lost momentum in the three months to September as ONS data showed that hiring has slowed and vacancies have fallen. Unexpectedly, the consumer confidence index — measured by research group GfK — rose in November, pushing the pound higher and dampening hopes that the BoE would soon begin cutting interest rates.  

Driven by the ‘Magnificent Seven’ (Tesla, Microsoft, Meta, Apple, Google, Nvidia and Amazon), all three major US equity indices regained their footing in November.

Inflation came in below expectations at 3.2% and a growing sense that interest rates may have peaked in developed markets boosted investor sentiment. That said, the US Federal Reserve (Fed) indicated that it would consider another interest rate increase to bring inflation closer to its 2% target. Rates remained unchanged at 5.5%.

The resilience of the US labour market waned slightly in November as nonfarm payrolls came in at 150,000, below the 180,000 expectation and the previous figure of 297,000. The news was well-received by investors, who believe a slowdown reduces the probability of further interest rate hikes.

Third quarter GDP growth was 5.2% and exceeded forecasts due to greater-than-expected business investment and stronger government spending. Services PMI came in above forecasts and was also higher than the previous month. Industrial output, however, declined.

Led by South Korea, Taiwan and Australia, Asia Pacific equity markets rebounded across the board in November. The strongest performing sector was information technology, followed by materials and industrials. A growing belief that interest rates may have reached their peak spurred investor optimism.

Gains in China’s equity market were modest, and were held back by the property sector crisis and the lingering effects of strict pandemic controls. While analysts remain sceptical of China’s economic recovery, the International Monetary Fund (IMF) opted to raise its outlook on China’s growth due to new policy support measures from Beijing.

South Korea was the best-performing market in November, driven primarily by the rally in the information technology sector. Economic data was mixed in Korea: unemployment fell, inflation rose despite expectations it would fall, and exports increased but came in below expectations.

Bolstered by a growing sentiment that interest rates may have peaked, emerging market (EM) equities ended November up. The information technology sector led gains, followed by communication services and industrials.

At the country level, Egypt, South Korea, Brazil and Mexico were amongst the top performers. Equity markets in Latin America were the best performing overall, driven significantly by Brazil and Mexico.

In Brazil, industrial production increased but came in below expectations, while inflation fell more than expected from 5.2% to 4.8%. In Mexico, inflation fell modestly and quarter three GDP was in line with expectations at 3.3%. 

Global bond markets recorded their strongest monthly performance since the 2008 financial crisis fuelled by falling inflation across developed economies and expectations that central banks may begin cutting rates in the coming months.

Due to a cooling jobs market, soft consumer inflation and signs that US growth is moderating, markets have priced the first cut in interest rates from the Fed will occur in May 2024.

Corporate bond markets rallied in November, led by US investment grade which registered gains of 5.64%. Dollar-denominated high-yield bonds also performed well, returning 4.55% over the period.