A significant increase in investments in both the stock and bond markets marked the month of November, highlighting changes in the outlook for interest rates and growth. A turning point in the month was the release of US inflation data, which turned out to be lower than analysts had expected. Eurozone inflation also decelerated more than expected to 2.4% year-on-year. The main contribution to this decrease came from the energy sector, benefiting from the current favourable comparison with the higher levels recorded last winter. The moderating inflation trend is expected to persist in the months ahead, supported in part by still positive base effects. Investors responded positively, assuming the end of the Federal Reserve’s restrictive policies, thus triggering a significant drop in bond yields and a consequent rise in prices. Long-term government bond yields fell significantly during November with that of the 10-year Treasury returning to 4.35% from the previous month’s high of around 5%. The markets discounted not only the end of the rate hike phase in Europe and the US, but even a reduction in rates starting in the second quarter of next year, and followed the rise in the bond markets (fall in long-term yields), amplifying the movement.
At the level of the equity markets, we have seen a rebound in the main stock markets. In the US, the SP500 rose 7.30% and the Nasdaq 9.15%. Similar trends in Europe with Euro Stoxx 50 up +7.40%, Dax +8.33% and FTSE MIB +6.50%. The Swiss SMI index was positive but lagged behind by +2.85, which benefited less from this movement due to its more defensive orientation. China continues to live with a macroeconomic picture quite different from the rest of the world, where there is still a clear need to stimulate the economy. Chinese CSI 300 index closed the month at -2.30% while Hang Seng at -0.63%.
We think that the euphoria experienced in the markets during the month of November could continue into December. Despite persistent geopolitical and economic risks, the latest data point to an improving outlook for the end of 2023, with falling inflation, less aggressive monetary policies and more constructive financial markets. An environment that, if confirmed, could favour a pick-up in investment and growth.