Weekly Market Wrap 04/12/2023

November marked the best month in three years for global equities, as lower than anticipated inflation data and clues from key central bankers have lead markets to take the firm view that global interest rates have peaked, and rate cuts could begin in the first half of 2024. European CPI data surprised markets, whilst UK house prices appear to turn a corner. Jerome Powell’s most recent speech fuels dovish sentiment, as yields fall and bonds rally.

UK Market  

The UK market ended the week higher. UK house prices rose by 0.2% in November, as buyers were encouraged by expectations of lower mortgage rates, whilst a fall of 0.4% had been forecast. UK prices had declined in the past 12 months as higher interest rates drove borrowing costs for buyers to more than 5%.

US Markets

The S&P 500 ended the week 0.77% higher, whilst the Nasdaq ended the week 0.10% higher. Markets interpreted Jerome Powell’s comments late on Friday as dovish, as the Fed Chair acknowledged that economic growth is likely to slow in 2024 and seemed to reaffirm the view that the Fed is done with rate hikes for now. Continuing jobless claims in the US came in higher than expected on Thursday, rising to 1.927M, the highest level seen since 2021 (est 1.872M). Cooling in the US labor market is likely to keep discussion of further hikes off the table.

 European Markets 

The Euro Stoxx 50 ended the week 0.95% higher. European CPI data for November came in significantly below expectations, with headline data at 2.4% (est 2.%), whilst core CPI was at 3.6% when economists had expected a figure of 3.9%. The main drivers of the lower inflation figures were falling energy prices and a slowdown in the pace of increases for prices of goods and services. Markets are now pricing in rate cuts for the European Central Bank in the first half of 2024, as falling inflation and poor economic data may push the ECB to reduce rates sooner than previously forecast.

 Fixed Income

Yields on US 10-year bonds fell by 27 basis points across the week, reaching 4.22%, with yields continuing to fall late on Friday despite comments from Fed chairman Jerome Powell which said talk of rates cuts was “premature”.

 Commodities

Brent crude ended the week lower at $78.9 per barrel, despite OPEC+ agreeing another set of output cuts for early 2024.

The Week Ahead

Monday – ECB President Lagarde Speech

Tuesday – US Services PMI

Wednesday – European Retail Sales

Thursday – European GDP

Friday – US Unemployment

*x% up/down to price as of last week’s close