Market Overview

Summary of world markets in November

Politics – including the US election and the ongoing fallout from October’s Budget – absorbed much of the limelight in the UK during November. The Bank of England warned of mounting risks to the UK’s financial system, including geopolitical instability, pressure on government debt levels, and the prospect of trade wars.

Bitcoin hit an all-time high in response to Donald Trump’s election victory, soaring in price to almost $100,000 (up almost 40% in November!).  The President-elect has vowed to create a US bitcoin reserve and place digital assets in the heart of his economic plans.  Opinions from the financial industry remain divided, with allocations to digital coins rising but the question of how to value cryptocurrencies still a key concern for many investors.

Power plays: The Bank of England (BoE) warned of mounting risks  to the UK’s financial system, including geopolitical instability, pressure on government debt levels, and the prospect of trade wars. Nevertheless, UK equity indices rose over the month, partly boosted by corporate activity  in the insurance sector. The FTSE 100 Index  rose by 2.2%, while the FTSE 250 Index  climbed by 1.9%.

Budget fallout: Following a dip in October that was widely attributed to Budget-related uncertainty, consumer confidence  strengthened in November, according to GfK. However, there are concerns that some of the measures in the Budget – including the increase in employers’ National Insurance contributions – could be undermining business sentiment. The Confederation of British Industry  reported that almost two-thirds of UK companies that responded to its post-Budget survey believe the Budget will damage UK investment. Meanwhile, 82 UK retailers, alongside the British Retail Consortium, sent a letter  to Chancellor Rachel Reeves warning that the “cumulative burden” of measures contained in October’s Budget will lead to higher prices, “inevitable” job losses, and shop closures.

Pension reforms: In the annual Mansion House speech, Rachel Reeves  announced plans for major pension reforms. These focus on consolidating 86 Local Government Pension Schemes into eight “mega funds” in a move designed to boost for UK investment and deliver better outcomes for savers.

Inflation ticks up: As expected, BoE policymakers cut the base rate  from 5% to 4.75% but warned that measures in the Budget were likely to stoke inflationary pressures. Higher energy prices pushed the annualised rate of inflation  from 1.7% in September to 2.3% in October, reaching its highest level since April and dampening hopes of another imminent rate cut. Inflation in the services sector increased to 5% and core inflation rose from 3.2% to 3.3%. UK gilts registered a positive total return, with longer-maturity bonds outperforming.  The market was buoyed by the Bank of England’s interest rate cut, as well as strong demand for gilt issuance. Sterling corporate bonds also made headway, delivering similar returns to their sovereign peers.  Credit spreads are already very narrow amid ongoing strong demand for the asset class and low default rates, providing limited scope for additional return potential.

Lacklustre growth: Having expanded by 0.5% during the second quarter of 2024, the UK economy  grew by only 0.1% in the third quarter as activity in the services sector lost pace against a backdrop of uncertainty ahead of the Budget. The rate of unemployment  rose to 4.3% in the third quarter, and vacancies continued to fall. Average earnings (excluding bonuses) rose at an annualised rate of 4.8% during the period, representing their slowest growth since mid-2022.

Politics dominate: News flow and sentiment in November were dominated by the US election and its outcome, as Donald Trump’s victory stoked expectations of deregulation, tax cuts, and fresh tariffs. While US markets  rose to new all-time highs, the result also triggered speculation that his policies could fuel inflation and reduce the Federal Reserve’s (Fed’s) scope to cut interest rates. Over November, the Dow Jones Industrial Average Index  rose by 7.5%, notching up seven  new closing highs during the month, while the S&P 500 breached 6,000 points  for the first time. The Fed cut its key interest rate  by 25 basis points to a range of 4.5% to 5% early in November and Fed Chair Jerome Powell  indicated that the Fed is likely to take a gradual approach to monetary easing. Global bond yields fell (prices rose), despite concerns about the inflationary and budgetary consequences of Donald Trump’s future policies.  Higher US treasury yields early in the month attracted buyers.

New tariffs: Towards the end of November, President-elect Trump announced that he intends to impose new tariffs on China, Canada  and Mexico from the first day of his new administration, triggering concerns over the prospect of trade wars and possible supply chain disruptions. Trump also intends to impose tariffs of 10% to 20%  on the rest of the world. The European Central Bank (ECB) warned  that concerns over the outlook for global trade had added to geopolitical uncertainty; ECB President Christine Lagarde  commented that an all-out trade war would be a “net negative for all”.

Above-target inflation in the eurozone: The rate of inflation  in the eurozone rose from 2% year on year in October to 2.3% in November; however, the core inflation rate remained steady at 2.7% for a third consecutive month. Sentiment in Europe was also affected by political uncertainties amid the collapse  of Germany’s governing coalition and concerns over the ability of France’s minority coalition to push through its budget. After a volatile month, the Dax Index ended November 2.9% higher, while the CAC 40 Index  fell by 1.6%.

BoJ set to tighten again? Alongside the possible impact of Trump’s planned tariffs, inflationary pressures in Japan reinforced speculation that the Bank of Japan (BoJ) will implement another rate increase. Although the annualised rate of consumer price inflation  moderated from 2.5% in September to 2.3% in October, it remained above the BoJ’s 2%  target; meanwhile, services producer price inflation  rose from 2.8% to 2.9% year on year. The Nikkei 225 Index  fell by 2.2% over the month.

The broad Asian and emerging market indices fell, with Donald Trump’s win and the impact of future tariffs denting sentiment, particularly towards China where his pledge is to impose tariffs of 60% or more on manufactured goods. Korea and Taiwan also suffered due to concerns about the impact of trade tensions on global growth.  India fared better as the country is less exposed to global trade compared to other Asian economies.  Brazil has been a negative outlier this year and the market fell further in November, with investors disappointed by the latest budget plan.

The US dollar strengthened in response to the election result and the prospect of domestic strength and the introduction of tariffs on imports of foreign goods.  The euro was particularly weak, with political upheaval at the heart of Europe and the likelihood of faster rate cuts from the ECB weighing upon the common currency.

In contrast, precious metal prices weakened. Gold posted its worst monthly performance in over a year, as did silver.  The strength of the US dollar was a headwind here, as it was for other commodities.  Gold also suffered from a move away from safe-haven assets following the US election.  Nonetheless, it has been a stellar year for the precious metal.

The oil price was little changed over the month, but it was buffeted by geopolitical, supply and demand factors.  The prospect of increased oil production under a Trump administration, alongside worries about the impact of tariffs on the Chinese economy (and consequently the country’s oil demand) were key questions.