Weekly Market Recap

House prices remained relatively stable in November despite stamp duty changes, worries about possible taxes in the fall budget, and record real estate prices. The Nationwide Building Society’s house price index rose 0.3% sequentially, beating forecasts for no growth and up from 0.2% in October. Bank of England data showed underlying mortgage demand remained solid. Net mortgage approvals for house purchases fell slightly to 65,018 in October from a revised 65,647 in September.

Activity in the manufacturing sector contracted for the ninth consecutive month in November, according to data from the Institute for Supply Management (ISM). On Monday, the ISM reported that its manufacturing Purchasing Managers’ Index (PMI) declined to 48.2%, down from 48.7% in October (readings below 50% indicate contraction, while readings above 50% signal expansion). Pullbacks in supplier deliveries, new orders, and employment drove the overall decline, while input prices increased for the 14th consecutive month and at a faster rate than in October.

On the other hand, November services activity expanded at a slightly faster pace than in October, with the services PMI rising 0.2% to 52.6%, the highest in nine months. The prices index fell 4.6% to 65.4%, the lowest reading since April, indicating that prices paid by services organisations increased at a slower rate than in October.

On Wednesday, payroll processing firm ADP reported that private sector payrolls decreased by 32,000 in November, a sharp reversal from October’s revised gain of 47,000. November’s reading marked the largest monthly drop since March 2023. According to ADP Chief Economist Nela Richardson, “Hiring has been choppy of late as employers weather cautious consumers and an uncertain macroeconomic environment. And while November's slowdown was broad-based, it was led by a pullback among small businesses.”

Consulting firm Challenger, Gray & Christmas also released a report during the week showing that US-based employers announced more than 71,000 job cuts in November, the most for the month since 2022. The November figure brought the year-to-date total to about 1.17 million job cuts, the highest level since 2020.

Meanwhile, the Labor Department reported that initial claims for unemployment benefits for the week ended 29 November unexpectedly declined to 191,000—a decrease of 27,000 from the previous week's revised level and the lowest since September 2022.

The Bureau of Economic Analysis (BEA) reported on Friday that the Federal Reserve’s preferred inflation measure—the personal consumption expenditures (PCE) index—rose 0.3% month over month (MoM) in September, in line with August’s reading. Core PCE—which excludes volatile food and energy prices—rose 0.2%, also in line with the prior month. Both measures increased 2.8% on a year-over-year (YoY) basis. The original release of the September data was delayed due to the federal government shutdown, and the BEA has not yet announced a rescheduled release date for October’s data.

Friday morning also brought a preliminary reading of the University of Michigan’s December Index of Consumer Sentiment, which improved 2.3 points from November to 53.3. Improved expectations for personal finances primarily drove the increase, although overall views remained “broadly sombre, as consumers continue to cite the burden of high prices,” according to the report. Expected inflation in the year ahead decreased to 4.1% from 4.5% in the prior month, the lowest reading since January 2025 and the fourth consecutive month of declines.

A preliminary estimate showed that annual headline inflation in the eurozone ticked up to 2.2% in November from 2.1% in October, above economists’ forecasts in a FactSet poll but still close to the European Central Bank’s 2% target. Falling energy prices partly offset higher services costs. The core rate, which excludes volatile food and fuel costs, remained at 2.4%.

According to the latest data, euro area gross domestic product (GDP) increased by 0.3% in the third quarter, driven by a rebound in fixed investment, which led to an upward revision from the previous estimate of 0.2%. France and Spain drove the expansion, while Germany’s economy stagnated.

The seasonally adjusted unemployment rate in the euro area remained at 6.4% in November. Retail sales volumes came in flat versus September, but year over year they grew 1.5%, which was faster than the 1.0% estimate in a FactSet survey of analysts and the prior reading of 1.2%.

Germany’s factory orders in October rose 1.5% sequentially, marking a second consecutive monthly increase. The latest figure exceeded a consensus forecast of 0.5%, thanks to substantially higher orders for aircraft, ships, trains, and military vehicles, as well as an 11.9% rise in metal production and processing.

China’s official manufacturing PMI improved to 49.2 in November from 49.0 in October. But November’s reading marked the eighth straight month that the factory gauge stayed below 50, the level that separates growth from contraction, a record-long stretch of declines, according to Bloomberg. The official non-manufacturing measure of construction and services activity fell to 49.5 in November from 50.1 in October, its first contraction in nearly three years, due to weakness in the real estate and residential services sectors.

The latest PMI readings added to evidence that China’s economy lost momentum in the fourth quarter. An ongoing property crisis, which began in 2020 when Beijing unveiled its “three red lines” campaign aimed at clamping down on excessive borrowing by developers and a growing real estate bubble, has emerged as perhaps the biggest risk to the economy, discouraging consumption and fuelling deflationary pressures. Nevertheless, most analysts believe that China will meet its annual growth goal of about 5% without further policy actions this year.

Stocks faced pressure from rising global bond yields and a speech by Bank of Japan (BoJ) Governor Kazuo Ueda that was perceived as hawkish, which increased expectations for a December rate hike and pushed Japanese government bond (JGB) yields and the yen higher. The 10-year JGB yield climbed to 1.94% from 1.81% the prior week, its highest level since 2007. The yen strengthened to 155.3 against the US dollar, from JPY 156.2 the previous week.

BoJ Governor Ueda said that the bank’s basic assessment that the country’s economy has recovered moderately remains unchanged. Prices of not only food products but also goods and services have risen moderately. On the conduct of monetary policy, if the bank’s outlook for economic activity and prices is realized, it will continue to raise the policy interest rate.

Crucially, Governor Ueda asserted that the likelihood of this baseline scenario being realized is gradually increasing, given factors such as the recent decline in uncertainties surrounding the US economy and tariff policies. At its 18-19 December monetary policy meeting, the BoJ will consider the pros and cons of raising its policy rate and make decisions as appropriate. Market takeaways from Governor Ueda’s speech were hawkish, and it was seen as paving the way for further monetary tightening, with investors increasingly converging around the view that the BoJ is now likely to raise rates in December.

In economic data developments, Japan’s household spending shrunk in October by the most since January 2024. Spending contracted 3.0% YoY, more than consensus forecasts of a 1.0% increase and compared with September’s 1.8% gain. The contraction was attributed to weaker household spending on food, entertainment, and automobiles, in the face of persistent cost pressures.

Australia's GDP increased 0.4% quarter-on-quarter (QoQ) and 2.1% YoY in the third quarter, weaker than the consensus of 0.7% QoQ and softer than the 0.7% QoQ outcome in the second quarter. However, annual growth is now running at its strongest pace since September 2023. Household spending rose 0.5% QoQ in the third quarter, down from 0.9% in the second quarter due to weaker discretionary volume. However, in October, household spending re-accelerated to 1.3% MoM, materially above expectations and at its fastest pace since January 2024.

Government spending in Australia rose 1.2% QoQ in the third quarter, equating to a 0.3% contribution to third-quarter GDP growth. On the other hand, the current account deficit widened by AUD 0.5 billion to an upwardly revised AUD 16.6 billion, well above consensus expectations of AUD 13.0 billion. GDP per capita was flat in the quarter, while GDP per hour worked (labour productivity) improved in annual terms (0.7% YoY versus 0.1% YoY in the second quarter). Nevertheless, this productivity improvement has not fully offset wage pressures: substantial pay increases and higher bonus payments saw real unit labour costs move higher in the quarter on an annual basis (5.4% YoY).

Last week, the MSCI All Country World Index (MSCI ACWI) rose 0.6% (22.3% YTD).

The US S&P 500 Index finished the first week of December higher by 0.4% (18.2% YTD), adding to the prior week’s gains, amid investor hopes for an interest rate cut from the Federal Reserve at its upcoming meeting. Trading volumes were relatively light throughout much of the week. Growth stocks outperformed value stocks, while small-cap stocks outperformed large-cap stocks. The Russell 1000 Growth Index returned 0.5% (19.8% YTD), the Russell 1000 Value Index 0.3% (15.4% YTD), and the Russell 2000 Index 0.9% (14.5% YTD). The technology-heavy Nasdaq Composite gained 0.9% (22.9% YTD).

In Europe, the MSCI Europe ex-UK Index added 0.6% (17.1% YTD) on hopes of US interest rate cuts. Major stock indexes advanced. Germany’s DAX Index was up 0.8% (20.7% YTD), France’s CAC 40 Index was flat (13.7% YTD), and Italy’s FTSE MIB Index put on 0.2% (33.5% YTD). Switzerland’s SMI ticked up 0.8% (15.1% 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 lost -0.5% (22.3% YTD), and the FTSE 250 Index gave back -0.4% (10.7% YTD). The British pound appreciated against the US dollar, closing the week at USD 1.33 for GBP, up from 1.32.

Japan’s stock markets registered negative performance over the week. The TOPIX Index moved down -0.5% (22.9% YTD), and the TOPIX Small Index lost -1.8% (26.8% YTD).

In Australia, the S&P/ASX 200 Index edged up 0.2% (10.3% YTD) on the back of stronger October household spending and November housing prices data. Australian government bond yields shifted higher, with the curve modestly steepening. As a result, the Australian dollar strengthened by 1.2% against the US dollar.

In Canada, the S&P/TSX Composite retreated -0.2% (29.7% YTD).

The MSCI Emerging Markets Index rose 1.4% (32.2% YTD), with markets in China, Taiwan, India, and South Korea contributing to the gains. The Brazilian stock market contributed negatively.

Mainland Chinese stock markets advanced as enthusiasm for domestic technology and artificial intelligence trades eclipsed data pointing to an economic slowdown. The onshore CSI 300 Index, the main onshore benchmark, added 1.3% (19.6% YTD), and the Shanghai Composite Index advanced 0.4% (19.4% YTD). Hong Kong's benchmark Hang Seng Index gained 1.2% (34.8% YTD). The MSCI China Index, which primarily consists of offshore-listed stocks, added 1.3% (35.0% YTD).

In Poland, the central bank held its scheduled monetary policy meeting, and policymakers decided to reduce the key interest rate, the reference rate, by 25bps, from 4.25% to 4.00%.

According to the relatively short post-meeting statement, the annualised third-quarter preliminary economic growth rate was 3.8%, up from 3.3% in the second quarter. Policymakers attributed the growth pickup to “an increase in domestic demand, including consumption and investment.” In October, they observed “a rise in retail sales, industrial output and construction and assembly production in annual terms”. Still, they noted a “slowdown” in wage growth and “a further fall in employment in the enterprise sector.”

Regarding inflation, central bank officials noted that annual consumer price index (CPI) inflation decreased from 2.8% in October to 2.4% in November. They also estimated that inflation net of food and energy prices decreased again. This decline in inflation provided policymakers with the justification to reduce interest rates again.

In Türkiye, the Turkish government recently reported that the economy expanded at a QoQ rate of 1.1% in the third quarter. While this is softer than the 1.6% quarter-over-quarter growth in the second quarter, the economy is projected to expand 3.5% for the year, up from earlier expectations of 3.0%.

According to T. Rowe Price emerging markets credit analyst Peter Botoucharov, this pace of economic growth provides the government with a solid basis for extending its macroeconomic adjustment program. He believes that both tight monetary policy and fiscal adjustments will continue at least through the first half of 2026 and that the central bank will likely continue a slow rate-cutting cycle as inflation trends lower.

In the near future, Botoucharov will be watching for the government’s announcement of minimum wage increases for 2026. Initial indications suggest that wages could rise 20% to 25%, which would be in line with 12-month forward-looking inflation projections.

Last week, the Bloomberg Global Aggregate Index (hedged to USD) returned -0.4% (4.6% YTD), the Bloomberg Global High Yield Index (hedged to USD) 0.2% (9.4% YTD), and the Bloomberg Emerging Markets Hard Currency Aggregate Index was broadly flat (11.6% YTD).

US Treasuries posted negative returns as yields rose across most maturities, though some short-term yields decreased slightly. Over the week, the 10-year Treasury yield increased by 12bp, ending at 4.14% from 4.02% (down -44bps YTD). The 2-year Treasury yield rose by 7bps, ending the week at 3.56% from 3.49% (down -68bps YTD).

Meanwhile, high-yield bonds generated gains, supported by a firmer macroeconomic backdrop, and volumes were above average as liquidity conditions returned to normal after Thanksgiving.

Over the week, the 10-year German Bund yield increased by 11bp, ending at 2.80% from 2.69% (up 43bps YTD). The 10-year UK gilt yield increased by 4bps, ending the week at 4.48% from 4.44% (down -9bps YTD).