Financial Markets Overview - November, 2023
Market Analysis
Stellar Capital STELLAR 7 December, 2023

Financial Markets Overview - November, 2023

November saw a positive turn for both stocks and bonds. Reduced inflation in the US and elsewhere sparked optimism that interest rate hikes might have peaked. Growth stocks fared better than value stocks, while commodities dipped due to lower energy prices.

In the US, equities rose notably in November. The October inflation report indicated a drop in the consumer price index to 3.2% year-over-year, down from 3.7% in September, fueling expectations that inflation might align with the Federal Reserve's 2% target, potentially negating the need for more rate hikes.

Despite this, Federal Reserve minutes from late October and early November revealed ongoing concerns about inflation levels. Jerome Powell, the Fed chair, stated that the central bank wasn't considering rate cuts at the moment.

US economic indicators were mixed. The revised Q3 GDP grew to 5.2% annually, an increase from the initial 4.9% estimate. However, the manufacturing sector showed signs of struggle, with the ISM manufacturing PMI at 46.7, indicating contraction.

Rate-sensitive market sectors like real estate and technology benefited from the lower-than-expected inflation, while the energy sector lagged behind.

Eurozone shares also rose, fueled by larger-than-anticipated inflation declines. November's estimated annual inflation dropped to 2.4%, down from 2.9% in October. This led to speculation about potential interest rate cuts.

Sector-wise, real estate, information technology, and industrials led gains in the Eurozone, while energy and less sensitive sectors like healthcare didn't perform as well. Christine Lagarde, the European Central Bank President, maintained a cautious stance, suggesting that inflation could return to the 2% target if current rates persisted.

In the UK, equities increased but didn't match the performance of other developed regions. Small and mid-cap stocks did better, buoyed by the belief that interest rates had reached their peak. The sterling's strength impacted larger, internationally focused companies.

Key sectors like information technology and real estate gained, reacting to the interest rate outlook. Energy and defensive sectors like healthcare and consumer staples were less favored.

UK inflation slowed significantly to 4.6% year-on-year in October, below the anticipated 4.8%, and well under September's 6.7%. This fed into expectations that the Bank of England might halt its rate hike cycle. However, Q3 GDP showed no growth.

The Chancellor of the Exchequer, Jeremy Hunt, presented an Autumn Statement with more policy measures than expected, including extending the 100% capital expenditure allowance.

In Japan, the equity market rebounded, with the TOPIX total return index gaining 5.4%. Investor sentiment improved as some market trends reversed, including a decline in US Treasury yields and a strengthening yen against the US dollar.

Large-cap growth stocks led the market in early November. However, falling Japanese government bond yields negatively impacted banks, and value stocks, including financials, faced pressure from profit-taking. Technology stocks and large-cap stocks did well, supported by foreign investment in Japanese shares, while small-cap stocks lagged.

Japan's macroeconomic figures remained tepid, with Q3 GDP data showing weaker domestic demand and consumption. Political risks also persisted with the declining popularity of the Kishida administration. However, solid corporate earnings and expectations of wage growth for the next year provided some optimism.

In Asia excluding Japan, equities saw strong gains, driven by hopes of a peak in US interest rates. All markets in the MSCI Asia ex Japan index ended November positively, with South Korea, Taiwan, and the Philippines leading. Chinese stocks, however, lagged due to concerns over economic growth and the real estate crisis. India and Indonesia showed robust gains, while Malaysia's progress was more modest.

Emerging markets also experienced strong gains in November, slightly trailing behind developed markets. Egypt, Korea, Mexico, and Brazil showed notable growth. Poland and Hungary also outperformed, benefiting from October's election results and strong consumer spending. South Africa and India lagged slightly. Energy-related markets like the UAE, Qatar, and Saudi Arabia underperformed due to lower energy prices.

China trailed other emerging markets, with mixed economic data. Thailand was the weakest performer due to disappointing Q3 GDP figures.

Fixed income markets had a positive November, with government bonds, credit, and securitized assets rallying amid speculation about an end to rate hikes. Inflation pressures and concerns over oil prices eased.

The US Fed maintained rates, with a dovish tone. Although the US ISM manufacturing index showed a decline, the labor market data for October indicated a slowdown in job gains.

The Bank of England kept its base rate unchanged, and UK gilts rallied following weaker labor market data. The Autumn Statement in the UK introduced fiscal measures like lowering national insurance contributions.

In Europe, inflation dropped more than expected, and markets anticipated an end to rate hikes. German manufacturing showed a contraction, contributing to a drop in yields across major markets.

Global credit markets saw positive returns, with US investment grade and high-yield emerging market sovereigns performing well. Convertible bonds benefited from the equity market, with the Refinitiv Global Focus index gaining 4.5%.

Commodities experienced a downturn in the S&P GSCI Index. Energy and livestock were the worst performers, while precious metals, industrial metals, and agriculture saw modest gains. Energy prices dipped due to uncertainty over OPEC production quotas, while precious metals like silver and gold increased in price. Industrial metals had mixed results, and in agriculture, coffee, wheat, and corn prices rose, whereas sugar and soybean prices declined.