United States
Stocks positively ended the holiday-shortened trading week, with markets closed on Thursday for Thanksgiving and shutting early on Friday. The focal point was a closely watched third-quarter earnings report from NVIDIA, the AI chipmaker and currently the world’s sixth-largest company by market capitalisation. Despite beating earnings and revenue estimates, NVIDIA’s shares fell due to cautious guidance resulting from export restrictions to China. This weakness in NVIDIA contributed to the underperformance of the Nasdaq Composite Index, though growth stocks outperformed value stocks overall.
Throughout the holiday week, significant economic updates emerged. The Commerce Department reported on Wednesday that durable goods orders had declined by 5.4% in October, the second-largest drop since April 2020. The decline was largely attributed to a sharp decrease in volatile civilian aircraft orders. Orders excluding aircraft and defense purchases, typically considered a business investment proxy, also saw a slight decrease for the second consecutive month.
On Friday, S&P Global released estimates indicating a growth pickup in November’s services sector, the fastest in four months, compensating for a larger-than-expected slowdown in manufacturing. However, S&P also highlighted that “relatively subdued demand conditions and dwindling backlogs led firms to cut their workforce numbers for the first time since June 2020.”
A notable event during the week was the release of estimates from S&P Global, indicating a growth pickup in the services sector in November—the fastest in four months—which compensated for a larger-than-expected slowdown in manufacturing. However, S&P also noted that “relatively subdued demand conditions and dwindling backlogs led firms to cut their workforce numbers for the first time since June 2020.”
Investor confidence seemed to be bolstered by a successful USD 16 billion auction of 20-year U.S. Treasury bonds on Monday, potentially driven by signals of slowing growth and diminishing inflation fears. The healthy bid-to-cover ratio helped alleviate concerns stemming from a weaker auction of 30-year Treasuries earlier in the month, leading to a drop in the yield on the benchmark 10-year U.S. Treasury note to an intraday low of 4.37% on Wednesday—its lowest level in over two months. However, yields rebounded to close the week higher on Friday.
According to traders, the fixed-income market was generally calm over the holiday week. Spreads in the investment-grade corporate bond market tightened on Monday due to limited issuance, remaining largely unchanged on Tuesday before Thanksgiving. Monday’s issuance was oversubscribed.
High-yield bonds experienced gains on Monday, propelled by solid equity performance and the successful auction of 20-year Treasuries. While trade volumes were light, buyers preferred higher-quality investment-grade bonds. The primary market remained quiet, with no new deals expected until after the holiday. Similarly, the leveraged loan market showed minimal change in light volumes.
Europe
Regarding local currency, the pan-European STOXX Europe 600 Index concluded the week with a 0.91% gain, fueled by optimism surrounding potential interest rate cuts by central banks in the first half of the upcoming year. Major stock indices exhibited a mixed performance, as France’s CAC 40 Index saw a 0.81% increase, Germany’s DAX rose by 0.69%, while Italy’s FTSE MIB declined by 0.22%, and the UK’s FTSE 100 Index experienced a 0.21% loss.
European government bond yields increased, with Germany’s 10-year government bond yield rising from a more than two-month low of 2.516% earlier in the week. Reports of Germany intending to suspend debt limits for the fourth consecutive year and statements indicating the European Central Bank’s (ECB) commitment to maintaining tight monetary policy contributed to the rise in yields. French and Swiss bond yields also saw increases. In the UK, the yield on the 10-year benchmark bond moved higher following an unexpected rise into positive territory for the Purchasing Managers’ Index (PMI) in November.
Efforts by ECB policymakers to dampen expectations of imminent interest rate cuts were evident, with statements emphasising the ongoing battle against inflation. ECB President Christine Lagarde suggested that interest rates could remain steady for “the next couple of quarters,” and François Villeroy de Galhau of France mentioned a plateau in rates likely lasting for the next “few quarters.” Belgium’s Pierre Wunsch indicated that the ECB will likely maintain the status quo in December and January. Minutes from the ECB’s October meeting revealed a commitment to keeping the possibility of another rate hike on the table, even if further policy tightening was not the primary scenario.
A purchasing managers’ survey by S&P Global showed that eurozone business activity declined for the sixth consecutive month in November, signalling a potential recession. The HCOB Flash Eurozone Composite PMI Output Index rose to 47.1 from October’s three-year low of 46.5. A PMI reading below 50 indicates contraction.
In the UK, the government unveiled tax cuts, business investment incentives, and measures to support the housing market in the fall budget. The Office for Budget Responsibility (OBR) revised its economic forecasts, predicting a 0.6% expansion for the current year but halving growth projections for 2024 and 2025 to 0.7% and 1.4%, respectively.
Japan
Japan’s stock markets posted modest returns for the week, with the Nikkei 225 Index gaining 0.1% and the broader TOPIX Index remaining unchanged. Early in the week, the Nikkei reached its highest level since 1990, driven by a robust domestic corporate earnings season. Manufacturers benefited from a weaker yen and eased supply chain constraints, propelling growth stocks higher amid expectations that U.S. interest rates had peaked.
On the economic front, a robust October consumer inflation reading fueled speculation about the Bank of Japan (BoJ) undertaking further monetary policy normalisation. However, private sector activity in November stalled, as indicated by flash PMI data, primarily due to worsening business conditions in manufacturing.
Against this backdrop, the 10-year Japanese government bond (JGB) yield rose to 0.77% from the previous week’s 0.72%. The BoJ reduced its JGB purchase operations for the second consecutive week. In the currency markets, despite initially strengthening to its highest level in over two months amid a weakened U.S. dollar, the yen concluded the week largely unchanged, trading around JPY 149 against the USD.
As inflation accelerated, reaching 2.9% year on year in October, speculation intensified about the BoJ’s potential shift in monetary policy. While this figure fell slightly short of the consensus expectation of a 3.0% rise, it marked the 19th consecutive month of inflation hovering above the BoJ’s 2% target. This raised expectations of imminent tighter monetary policy in Japan.
However, the BoJ, having adjusted its yield curve control (YCC) framework to allow more flexibility in JGB yields (up to 1%), signalled a cautious approach. The central bank was willing to wait for stronger wage growth before considering changes to YCC or lifting interest rates from negative territory. Investors are eyeing next year’s “shunto,” the annual spring wage negotiations, as a potential turning point in the BoJ’s monetary policy trajectory.
China
Stocks in China faced a downturn as the prospect of potential stimulus measures for the property sector in Beijing failed to outweigh broader economic challenges. The Shanghai Composite Index experienced a 0.44% decline, and the blue-chip CSI 300 retreated by 0.84%. Meanwhile, according to FactSet, the benchmark Hang Seng Index recorded a 0.6% gain in Hong Kong.
Chinese regulators crafted a funding plan for property developers in their latest attempt to bolster growth amid an ongoing property crisis. As per Bloomberg, the list, reportedly encompassing 50 private and state-owned developers, is intended to guide financial institutions in implementing various financing measures to strengthen balance sheets. Concurrently, the National People’s Congress, China’s parliament, urged banks to expedite support measures for real estate developers to mitigate the risk of further defaults and ensure the completion of ongoing housing projects. These developments followed recent property data highlighting a sustained downturn in a crucial sector for China’s economy, with property investment, sales, and new home prices all experiencing declines in October.
In monetary policy updates, Chinese banks kept their one- and five-year loan prime rates unchanged, aligning with expectations, following the People’s Bank of China’s (PBOC) decision to maintain its medium-term lending rate the previous week. China remains distinct among global central banks by maintaining a more accommodative monetary policy to bolster its slowing economy. Recent economic data with a mixed outlook for China has raised expectations that the PBOC may consider reducing its reserve ratio requirement.
Many economists anticipate that Chinese government advisers may propose an economic growth target of around 5% for 2024 at the December annual Central Economic Work Conference. This target is expected to promote job growth and ensure continued alignment with long-term development goals.
Indices last week
|
|
Weekly Index |
|
YTD Index |
|
|
Index |
Local Currency |
Sterling Pound |
Local Currency |
Sterling Pound |
|
UK |
|
|
|
|
|
FTSE 100 Index |
-0.16 % |
-0.16% |
4.19% |
4.19% |
|
US |
|
|
|
|
|
S&P 500 Index |
1.02% |
-0.37 % |
19.98% |
14.42% |
|
Nasdaq |
0.92% |
-0.47 % |
47.23% |
40.40% |
|
EU |
|
|
|
|
|
Euro Stoxx 50 |
0.54 % |
-0.09% |
17.84% |
15.57% |
|
Asia |
|
|
|
|
|
Nikkei 225 Index |
0.12% |
-1.26% |
27.91% |
7.66% |
|
MSCI Emerging Markets Index |
0.49% |
-0.91% |
6.02 % |
0.09% |
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