Week ending 15th November 2024.

After reaching record highs, markets cooled this week as the euphoria surrounding President-elect Trump’s pro-business stance, dubbed the “Trump trade”, faded. Investors took profits following recent impressive gains and assessed the implications of Trump’s cabinet selections.

Markets also shifted focus back to the Federal Reserve and its future rate path. On Thursday, Federal Reserve Chair Jerome Powell tempered sentiment, stating that given the economy’s “remarkably good” performance, there is no urgency to lower rates. His comments followed data showing an uptick in factory-gate prices, firm consumer inflation, and subdued initial jobless claims. While Powell’s optimistic outlook on the economy is encouraging, it led investors to scale back expectations for a rate cut in December.

On the data front, U.S. inflation met forecasts, with the consumer price index (CPI) rising 0.2% month-over-month in October 2024. The headline annual rate climbed to 2.6%, up from 2.4% in September, largely due to smaller declines in energy costs. October retail sales also impressed, increasing by 0.4% month-over-month, above market forecasts of 0.3%, highlighting continued consumer resilience.

In the UK, Gross Domestic Product (GDP) growth slowed more than expected in the third quarter, with a mild contraction in September. GDP rose by 0.1% in the three months through September, down from 0.5% in the previous quarter and below the forecasted 0.2% gain. Despite being the fastest-growing G7 economy in the first half of the year, thanks to a rebound from last year’s mild recession, UK growth has slowed. The Labour government prioritised boosting economic growth upon taking office, but Chancellor Rachel Reeves expressed dissatisfaction with the latest figures covering the government’s first three months. Meanwhile, many businesses have already raised concerns about the Budget tax increases, citing the potential for higher prices and reduced job creation.

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In the Eurozone, GDP data offered some optimism for a soft economic landing. Eurostat’s second estimate confirmed a robust 0.4% expansion in the third quarter. The European Commission projects 0.8% growth for 2024, although Germany’s economy is expected to contract by 0.1%. Additionally, labour market data showed stability, supporting hopes of resilience in the broader Euro area economy.

China’s economic data presented a mixed picture this week, though green shoots of recovery are emerging as the government’s stimulus efforts begin to take effect. Retail sales grew at their fastest pace in eight months, jumping 4.8% year-on-year in October, well above the forecasted 3.8%. Beijing has bolstered consumer spending through subsidies for appliances, equipment, and cars. Industrial output also rose by 5.3%, though it fell slightly short of expectations.

However, inflation data underscored underlying challenges. October’s consumer price index rose just 0.3% year-on-year, down from 0.4% in September, as food and energy costs eased. Core inflation, which strips out these volatile components, inched up to 0.2%, reflecting weak demand.

Concerns over potential U.S. tariffs and mixed economic data weighed on Chinese markets, which closed the week lower. The question now is how far Beijing is willing to go to boost domestic demand, particularly given the potential threat of heightened tariffs under President-elect Trump. Analysts speculate that Beijing could have additional stimulus measures in its arsenal.

Next week, markets will focus on key U.S. corporate earnings from major names such as Nvidia Corp, Walmart Inc, and Target Corp. On the economic front, watch for October inflation data from the UK, Eurozone, and Japan, as well as UK consumer confidence and retail sales figures. PMI data from the U.S., Europe, and the UK will also be closely monitored.

Kate Mimnagh, Portfolio Economist