The digest
US Thanksgiving holiday week is traditionally a quiet one for equity markets globally, and last week proved to be just that. There were very little in terms of market catalysts, and equities slowly grinded higher. The MSCI World Index closed up 1.0%, the STOXX Europe 600 Index closed up 0.9%, the S&P 500 Index was up 1.0%, and the MSCI Asia Pacific was up 0.4%.1
US stock markets were closed on Thursday and volumes were very quiet again in a shortened session on Friday. The release of the latest Federal Open Market Committee Meeting (FOMC) minutes was largely a non-event; however, there was a suggestion that disinflation could reverse if the conflict in the Middle East were to escalate.
On Wednesday, Reuters reported that Chinese government advisors would recommend a gross domestic product (GDP) growth target for 2024 of 4.5%-5.5%, which would require further stimulus.2
In the United Kingdom, the Chancellor’s Autumn Statement garnered some interest, with some tax and pension changes, but nothing particularly market-moving. Oil prices fell after the OPEC+ meeting. It had been postponed a week, implying a lack of consensus amongst members.
Last week was largely uneventful for European equity markets, with trading volumes in Europe slumping into the US market holiday. The path of least resistance in this quiet environment was higher, with the STOXX 600 Index up 0.9% on the week. With that, European equities are now up 6.1% so far in November, on track for their best monthly performance this year.
Spain’s equity market outperformed last week, up 1.8%, as the new government was formed. Swedish equities also did well, up 1.4%, as the Riksbank kept interest rates on hold (the market had been expecting a hike). Meanwhile, Italy’s FTSE MIB lagged, down 0.6%.
European equities overall remained out of favour, with US$32 million worth of outflows in the week ended 21 November—the 37th week in a row of outflows.3
European Purchasing Managers Index (PMI) data remain in contraction territory (below 50), although the November reading was ahead of estimates at 47.1 vs. 46.5 previously. The pace of decline in New Orders also slowed, coming in at 45.1 in November.
In the United Kingdom, Thursday’s PMI data garnered some interest during the week’s doldrums. The Composite PMI came in ahead of expectations at 50.1, in expansion for the first time since July. UK Consumer Confidence also rose, coming in at -24 in November vs. -30 in October. On Wednesday, Chancellor Jeremy Hunt delivered his Autumn Statement, where he announced cuts to personal and business taxes in order to stimulate growth. However, in conjunction with the Statement, the Office of Budget Responsibility published its economic and fiscal outlook which slashed its projection for 2024 GDP to +0.7% from +1.8%.
On Friday morning, Germany’s GDP report came out, falling 0.1% quarter-over-quarter. The German IFO Business Climate survey showed the business outlook improved for a third month in November, which is encouraging given fears about the German economy and the ongoing budget issues for the government. On that subject, the German government announced it will suspend a constitutional limit on net new borrowing for a fourth consecutive year, after Chancellor Olaf Scholz’s government was forced into a radical budget overhaul by a ruling last week from the nation’s top court.
Turning to politics elsewhere, the Dutch election last week gave the market a bit of a shock, with far-right Geert Wilders and his PVV party winning, picking up 37 seats. Now, he needs to find coalition partners to get to the 76-seat majority required to form a government, and he has spoken about moderating his stance in order to do so. Watch this space.
In a holiday-shortened week in the United States, market volumes were poor. The S&P 500 and the Nasdaq indices both managed to log a fourth straight week of gains All sectors finished the week in the green, with health care and consumer staples outperforming. Energy stocks were higher, but a dip in oil prices weighed on the market.
Market volatility was lower again, with the CBOE VIX Index dropping to levels last seen in 2020, pre-COVID.4
There were very few market catalysts last week. The FOMC meeting minutes didn’t provide much new for equity markets—revealing all participants voted to keep the federal funds funds rate unchanged at the last meeting. Members noted that rates would need to remain restrictive at current levels “for some time”, which didn’t represent anything particularly new. They did note the risk of an escalation in the Israel-Palestine conflict and what that would mean for inflation in the United States through rising global oil prices.
In terms of data, the latest US Composite PMI data came in unchanged overall at 50.7 in November. Manufacturing dropped to 49.4 in November vs. 49.4 in October, but this was offset by an upturn for the services sector, up to 50.8 vs. 50.6 previous.
Asia
Asian markets were somewhat muted last week after a couple of good weeks prior. The MSCI Asia Pacific closed the week up 0.37%, with South Korea’s market the outperformer, up 1.08%, and Thailand’s equity market the underperformer, down 1.27% last week.
Looking ahead, most markets in Asia started this week off on relatively low volumes after the US Thanksgiving holiday and a slow half-day session in US markets on Friday; markets in India and the Philippines are closed for holidays on 27 November.
Central banks in South Korea, Thailand and New Zealand are expected to keep interest rates on hold at their policy meetings this week. China will release its official PMI data, which is expected to point to a continued recovery in economic activity, but the Caixin manufacturing number due later this week may paint a more subdued picture. Markets will also be watching for news about a Chinese government rescue package for the beleaguered property market.
Japan
The Nikkei closed last week just in the green, up 0.12% in a holiday-shortened week (Japan’s market was closed Thursday), with volumes unsurprisingly light. On Monday, the Nikkei hit 33853.46, its highest level since 1990, helped by recent earnings and better sentiment toward the US interest rate outlook. Japan’s Consumer Price Index (CPI) accelerated for the first time in four months in October, rising 2.9% year-over-year, further underlining speculation that the Bank of Japan (BoJ) will likely start to tighten soon. There was also a Nikkei article last week highlighting that dividend reinvestment was supporting the market, as September dividend payments started peaking around the end of November to the beginning of December.
Semiconductor stocks were in focus last week, with Nvidia posting strong results. Sector-wise, shipping, insurance and services were the best performers, while autos, trading houses and refiners slumped.
China
The Shanghai Composite Index closed down 0.44% last week despite a slew of somewhat bullish property sector-related headlines and government initiatives, which include:
- Chinese regulators are drafting a whitelist of 50 developers eligible for a range of financing, and state-owned enterprises (SOEs) and private developers will be treated equally.
- Shenzhen rolled out two new homebuying measures, including lowering the down-payment ratio for second homes to 40% from as much as 80% and relaxing the definition of so-called “ordinary housing”, or non-luxury homes, that qualify for lower down payments.
- China may allow banks to offer unsecured short-term loans to qualified developers for the first time.
Not surprisingly, property developers were strong last week, whilst bank stocks were lower. Renewables, including solar and lithium names, sold off in a week of broad renewables “risk off”. Notably, BYD shares fell, dragging the electric vehicles sector lower amidst price cut reports.
On the economic front, Chinese banks left their one and five-year loan prime rates unchanged, as expected, after the People’s Bank of China (PBOC) kept its medium-term lending rate on hold.
Looking ahead, PMI and industrial profits numbers will be closely watched, as a gauge of China’s industrial recovery.
Hong Kong
The Hang Seng Index closed up 0.6% last week after China stepped up its support for the distressed real estate sector. A slew of positive policies were announced (see above) that sent shares of Chinese developers surging. Chinese internet names traded mostly higher, after Baidu and Kuaishou reported better-than-expected margins.
Week ahead
Macro highlights
Eurozone inflation figures will be closely watched this week. Also, the latest MSCI rebalance on Thursday will likely provide a liquidity shot in the arm for equity markets. Friday’s US ISM Manufacturing report will also garner some interest late in the week.
Upcoming December central bank policy meetings (all expected to hold rates steady) include the FOMC on 13 December, European Central Bank on 14 December, and Bank of England on 14 December.
Eurozone reports to watch
Tuesday 28 November: Euro-area M3 Money Supply
Wednesday 29 November: Sweden GDP; Spain HICP Inflation; UK Mortgage Approvals; Germany HICP Inflation
Thursday 30 November: France HICP Inflation; Italy HICP Inflation; Euro-area CPI Inflation Estimate
Friday 1 December: UK Nationwide House Prices
Global data calendar for the week ahead
Monday 27 November
- US New Home Sales; Dallas Fed Manufacturing Activity
Tuesday 28 November
- Euro-area Monthly Credit Data
- Germany – GfK Consumer Confidence
- France – INSEE Consumer Confidence
- US FHFA House Price Index and House Price Purchase Index; Conference Board Consumer Confidence; Richmond Fed Manufacturing Index and Dallas Fed Services Index
Wednesday 29 November
- Sweden third quarter GDP
- Spain HICP Inflation
- UK Mortgage Approvals
- Germany HICP Inflation
- Italy ISAE Business Confidence
- Eurozone Consumer Confidence
- Japan Retail Sales
- US Mortgage Applications; Wholesale Inventories; Advance Goods Trade Balance; Retail Inventories; GDP (revision); Personal Consumption (revision); GDP Price Index (revision); Beige Book
Thursday 30 November
- France HICP Inflation; third quarter GDP
- Italy HICP Inflation
- Euro-area CPI Inflation Estimate
- Germany Unemployment Rate
- Japan Unemployment Rate
- US Personal Income; Personal Spending; Initial Jobless Claims; Continuing Claims; Real Personal Spending; Personal Consumption Expenditures (PCE) Deflator and PCE Core Deflator; MNI Chicago PMI; Pending Home Sales
Friday 1 December
- UK Nationwide House Prices
- US PMI-Manufacturing (revision); Construction Spending; ISM-Manufacturing; ISM-Prices Paid/Employment/New Orders
Views you can use
Consider This: Argentina’s economic policy evolution
Argentina’s recent election indicates its people are looking for change in policy direction. But is it for the better? Franklin Templeton Institute Investment Strategist Kim Catechis weighs in. Read more.
Under the Macroscope: US-China détente: A symbolic step and stabilizer for investors
The recent meeting between US President Joe Biden and China’s President Xi Jinping seemed to reassure investors, dispelling significant geopolitical uncertainty this year, according to Christy Tan of Franklin Templeton Institute. Read more.
Quick Thoughts: Inflation—the final mile
In the context of fighting inflation, the “‘final mile”’ represents the successful and sustainable achievement of a central bank’s inflation target. Stephen Dover, Head of Franklin Templeton Institute, opines on the Fed’s ability to reach it. Read more.
WHAT ARE THE RISKS?
All investments involve risks, including the possible loss of principal. The value of investments can go down as well as up, and investors may not get back the full amount invested. Stock prices fluctuate, sometimes rapidly and dramatically, due to factors affecting individual companies, particular industries or sectors, or general market conditions. Bond prices generally move in the opposite direction of interest rates. Thus, as prices of bonds in an investment portfolio adjust to a rise in interest rates, the value of the portfolio may decline. Investments in foreign securities involve special risks including currency fluctuations, economic instability and political developments. Investments in developing markets involve heightened risks related to the same factors, in addition to those associated with their relatively small size and lesser liquidity.
Any companies and/or case studies referenced herein are used solely for illustrative purposes; any investment may or may not be currently held by any portfolio advised by Franklin Templeton. The information provided is not a recommendation or individual investment advice for any particular security, strategy, or investment product and is not an indication of the trading intent of any Franklin Templeton managed portfolio.
Past performance is not an indicator or guarantee of future performance. There is no assurance that any estimate, forecast or projection will be realised.
Links to External Sites
Franklin Templeton is not responsible for the content of external websites.
The inclusion of a link to an external website should not be understood to be an endorsement of that website or the site’s owners (or their products/services).
Links can take you to third-party sites/media with information and services not reviewed or endorsed by us. We urge you to review the privacy, security, terms of use, and other policies of each site you visit as we have no control over, and assume no responsibility or liability for them.
IMPORTANT LEGAL INFORMATION
This material is intended to be of general interest only and should not be construed as individual investment advice or a recommendation or solicitation to buy, sell or hold any security or to adopt any investment strategy. It does not constitute legal or tax advice. This material may not be reproduced, distributed or published without prior written permission from Franklin Templeton.
The views expressed are those of the investment manager and the comments, opinions and analyses are rendered as at publication date and may change without notice. The underlying assumptions and these views are subject to change based on market and other conditions and may differ from other portfolio managers or of the firm as a whole. The information provided in this material is not intended as a complete analysis of every material fact regarding any country, region or market. There is no assurance that any prediction, projection or forecast on the economy, stock market, bond market or the economic trends of the markets will be realised. The value of investments and the income from them can go down as well as up and you may not get back the full amount that you invested. Past performance is not necessarily indicative nor a guarantee of future performance. All investments involve risks, including possible loss of principal.
Any research and analysis contained in this material has been procured by Franklin Templeton for its own purposes and may be acted upon in that connection and, as such, is provided to you incidentally. Data from third party sources may have been used in the preparation of this material and Franklin Templeton (“FT”) has not independently verified, validated or audited such data. Although information has been obtained from sources that Franklin Templeton believes to be reliable, no guarantee can be given as to its accuracy and such information may be incomplete or condensed and may be subject to change at any time without notice. The mention of any individual securities should neither constitute nor be construed as a recommendation to purchase, hold or sell any securities, and the information provided regarding such individual securities (if any) is not a sufficient basis upon which to make an investment decision. FT accepts no liability whatsoever for any loss arising from use of this information and reliance upon the comments, opinions and analyses in the material is at the sole discretion of the user.
Products, services and information may not be available in all jurisdictions and are offered outside the U.S. by other FT affiliates and/or their distributors as local laws and regulation permits. Please consult your own financial professional or Franklin Templeton institutional contact for further information on availability of products and services in your jurisdiction.
__________
1. Indices are unmanaged and one cannot directly invest in them. They do not include fees, expenses or sales charges. Past performance is not an indicator or a guarantee of future results.
2. Source: “Exclusive: China government advisers call for steady growth target in 2024, more stimulus.” Reuters. 21 November 2023.
3. Source: Bloomberg; citing Bank of America and EPFR Global data.
4. The CBOE Market Volatility Index (VIX) measures market expectations of near-term volatility conveyed by S&P 500 stock index option prices. Often called the “fear gauge”, lower readings suggest a perceived low-risk environment, while higher readings suggest a period of higher volatility.