Global markets weekly update

Major stock indexes finished the week higher, recovering some of the previous week’s losses despite some continuing uncertainty around the incoming Trump administration’s policies and escalating geopolitical tensions stemming from the conflict between Russia and Ukraine. Gains for the week were also relatively broad-based, with smaller-cap indexes outperforming large-caps and an equal-weighted version of the S&P 500 Index outpacing its more familiar capitalization-weighted counterpart. Similarly, the price of Bitcoin continued its postelection rally and notched its third consecutive week with a gain exceeding 10%.

With a relatively light economic calendar for the week, much of the focus was on NVIDIA’s third-quarter earnings release on Wednesday. Shares of the chip giant ended the week little changed as investors appeared to be generally satisfied with the results, although the company’s guidance for the fourth quarter was lighter than some analysts expected. Relatedly, the utilities sector outperformed as commentary on NVIDIA’s earnings call seemed to drive optimism around rising artificial intelligence-driven demand for clean energy. Communication services stocks lagged, driven in part by a drop in shares of Google parent Alphabet following reports of the Justice Department filing a proposal to break up the internet search giant.

On Thursday, the Department of Labor reported an unexpected drop in initial jobless claims for the week ended November 16, 2024, which seemed to help drive positive sentiment toward the end of the week. Applications for unemployment benefits fell to 213,000, a decline of 6,000 from the prior week and the lowest number since April 2024. While the number of continuing claims reached a three-year high of 1.91 million, some of this increase was attributed to secondary effects of the aircraft machinist strike at Boeing, which has since been resolved.

In addition, investors seemed encouraged by the National Association of Realtors’ report of existing home sales in October, which rose year over year for the first time since July 2021. The upbeat report cited additional job gains, continued economic growth, and stabilizing mortgage rates as factors leading to the growth in housing demand.

Much of the macroeconomic focus remained on the Federal Reserve’s final meeting of the year in December as investors look for clues around the pace of interest rate cuts. Speaking Wednesday, Federal Reserve Governor Lisa Cook stated that “the disinflationary process is continuing” and that she sees the appropriate path of short-term interest rates to be downward. However, she noted that the magnitude and timing of rate cuts should be driven by inflation and labor market data.

U.S. Treasuries posted positive returns heading into Friday among mixed yield curve movement. As of Friday morning, short-term yields increased from the prior week, while long-term yields decreased. (Bond prices and yields move in opposite directions.) Municipal bond yields entered Friday slightly lower across most of the curve alongside periods of falling Treasury yields. However, our traders noted that most of the demand for munis occurred in the primary market, with some new issues reaching as high as 20 times oversubscribed. Weekly new issue volumes were elevated as deals were pushed forward from the upcoming holiday-shortened week.

Meanwhile, spreads in the investment-grade corporate bond market largely tightened throughout the week. The amount of issuance was well above expectations, and the majority of issues were oversubscribed. According to T. Rowe Price traders, volumes in the high yield market picked up from below-average levels at the start of the week. They noted that broader macro stability, the rally in technology stocks, and rates tightening were supportive for the asset class. In issuer-specific news, Spirit Airlines officially filed for bankruptcy.

In local currency terms, the pan-European STOXX Europe 600 Index ended 1.06% higher on hopes that the European Central Bank (ECB) could lower borrowing costs in December after purchasing managers’ surveys signaled a deterioration in the economic outlook. Major stock indexes mostly fell. Italy’s FTSE MIB dropped 2.04%, while France’s CAC 40 Index lost 0.20%. Germany’s DAX tacked on 0.58%, and the UK’s FTSE 100 Index advanced 2.46%.

Business activity in the euro area contracted unexpectedly in November, underlining the uncertain economic outlook, according to purchasing managers’ surveys conducted by S&P Global.

The HCOB Flash Eurozone Composite PMI Output Index unexpectedly fell to 48.1—a 10-month low—from 50 in October, as the manufacturing sector sank deeper into recession and the services sector started to struggle after two months of marginal growth. (PMI readings below 50 indicate a fall in output.) The PMIs for the bloc’s largest economies—France and Germany—also shrank. UK business activity also moved into contractionary territory, ending a 12-month period of sustained expansion.

Weak PMI data appeared to bolster expectations that the ECB could ease monetary policy further in December. However, a pickup in negotiated wage growth—a measure watched by the ECB for signals of underlying inflationary pressures—may reinforce the case for continued caution on policy. Negotiated wages grew 5.4% in the three months through September, up from an annual increase of 3.5% in the previous quarter.

Inflation in the UK accelerated more than expected in October mainly on the back of higher household energy bills. The year-over-year change in consumer prices increased from 1.7% in September to 2.3%—the highest since April and above economists’ forecasts of 2.2%. The core measure, which excludes volatile food and energy costs, ticked up to 3.3%. Inflation in the services sector also strengthened slightly to 5%, in line with Bank of England (BoE) predictions.

The data reinforced expectations that the BoE is likely to keep policy steady for the rest of the year. Markets also scaled back their expectations from three rate cuts to two in 2025. Separately, BoE policymakers were split over the persistence of inflation and the path for interest rates at a meeting of a parliamentary committee held before the release of the inflation data. Governor Andrew Bailey said there were “risks on both sides” of the inflation outlook.

Japan’s stock markets lost ground over the week, with the Nikkei 225 Index falling 0.93% and the broader TOPIX Index down 0.56%. Heightened geopolitical tensions dented risk appetite and prompted demand for assets perceived as safer, including the Japanese yen, although the currency traded mostly within the JPY 154 range against the U.S. dollar.

With the timing of the Bank of Japan’s (BoJ) next interest rate hike (likely in December or January) still finely balanced, the yield on the 10-year Japanese government bond (JGB) approached 1.1%, nearing a 13-year high. Consumer inflation held above the BoJ’s 2% target in October—although the headline consumer price index fell to 2.3% year on year, this was in line with expectations given the return of electricity and gas subsidies. The reading was broadly seen as supporting the more hawkish stance that the BoJ has adopted this year. BoJ Governor Kazuo Ueda said earlier in the week that the central bank expects wage-driven inflationary pressure to heighten, as the economy continues to improve and companies continue hiking pay. He reiterated that the bank will keep raising rates if the economy and prices move as expected.

According to November flash purchasing managers’ index (PMI) data collated by au Jibun Bank, within Japan’s private sector, service providers recorded a slight expansion in activity, while manufacturers saw a sustained reduction in output. Price pressures remained elevated across the private sector and firms increasingly sought to pass on higher cost burdens to customers.

Japan’s government on Friday approved an economic package to ease the pain of inflation on households and businesses and to revitalize struggling regional economies. Combined with expected spending from the private sector, the package is estimated to add JPY 39 trillion (USD 250 billion) to the economy. Measures include subsidies to curb rising energy costs and cash handouts to low-income households, as well as an increase in the tax-free salary threshold to boost disposable incomes.

Chinese equities declined as a light economic calendar and concerns about the incoming Trump administration curbed risk appetites. The Shanghai Composite Index fell 1.91%, while the blue chip CSI 300 gave up 2.6%. In Hong Kong, the benchmark Hang Seng Index lost 1.01%, according to FactSet.

Chinese banks left their one- and five-year loan prime rates unchanged at 3.1% and 3.6%, respectively. The move was largely anticipated after banks slashed the benchmark lending rates by a greater-than-expected 25 basis points in October, making it cheaper for consumers to take out mortgages and other loans.

Beijing has unveiled a slew of stimulus measures since late September to boost the ailing housing sector and revive consumer demand. Officials have signaled further easing measures in the near term, including potentially cutting the reserve requirement ratio for domestic banks. However, some analysts believe that policymakers will wait until President-elect Donald Trump takes office in January and U.S. policies become clearer.

Earlier in November, Beijing announced a RMB 10 trillion debt swap to ease the burden on indebted local governments and raised the debt ceiling for local governments midyear for the first time since 2015. While the scale of the debt package is at the upper end of the market’s expectations, the government made no mention of buying unsold property or stimulating consumption, noted T. Rowe Price’s Head of International Equities and Chief Investment Officer Justin Thomson. China appears to be unprepared to front-run any move on tariffs and keeping powder dry for the new year, Thomson added.

In other news, China's youth unemployment rate eased for the second straight month since August, when it hit its highest level this year. The jobless rate for 16- to 24-year-olds, excluding students, came in at 17.1% in October, down from 17.6% in September, according to official data.

On Tuesday, the National Bank of Hungary (NBH) held its regularly scheduled meeting and kept its main policy rate, the base rate, at 6.50%. The NBH also held the overnight collateralized lending rate—the upper limit of an interest rate “corridor” for the base rate—at 7.50%. In addition, the central bank left the overnight deposit rate, which is the lower limit of that corridor, unchanged at 5.50%. This inaction was generally expected.

According to the central bank’s post-meeting statement, policymakers noted that global investor sentiment has recently been “volatile” due to geopolitical developments and expectations for economic outlooks for developed economies and the “future interest rate paths” from major central banks. They also noted that risk aversion toward emerging markets has increased in tandem with a stronger U.S. dollar.

Regarding domestic conditions, central bank officials noted that gross domestic product declined 0.8% year over year in the third quarter of 2024 due to “weak performance of industry, construction and agriculture.” They also expect subdued European economic activity to “hold back domestic exports in the short term,” though they expect Hungary’s export market share to increase over time.

As for inflation, policymakers acknowledged that broad inflation was measured at 3.2% in October, while core inflation was higher, at 4.5%. They attributed the increase in inflation to “the accelerating dynamics in food and fuel prices,” and they expect inflation will “rise temporarily in the rest of the year.” In addition, they anticipate that “exchange rate depreciation” in the last few months, coupled with “changes to the system of excise duties” will have “inflationary effects in the next year.”

Policymakers ultimately concluded that continuing geopolitical tensions “are raising upside risks to inflation through increasing risk aversion towards emerging markets.” Adhering to “a careful and patient approach to monetary policy,” particularly in the midst of “volatile financial market developments,” central bank officials decided to leave various interest rates at current levels.

On Thursday, Turkey’s central bank held its scheduled monetary policy meeting. As was generally expected, policymakers decided to keep the one-week repo auction rate at 50.0%.

According to the post-meeting statement, policymakers observed that the underlying inflation trend “registered a decline” in October, while various economic indicators “suggest that domestic demand continues to slow down, reaching disinflationary levels.” Nevertheless, they expressed their belief that “inflation expectations and pricing behavior…continue to pose risks to the disinflation process”—hence, their decision to leave rates unchanged.

Central bank officials remained convinced that a “tight monetary stance will bring down the underlying trend of monthly inflation through moderation in domestic demand, real appreciation in Turkish lira, and improvement in inflation expectations.” One noteworthy addition to the post-meeting statement is that they expect “increased coordination of fiscal policy will also contribute significantly to this process.” Policymakers continue to insist that they will maintain a tight monetary stance “until a significant and sustained decline in the underlying trend of monthly inflation is observed, and inflation expectations converge” to their projected forecast range.