December Commentary
GLOBAL MARKETS
The scale of Trump's victory drove US markets higher. Europe and Asia were mostly negative, in local currency terms, on weaker macro data.
US MARKETS
A Trump victory propelled the markets
A Donald Trump White House victory, plus the Republicans gaining control of Congress, delivered strong equity market gains, particularly for small caps. On the other side of the ‘Trump trade’, ESG thematic sectors, such as clean energy, saw negative returns. US business confidence surveys soared on expectations of tax and regulatory cuts. Economic data continued to come in ahead of expectations, and the GDP outlook for 4Q24 looks robust. Underlying 3rd Quarter 2024 GDP ex-inventory data came in at a healthy 3.4%. Inflation remains somewhat sticky, with core inflation across a range of measures closer to 3%, more than the Fed’s preferred 2% target.
Up 5.7% (US 500)
UK MARKETS
A mixed but positive month overall
UK equities fell in the early part of the month, as post-budget sentiment remained weak. Economic data (GDP, Retail Sales) was generally weaker than expected, and business confidence, in contrast to the US, fell back. Eventually, the strength of the US market, plus solid M&A activity, e.g. Direct Line, saw the markets move into positive territory for the month. AstraZeneca, the UK’s biggest stock by market cap, fell sharply at the start of the month over Chinese corruption claims, before clawing back some of those losses.
Up 2.1% (UK All Share)
EUROPEAN MARKETS
Generally flat on uncertain political climate
It was another difficult month for European equities as the German government fell, with elections being called for early next year. The French government, which lacks a majority in parliament, faced the prospect of both a no-confidence vote and no budget being passed. Several large European companies issued profit warnings, with weak Chinese demand cited as a common factor. French bonds suffered the ignominy of their yields trading above that of Greece, as attempts to tackle their rising budget deficit hit a parliamentary ‘brick wall’. The euro was weaker against other major currencies as a result.
Flat 0.0% (Euro 600 Index ex UK)
JAPAN MARKETS
Election results contributed to market uncertainty
The Japanese general election (on 27th Oct) saw a sharp reversal for the new Prime Minister and the ruling LDP, which lost its parliamentary majority, leading to further uncertainty over future economic policy. Japanese equity markets initially took part in the ‘Trump rally’ before those gains were eroded by weaker economic data, as well as weaker sentiment in Asia as the China stimulus rally faded. Value as an investment theme outperformed growth over the month.
Down -0.5% (Japan Index)
Key Points
• The US dollar strengthened against major currencies due to strong economic data and a Trump presidency that points towards more limited scope for the Fed to cut rates.
• Sterling weakened against the dollar, as faltering economic momentum and increased government borrowing forecasts dented the prospects for a stronger UK economy.
• The euro was particularly weak, as political, budgetary, and economic headwinds combined to sap support. Trump’s support for tariffs against European manufacturers further added to the sense of gloom.
• The yen was relatively strong, managing to eke out modest gains against a strong US dollar, while achieving significant gains against sterling and the euro.
Key Points
• Bond returns were positive after a difficult October, with ‘in-line’ US inflation data the catalyst for a 2nd half rally in November. Yet again, it was High Yield that provided the best risk adjusted returns.
• A strong underlying US economy, and the prospect of a Trump presidency, saw US rate cut expectations moderate even further. Market expectations on the scale of rate cuts over the next 12 months have fallen significantly recently.
• Bond yields fell across Europe as a weaker economy opened the prospect of more ECB rate cuts.
• French yields fell by less, as worries about their ability to tackle the rising budget deficit saw French borrowing costs exceed those of Greece. The premium on French debt to Germany rose to the highest level since the Eurozone crisis.
• Gilts rallied towards the end of the month as domestic concerns over the level of issuance were outweighed by the tailwind from falling US Treasury yields.