Week ending 1st December 2023.

As you can see from the accompanying table markets in the US and Europe ended the week higher. November marked a significant positive shift for markets, bolstered by a series of positive developments: decreasing inflation, a shift in the Federal Reserve’s policy approach, economic resilience despite high interest rates, and better-than-expected corporate earnings. November’s performance set a high benchmark, with the S&P 500 rising 8.9%, marking the best month in over a year and one of the top monthly performances in the past 30 years. Although one month doesn’t define an investment trend, the factors supporting this recent growth could continue to propel the market as 2023 ends.

This week recent data from the core Personal Consumption Expenditures (PCE) Price Index, a key indicator used by the U.S. Federal Reserve to assess inflation, revealed a slowdown in consumer price increases in October 2023. The overall PCE Price Index saw a year-over-year increase of 3.0%, a decrease from the 3.4% rise in September. When food and energy prices, which are known for their volatility, are excluded, the core inflation rate came in at 3.5% in October, slightly lower than the 3.7% increase observed in September.

The US economy continues to demonstrate resilience with the latest GDP report revealing the economy grew by an annualised 5.2% in the third quarter of 2023, outpacing the initial 4.9% estimate and 5% forecasts, marking the strongest expansion since the fourth quarter of 2021.

A subtle shift in rhetoric by Federal Reserve Chair Jerome Powell could have contributed to the robust performance of both stocks and bonds at the week’s close. On Friday, Powell recognised that interest rates have reached a significantly restrictive level. He also cautioned that further rate hikes might occur, depending on future economic data.

Looking to Europe, there are further signs of inflationary pressures easing across the region. Data this week showed the region experienced a decrease in its inflation rate to 2.4% year-on-year in November 2023, the lowest since July 2021 and below the anticipated 2.7%, according to initial estimates. The core inflation rate also dropped, falling to 3.6%. The data is a positive sign that higher interest rates are tempering inflationary pressures and fuelled speculation that the European Central Bank may not have to keep rates at restrictive levels for much longer.

There were also some positive signs from China this week as Caixin China Manufacturing PMI climbed to 50.7 (expansionary territory) in November 2023 from 49.5 in October, surpassing forecasts of 49.8. This growth was driven by increases in output and buying levels, new orders, and a slowing in job losses, signalling a revival in China’s economy.

Looking to next week we have US PMI, labour market data including non-farm payrolls, participation rate and unemployment rate. We are also expecting US factory orders, Michigan consumer sentiment, China’s balance of trade and PMI data from the UK and eurozone.

Kate Mimnagh, Portfolio Economist