Weekly Market Recap

A weaker-than-expected set of UK labour market and economic growth data disappointed investors, who, in turn, sharply raised their bets on the Bank of England cutting interest rates in December. Unemployment in the three months through September increased to 5% for the first time since January 2021. Wage growth also slowed in the third quarter, with the annual growth rate in weekly earnings, excluding bonuses, easing to 4.6% from 4.8% in the prior period.

Gross domestic product (GDP) growth slowed more than forecast to 0.1% in the third quarter, below a consensus estimate of 0.2%. GDP contracted sequentially by 0.1% in September. The slowdown was partly due to a 28.6% decline in car production in September, driven by a shutdown at Jaguar Land Rover following a cyberattack.

The longest US government shutdown on record came to an end on Wednesday night after President Donald Trump signed a spending bill that will keep the government funded through 30 January. While the news helped remove a major headwind for markets, stocks traded sharply lower on Thursday as questions remain around how long it will take for conditions to return to normal.

Economic data in particular remained a focal point. White House representatives stated that the October jobs and inflation reports may not be released, and the Bureau of Labor Statistics (BLS) noted that “it may take time to fully assess the situation” regarding finalising data release dates. On Friday afternoon, the BLS announced that it will release its September jobs report on Thursday, 20 November.

Hawkish commentary from several Federal Reserve policymakers also appeared to weigh on equity markets. Speaking on Wednesday, Atlanta Fed President Raphael Bostic stated that he considers “signals from the labour market as ambiguous and difficult to interpret” and believes that they are “not clear enough to warrant an aggressive monetary policy response when weighed against the more straightforward risk of ongoing inflationary pressures.” He also believes current monetary policy is “marginally restrictive”. He favours keeping interest rates steady “until we see clear evidence that inflation is again moving meaningfully toward” the central bank’s 2% target.

Meanwhile, St. Louis Fed President Alberto Musalem said he believed policymakers “need to proceed and tread with caution.” In contrast, Cleveland Fed President Beth Hammack said she believed that monetary policy needed to “remain somewhat restrictive” due to concerns about persistently high inflation.

The probability of a rate cut following the Fed’s December meeting declined to around 46% as of Friday afternoon, down from about 67% the prior Friday and close to 95% a month ago, according to the CME FedWatch tool. Small-cap stocks, which can be more sensitive to interest rate movements, underperformed for the week, with the Russell 2000 Index dropping 1.8%.

After dropping 1.1% in August, eurozone industrial production in September ticked up 0.2% versus the prior month—well below the 0.9% forecast in a FactSet market survey. Irish output decreased sharply in contrast to above-average increases in Germany, Italy, and France.

Investor sentiment in Germany unexpectedly declined, according to the ZEW economic research institute. ZEW President Achim Wambach said: “The overall mood is characterised by a fall in confidence in the capacity of Germany’s economic policy to tackle the pressing issues.” 

The latest batch of official indicators showed that China’s economy lost steam as it entered the fourth quarter. Fixed asset investment shrank 1.7% in the first 10 months of the year, a record drop for the period, according to China’s statistics bureau. Industrial production rose a weaker-than-expected 4.9% in October from a year ago, while retail sales rose 2.9%, the fifth straight month of slower growth.

Other data showed that China’s housing market, now in its fourth year of a slump, continued to remain under pressure. New home prices in 70 cities, excluding state-subsidised housing, fell 0.45% in October from September, the steepest decline in a year, while existing home values fell 0.66%, the biggest drop in 13 months, Bloomberg reported. The ongoing malaise in China’s property market has been a significant headwind to growth, making consumers reluctant to spend and exacerbating the deflation that has plagued China’s economy since early 2023.

While the data showed that China’s economy weakened more than expected in October, most economists believe that Beijing’s official growth target of about 5% this year is still manageable, particularly after the US and China struck a one-year trade truce at talks in South Korea last month. Moreover, the central government has approved stimulus totalling RMB 1 trillion since the end of September to bolster capital expenditure, and economists believe the effects of the stimulus should start to materialise in the near term.

Expectations of policy changes under Japan’s new Prime Minister, Sanae Takaichi, with her administration set to pursue a loose fiscal policy and appearing to favour the Bank of Japan (BoJ) moving cautiously on raising interest rates, have pressured the yen. The yen weakened to JPY 154.6 against the US dollar from the prior week’s JPY 153.4. Takaichi recently sought to allow for more flexible spending by reconsidering the government’s current single-year fiscal discipline target and announcing plans to set a new fiscal target that extends over several years. She shared her concept that responsible, yet aggressive, fiscal spending is required to boost economic growth.

The yield on the 10-year Japanese government bond rose to 1.71% from 1.67% at the end of the previous week. Investors pared back their expectations of the BoJ raising interest rates in December, with many converging around the view that a January rate hike now looks more likely. BoJ Governor Kazuo Ueda suggested that Japan is progressing in meeting the conditions for raising interest rates. The central bank examines underlying inflation, which strips away temporary factors, and it is gradually accelerating toward its 2% target.

A monthly poll, the Reuters Tankan, which tracks the BoJ’s quarterly Tankan business survey, showed that confidence among Japan’s manufacturers rose to its highest level in nearly four years in November. The poll showed that the manufacturers’ sentiment index increased to +17, from October’s +8. Exporters, particularly those in the electronics and automotive sectors, benefited from the weak yen, which boosted demand.

Australia’s employment increased by 42,000 in October, higher than the consensus of 20,000 and showing a broad bounce back from the prior month’s notably weak print. Full-time employees drove the increase, and hours worked rose 0.5% month-over-month (MoM). The unemployment rate fell from 4.45% to 4.34%, with the participation rate remaining flat. For the Reserve Bank of Australia (RBA), this move alongside the much stronger third-quarter consumer price index (CPI) makes it challenging to see near-term rate cuts. Australian consumer sentiment rose 12.8% MoM in November to its highest level since December 2021. The increase was broad-based across all components, with perceptions of future economic conditions recording the largest increase of 16.6% MoM.

Last week, the MSCI All Country World Index (MSCI ACWI) gained 0.5% (20.3% YTD).

The US S&P 500 Index edged up 0.1% (15.7% YTD). Stocks were mostly lower through Thursday, as concerns regarding elevated valuations and increased scrutiny around artificial intelligence spending seemed to help drive a rotation away from many of the growth-oriented stocks that have helped propel indexes to recent all-time highs. However, a volatile trading session on Friday with limited major headlines led to some indexes recovering their losses and closing the week higher.

Growth stocks underperformed value stocks, while small-cap stocks underperformed large-cap stocks. The Russell 1000 Growth Index returned -0.1% (17.8% YTD), the Russell 1000 Value Index 0.1% (12.2% YTD), and the Russell 2000 Index -1.8% (8.3% YTD). The technology-heavy Nasdaq Composite lost -0.4% (19.3% YTD).

In Europe, the MSCI Europe ex UK Index rose 2.4% (16.4% YTD) on relief that the US federal government reopened. However, cooling sentiment on artificial intelligence curbed the market’s gains. Most major stock indexes advanced. Germany’s DAX Index was up 1.3% (19.9% YTD), France’s CAC 40 Index rallied 2.8% (14.3% YTD), and Italy’s FTSE MIB Index jumped 2.5% (33.7% YTD). Switzerland’s SMI Index surged 2.7% (12.4% YTD). The euro was little changed against the US dollar, closing the week at USD 1.16 for EUR.

The FTSE 100 Index in the UK gained 0.3% (22.6% YTD), and the FTSE 250 Index added 0.3% (9.2% YTD). The British pound was little changed against the US dollar, closing the week at USD 1.32 for GBP.

Japan’s stock markets rose over the week. The TOPIX Index moved up 1.8% (22.8% YTD), and the TOPIX Small Index increased 1.9% (24.7% YTD). Sentiment globally was supported by the US ending the country’s longest government shutdown in history. Conversely, continued concerns about overstretched valuations of companies with revenue streams linked to artificial intelligence weighed on Japan’s technology sector.

In Australia, the S&P/ASX 200 Index declined by -1.3% (10.2% YTD) following the US equity sell-off and the decreasing probability of more RBA cuts in the near term. Australian government bond yields moved higher, with the curve modestly flattening. The Australian dollar strengthened against the US dollar by 0.5%.

In Canada, the S&P/TSX Composite rose 1.4% (25.5% YTD).

The MSCI Emerging Markets Index firmed 0.3% (32.1% YTD), with the stock markets of India, South Korea and Brazil contributing positively to the performance. In contrast, the stock markets of China and Taiwan contributed negatively.

Mainland Chinese stock markets retreated as investors pocketed gains a week after the leading domestic benchmark rose to its highest level in almost four years. The onshore CSI 300 Index lost -1.1% (20.7% YTD), and the Shanghai Composite Index slipped -0.1% (22.0% YTD).  Hong Kong's benchmark Hang Seng Index rose 1.3% (36.9% YTD). The MSCI China Index, which primarily consists of offshore-listed stocks, gained 0.5% (37.7% YTD).

In Colombia, the government recently reported that headline inflation in October increased 0.2% MoM, which was slightly above expectations of a 0.1% increase, while the year-over-year (YoY) rate of 5.5% matched broad expectations. Core inflation was measured at a MoM rate of 0.3% and a YoY rate of 5.3%, versus expectations of 0.2% and 5.1%, respectively. Rising costs in entertainment, health, and housing drove the increases.

According to Aaron Gifford, T. Rowe Price’s associate director of global sovereign research, the annual figures rose considerably, but this was due to base effects, as sequential inflation, even on the core side, is flat, if not slightly lower, for the month. He believes that the data will keep central bank officials cautious, but probably not enough to prompt them to raise interest rates.

In Romania, central bank officials held their scheduled policy meeting and decided to keep the monetary policy rate at 6.50%. They also decided to keep the Lombard lending facility rate at 7.50% and the deposit facility rate at 5.50%.

In their post-meeting statement, policymakers noted the elevated annual inflation readings in Romania in recent months: 9.76% in October, 9.88% in September, and 9.85% in August. They also noted that inflation is well above the June reading of 5.66% due to the end of the “electricity price capping scheme” on 1 July and the increases in value-added tax rates and excise duties starting 1 August.

According to the central bank’s forecasts in the November 2025 Inflation Report, the annual inflation rate is expected to experience a “modest decline” over the next three quarters before having “a steep downward correction” in the third quarter of 2026. That drop is anticipated as the “direct effects” of recent supply-side shocks stemming from the government’s recent “corrective fiscal and budgetary measures” fade away.

Given the currently elevated inflation and the “high uncertainties and risks to the outlook for economic activity,” policymakers decided to maintain steady interest rates. They believe that the country’s current “balanced macroeconomic policy mix and the implementation of structural reforms,” coupled with European Union funds to “foster” the economy’s long-term growth potential, are needed to preserve “a stable macroeconomic framework” and to strengthen the economy so that it can “withstand adverse developments.”

Last week, the Bloomberg Global Aggregate Index (hedged to USD) returned -0.2% (4.6% YTD), the Bloomberg Global High Yield Index (hedged to USD) 0.1% (8.5% YTD), and the Bloomberg Emerging Markets Hard Currency Aggregate Index 0.1% (11.2% YTD).

US Treasuries posted negative returns. After fluctuating throughout the week, yields were modestly higher across most maturities. Over the week, the 10-year Treasury yield rose by 5bp, ending at 4.15% from 4.10% (down -42bps YTD), continuing to oscillate within a roughly 10bps range around 4.1%, where it has remained since the Fed’s October rate cut. The 2-year Treasury yield rose by 5bps, ending the week at 3.61% from 3.56% (down -64bps YTD). Meanwhile, high-yield bonds advanced on idiosyncratic news and earnings reports before partially retracing gains amid a weaker macro backdrop.

Over the week, the 10-year German bund yield rose 5bps, ending at 2.72% from 2.67% (up 36bps YTD). The 10-year UK gilt yield increased by 9bps, ending the week at 4.57% from 4.46% (up 1bps YTD).