Overall Market Summary:
November was a positive month for both equities and bonds. Slowing inflation in the US and other regions raised hopes that interest rates might have peaked. Growth stocks outperformed value stocks, while commodities fell amid weakness in energy prices.
United States:
US equities advanced strongly in November, supported by October inflation data showing the consumer price index (CPI) falling to 3.2% year-on-year from 3.7% in September. This bolstered hopes that inflation might return to the Federal Reserve's (Fed) 2% target, potentially eliminating the need for further interest rate hikes.
Minutes from the Fed's 31 October/1 November meeting revealed ongoing concerns about inflation. Fed Chair Jerome Powell stated that the central bank was "not thinking about rate cuts right now."
Economic data was mixed. The second estimate of Q3 GDP showed an upward revision to 5.2% (annualized) from the initial 4.9% and Q2's 2.1%. However, the ISM manufacturing PMI indicated contraction with a reading of 46.7, unchanged from October.
The cooler-than-expected inflation reading boosted rate-sensitive areas such as real estate and technology stocks. The consumer discretionary sector also performed well, while energy stocks underperformed.
Europe:
Eurozone shares gained in November, driven by steeper-than-expected drops in inflation. Annual inflation for November was estimated at 2.4%, down from 2.9% in October. This prompted hopes that price pressures might be easing and that interest rates could soon be cut.
Top-performing sectors in the eurozone included real estate, information technology, and industrials, while energy and healthcare underperformed.
Despite market optimism for imminent rate cuts, European Central Bank (ECB) President Christine Lagarde remained cautious, stating that eurozone inflation would return to the 2% target if rates stayed at current levels for "long enough."
Other data pointed to economic weakness. The flash HCOB eurozone PMI for November showed business activity continued to fall with a reading of 47.1, although this was up from 46.5 in October.
United Kingdom:
UK equities rose in November but lagged behind several other developed regions. UK small and mid-cap equities outperformed the broader market as hopes built that interest rates might have peaked. Sterling performed strongly, which held back the internationally exposed larger companies.
Top-performing sectors included information technology and real estate, driven by their sensitivity to interest rate outlooks. Laggards included energy and defensives such as healthcare and consumer staples, as investors preferred more cyclical areas.
UK inflation showed a sharp slowdown to 4.6% year-on-year in October, below market forecasts of 4.8% and well below September's 6.7%. This data fueled hopes that the Bank of England might have finished its rate hikes. Meanwhile, the Office for National Statistics reported no growth in UK GDP for Q3.
Chancellor of the Exchequer Jeremy Hunt's Autumn Statement contained more policy measures than expected, including the extension of the 100% capital expenditure allowance, allowing companies to deduct expenditure on plants and machinery from taxable income.
Japan:
The Japanese equity market rebounded in November, with the TOPIX Total Return index gaining 5.4%. Investor sentiment improved as market trends reversed. US Treasury yields sharply declined, and Japanese government bond (JGB) 10-year yields also fell, leading to yen appreciation against the US dollar.
Large-cap growth stocks drove the market higher in the first half of November. However, the decline in JGB yields negatively impacted banks. Profit-taking put pressure on value stocks, including financials. Technology stocks rebounded sharply, and large-cap stocks performed well, supported by foreign investors buying Japanese shares. Small-cap stocks lagged due to weakness in the domestic economy.
Macroeconomic figures in Japan remained somewhat sluggish, including Q3 GDP data, which showed weaker-than-expected domestic demand, consumption, and capital expenditure. The popularity of the Kishida administration continued to decline, but there are signs that next year's wage negotiations could be solid, with labor unions raising their demands and corporate management responding positively.
Corporate earnings remained strong, supported by yen weakness and stable pricing power. November also saw more companies disclosing management plans to address lower valuations.
Asia (excluding Japan):
Asia ex Japan equities achieved strong gains in November, driven by hopes that US interest rates may have peaked. Less hawkish signals from the US Federal Reserve, falling inflation, and softer labor market data boosted investor confidence that further rate hikes might not be necessary.
All markets in the MSCI Asia ex Japan index ended November in positive territory. South Korea, Taiwan, and the Philippines were the strongest performers, while gains in Hong Kong, Thailand, and Singapore were more modest.
Chinese stocks underperformed their regional peers due to concerns over weaker economic growth, insufficient government stimulus measures, and the ongoing real estate crisis. Shares in India and Indonesia achieved robust gains, while price gains in Malaysia were more muted.
Emerging Markets:
Emerging markets (EM) gained strongly in November, although they slightly lagged behind developed markets. The backdrop of a potential soft landing for the US economy and increased expectations of interest rate cuts from the Federal Reserve in 2024 supported EM performance.
Egypt was the top-performing index market, followed by Korea, where tech-related stocks rallied strongly. Mexico and Brazil also posted double-digit growth (in US dollars), with the former supported by currency gains and the latter by signs of disinflation and another policy rate cut. Taiwan benefited from a rally in tech stocks.
Greece, Poland, and Hungary outperformed. In Poland, markets continued to benefit from October's electoral result and signs of strength in consumption. South Africa marginally underperformed amid an increase in power blackouts and a ports crisis. India also lagged despite strong GDP growth and moderating inflation. Energy-related markets like UAE, Qatar, and Saudi Arabia underperformed due to softer energy prices.
China underperformed with mixed economic data, while Thailand was the weakest index market due to a weaker-than-expected Q3 GDP print.
Global Bonds:
November was a positive month for fixed income markets. Government bonds, credit (both investment grade and high yield), and securitized assets all rallied amid growing speculation that central banks might be close to ending rate hikes. Inflation pressures continued to ease, as did concerns around higher oil prices.
The US Federal Reserve (Fed) kept rates on hold with a relatively dovish tone. Despite concerns around expansive fiscal policy, the Quarterly Refunding Announcement was lower than expected ($112 billion versus $114 billion). Moody's changed its AAA US rating outlook from stable to negative due to increased downside fiscal risks.
Economic data was generally softer, with the US ISM manufacturing index falling to a weak 46.7 in October, compared to the predicted 49. October's payroll data displayed a significant decline, with headline gains of just 150k.
The Bank of England kept the base rate unchanged at 5.25% in a 6-3 split vote. UK gilts joined the global rally, as weaker labor market data appeared to validate the committee's less hawkish bias. The Autumn Statement delivered little market-moving news, with a lowering of national insurance contributions and rates for small businesses among the headline measures.
In Europe, inflation fell more than expected to 2.4%. Although there was no ECB board meeting in November, the market anticipated an end to rate hikes. German manufacturing data was weak, with industrial production contracting by -1.4% in September, compared to the forecast -0.1%.
A blend of weaker growth, subsiding inflation pressures, and shifting interest rate expectations resulted in a fall in yields across all major markets. The US 10-year yield dropped by 57 basis points (bps) to 4.34%, the UK 10-year yield fell by 34bps to 4.18%, and Germany's 10-year yield decreased by 36bps to 2.45%. The European periphery, including Spain and Italy, outperformed core markets.
Global credit markets registered positive returns in November, with upbeat sentiment propelling higher-risk assets to outperform government bonds. US investment grade (IG) led the IG space with 1.8% excess return, and high yield (HY) emerging market sovereigns topped the HY space at 3.6% excess return for the month. Issuance increased as rates volatility subsided, with US dollar high yield recording its highest monthly level since the beginning of the year.
Convertible bonds benefited from the supportive equity market tailwind, with the Refinitiv Global Focus index gaining 4.5%. Primary markets remained active in November, with interesting and well-priced convertibles marking a significant change from 2023. Convertible valuations remain subdued despite the increased volume.