Weekly Overview 25. Nov – 1. Dec 2024

The content of this post does not constitute financial advice. It is intended for information and education purposes only.

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The Week in Global Markets

Financial markets summary:

– EUROPE: Stocks across different major equity markets in Europe had mixed performance this week. Pan-European, German, British and Swiss indices advanced, while Italian and French benchmark indices declined. The biggest concerns this week came from France – where the risks are rising that the government budget proposal might fail. Under a threat of a no-confidence vote by the far right, the proposal was amended, but markets got rattled: there was elevated pressure on French stocks and bonds. The French/German 10y government yield spread widened to a 12-year high, reaching 90bps, levels that were last seen during the euro debt crisis and tied with Greek yields. In Germany, we had another drop in consumer sentiment, a negative surprise in retail sales which dropped more than expected, and a further deterioration of the Ifo business climate indicator. Additionally, preliminary figures showed that inflation has rebounded above 2% both in Germany and the Eurozone, while new statements from the ECB’s Villeroy de Galhau were rather dovish, in opposition to the hawkish tone that other ECB members have had. Data for 2024 so far also reveal that bond sales in Europe YTD have reached €1.705tn (that includes bonds denominated in EUR, GBP and Reg S only USD) and have thus exceeded the record set during the pandemic. The euro and the British pound appreciated against the US dollar in the course of this week.

– UNITED STATES: Bank data show that measures of consumer sentiment have rebounded as the holiday spending season commenced. The Fed’s preferred inflation measure, the PCE index, accelerated to 0.20% MoM in October (from 0.175% in September), while core PCE inflation accelerated even more to 0.30% MoM in October (from 0.25% the month before). This was almost entirely driven by a 3.5% MoM seasonally-adjusted rise in portfolio management fees, which contributed 5.2bps to headline and 5.8bps to core inflation in October, up from practically 0bp in September. Core PCE YoY was 2.8%, which was in line with expectations, but again marks a re-acceleration compared to September. In the banking sector, we see a very concerning trend: the delinquency rate on US commercial mortgage-backed securities (CMBS) for offices has surged to 10.7%, the highest in 11 years. Donald Trump threatened on social media to quickly impose 25% tariffs on imports from Mexico and Canada, along with an additional 10% tariff on imports from China. This resulted in a drop in auto manufacturers’ stocks as they are dependent on trade with Mexico and Canada for shipment of auto parts and final assembly. However, overall all 3 major stock indices ended the week higher, and even small stock indices reached new highs – and that despite durable goods orders missing expectations and signaling that the slump in industrial output goes on.

– ASIA-PACIFIC: Major Japanese stock indices declined this week, as 10y JGB yields declined slightly and the yen strengthened against the USD. High inflation readings led to a rise in expectations that the next rate hike by the Bank of Japan could likely be in December or January. There are also plans for an additional government budget to fund stimulus measures, such as energy subsidies and cash payouts to low-income households. In China, the equity indices increased week-on-week, as the People’s Bank of China pushed another RMB 900bn into the banking system with its medium-term lending facility and left the lending rate unchanged at 2%. However, liquidity conditions remain tighter as overall there is a net withdrawal of funds coming up in December. Corporate profits in the industry sector declined 10% YoY in October, which is a smaller move than what was observed in September (thanks to state support) but is still not reversing.

– BITCOIN: BTC corrected to below the $91k mark this week, only to rebound later and make another go for the $100k which it has yet to reach for the first time ever. Positive news came this week from Brazil where a bill was introduced that proposes the creation of a national Bitcoin reserve. It is intended to reduce Brazil’s exposure to currency volatility and geopolitical risks while fostering the adoption of blockchain technology across public and private sectors. With respect to technicals, at the moment Bitcoin is still showing strong upward momentum, despite the resistance at the $100k level. Volumes show that buying pressure remains resilient but profit-taking around the $100k could lead to some persistent fluctuation around that mark.