The bulls are on a charge
Despite concerns about interest rates, tariffs, and some mixed economic data, as the Citi economic surprise index shows signs of rolling over and the relative valuation, it was another strong month for US equities. The US investment community’s glass is very much half full. Thanksgiving week is usually good for US equities and did not disappoint this year, as the S&P 500 hit its 53rd high of the year. There appears to have been some buying of US treasuries this month as yields have generally fallen; the odds remain on a 25 basis point cut at the Fed’s final meeting of the year, on the 17th and 18th of December. We could see the same from the ECB and the Bank of England in December as well.
The election of Trump in November seems to have eclipsed all other economic news. The Vix fear gauge, starting at 22, just above the long-term average, finished the month close to hitting historic lows; one would suggest extreme confidence in the outlook for US equities amongst the investment community. Some of the strength in the US dollar this year was reversed in the past week, probably further boosting stocks in the past 5 days.
Looking to the week ahead, the monthly PMI data will make headlines. This morning, there was some good news from China, as the Caixin Manufacturing Index rose to 51.5, ahead of an expected 50.5. Possibly indicating something of a modest recovery in the Asian economy. It’s a busy week for data this week aside from the global PMIs. In America, we get job reports. The market expects a jump in November payrolls, post-October, but it will be interesting to see if the downward trend continues. A weakening labour market is part of BCA’s Peter Berezin’s cautious view of stocks. We will also get another speech from Powell later in the week and the latest Beige book results.
As for the UK, after a mixed start to his first few months in office this week, Mr Starmer will speak to relaunch his premiership. We all wish him the best with that. On the economic front, retail sales were monitored on Tuesday, and Governor Bailey speaks on Wednesday. The results of our monthly PMIs will be released on Wednesday; the consensus is for a drop. Coming after last week’s Institute of Directors’ economic confidence index, which measures business leader optimism in prospects for the UK economy, fell to -65 in November from -52 in October, the fourth monthly fall in a row.
Europe is being dominated by events, mainly in France, as the government looks to force through its budget. The uncertainty around the political outlook has seen French bonds now yield more than Spanish ones and the same as Greek ones. This is hardly a vote of confidence in Mr Macron and may put further strain on the euro. It may be a tad surprising, but markets seem to be starting the month on the back foot; early December has been known to be a bit volatile; don’t rule it out this year.