Global markets weekly update

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Major indexes diverge amid rally in growth stocks

Major stock indexes ended mixed in a week that saw the S&P 500 Index, Dow Jones Industrial Average, and Nasdaq Composite all continue to hit record highs, while the Russell 2000 Index declined after back-to-back weeks of outperformance versus its larger-cap peers. As measured by Russell 1000 indexes, growth shares outperformed value stocks by 553 basis points (5.53 percentage points), the largest margin since the week ended March 17, 2023.

Sector performance was also widely dispersed as consumer discretionary, communication services, and information technology shares all gained over 3% for the week, while energy, utilities, and materials stocks—typically more value-oriented segments of the market—all fell over 3%. Geopolitical headlines through the first half of the week were largely dominated by French and South Korean politics (see below), though these seemed to have limited impact on U.S. markets.

Job growth rebounds in November

The week brought several closely watched economic reports, particularly related to labor market data, with much of the focus on Friday’s nonfarm payroll report. The Labor Department reported that the U.S. added a seasonally adjusted 227,000 jobs in November, which was slightly higher than consensus estimates. The November number represented a sharp rebound from October’s disappointing data amid the fallout from hurricanes in the southeast U.S. and a major strike at Boeing. The report also noted that unemployment in November increased a tick to 4.2%. Major stock indexes opened higher on Friday as investors appeared to celebrate the final major labor market update ahead of the Fed’s December meeting.

Earlier in the week, the Labor Department also reported the number of job openings in October increased to 7.74 million, up from September’s revised 7.37 million reading. The report also noted that layoffs during the month were little changed, but the number of Americans quitting jobs voluntarily—seen by some as a better measure of labor market conditions—increased to 3.3 million.

Elsewhere, payrolls firm ADP reported that private employers added 146,000 jobs in November, and annual pay increased 4.8% year over year. Commenting on the report, ADP chief economist Nela Richardson said, “While overall growth for the month was healthy, industry performance was mixed. Manufacturing was the weakest we’ve seen since spring. Financial services and leisure and hospitality were also soft.”

December Fed meeting remains in focus

Other headlines during the week centered around comments from Federal Reserve officials as investors continued to look for clues regarding the pace of interest rate cuts. Speaking Monday, Federal Reserve Governor Christopher Waller noted that despite some recent data indicating that progress on inflation may be stalling, he is leaning toward supporting a cut to the policy rate at the Fed’s December meeting, absent any surprising incoming economic data.

Meanwhile, on Wednesday, Fed Chair Jerome Powell took a more neutral tone, stating, “The U.S. economy is in very good shape, and there’s no reason for that not to continue…. So the good news is that we can afford to be a little more cautious as we try to find neutral.” The week’s economic data releases, along with Governor Waller’s comments, helped boost expectations priced into futures markets for a 25-basis-point (0.25 percentage point) rate cut in December.

Treasury yields decrease across the curve

U.S. Treasuries posted positive returns as yields entered Friday lower than where they ended the prior week. (Bond prices and yields move in opposite directions.) On Friday morning, yields across the curve fell further following the release of the Labor Department’s employment situation report. Tax-exempt municipal bond yields were also lower, and munis outpaced Treasuries on a total return basis.

Meanwhile, investment-grade corporate bonds generally performed well. About half of the week’s new investment-grade corporate issues were oversubscribed, and the amount of issuance was slightly below estimates. 

In local currency terms, the pan-European STOXX Europe 600 Index ended 2.00% higher, as jitters about political instability in France abated. Markets also appeared to anticipate faster policy easing by the European Central Bank (ECB). Major stock indexes rose as well. Germany’s DAX climbed 3.86%, Italy’s FTSE MIB gained 4.00%, and France’s CAC 40 Index put on 2.65%. The UK’s FTSE 100 Index added 0.26%.

French government collapses

In France, Prime Minister Michel Barnier’s minority government collapsed after Parliament backed a no-confidence motion tabled by the National Rally (NR) and left-wing New Popular Front to stymy the proposed deficit-reducing budget for 2025. In the aftermath, the yield spread between German 10-year bunds and French 10-year OATS—a measure of political and financial risk in the eurozone—widened at one point to 90 basis points (bps), the most since 2012. The gap then narrowed to below 80 bps when President Emmanuel Macron said he would appoint a new prime minister in “coming days” and meet with political leaders from the left and right to form a new “government of general interest.”

German industry unexpectedly weakens; euro area retail sales fall

Key macroeconomic data in Europe continued to point to a slowing economy in the fourth quarter of the year. Eurozone retail trade volumes declined in October by 0.5% sequentially, after increasing 0.5% in September, mainly due to drops in sales of non-food products and auto fuel. In Germany, manufacturing continued to struggle. Industrial output fell by 1.0% month over month, falling short of expectations for a 1.2% rebound. Factory orders weakened 1.5% on the month, with demand for machinery and equipment declining the most.

ECB set to drop data dependency

The ECB may be moving away from its data-dependent approach, the bank’s chief economist, Philip Lane, indicated in a Financial Times podcast. He said future policy decisions would need to focus on upcoming risks rather than being backward-looking, particularly once the central bank is confident that inflation is on track to meet its 2% target.

BoE’s Bailey sees four possible rate cuts

Bank of England (BoE) Governor Andrew Bailey signaled in an interview with the Financial Times that he sees the potential for four interest rate cuts next year if the economy develops in line with the central bank’s outlook.

Japan’s stock markets rose over the week, with the Nikkei 225 Index gaining 2.3% and the broader TOPIX Index up 1.7%. The weakness of the yen supported the profit outlooks for Japan’s export-heavy industries. The yen depreciated to around the middle of the JPY 150 range against the USD, from the high 149 range at the end of the previous week. In fixed income, the yield on the 10-year Japanese government bond traded in a narrow range, closing the week broadly flat at 1.06%, as uncertainty about the Bank of Japan’s (BoJ) rate hike plans persisted.

Views on timing of BoJ’s next rate hike balanced between December and January

The latest commentary from the BoJ was balanced, with Toyoaki Nakamura, a member of the central bank’s board, reiterating that the merits of an interest rate hike will be judged on incoming data, with a specific mention of wage and economic growth. Market participants remain broadly split between December and January for the timing on the next 25-basis-point rate hike.

Recent comments by BoJ Governor Kazuo Ueda on the need to observe 2025 wage trends and whether wage hikes are being reflected in service prices suggest that a January rate increase could be more likely. Ueda also mentioned uncertainty around U.S. economic policy (the prospective imposition of tariffs) and waiting for further clarity to avoid a hasty rate hike. The BoJ is set to deliver its next monetary policy decision on December 19.

Nominal wages grew in October

On the economic data front, average nominal wages grew 2.6% year on year in October, matching consensus and up from a revised 2.5% in September. Real (inflation-adjusted) wage growth was flat, following a revised 0.4% contraction. Meanwhile, household spending fell 1.3% year on year, shrinking for the third straight month.

Chinese stocks rose on anticipation of fresh stimulus measures, along with resilient manufacturing data released the prior week. The Shanghai Composite Index gained 2.33%, while the blue chip CSI 300 was up 1.44%. In Hong Kong, the benchmark Hang Seng Index added 2.28%, according to FactSet.

Many analysts expect China’s leadership will announce further action to support the economy during the Central Economic Work Conference, an annual meeting in which top officials map out the economic agenda for the next year. Economic growth targets and plans for more stimulus are among the topics that investors will look for at the two-day meeting, which starts December 11. Expectations are high that China will roll out additional measures to ward off the growth risks posed by the incoming Trump administration’s trade policies.

China’s factory activity expanded for the second straight month. The official manufacturing Purchasing Managers’ Index (PMI) rose to a better-than-expected 50.3 in November from 50.1 in October, according to the statistics bureau, remaining above the 50-mark threshold separating growth from contraction. The nonmanufacturing PMI, which measures construction and services activity, fell to a below-consensus 50 in November from October’s 50.2 reading. Separately, the private Caixin/S&P Global survey of manufacturing activity rose to 51.5 in November from 50.3 in October. The Caixin services PMI eased to 51.5 from 52 in October but remained in expansion.

The value of new home sales by the country’s top 100 developers fell 6.9% in November from a year ago, reversing October’s 7.1% gain, according to the China Real Estate Information Corp. The persistent slide in new home prices showed China's property sector has yet to show a sustained recovery and supported the view that Beijing will announce further measures to arrest the sector’s yearslong decline.

South Korea

The emerging political situation in South Korea  

T. Rowe Price emerging markets analysts expect political uncertainty will linger following the surprise imposition and then withdrawal of martial law in South Korea. The opposition Democratic Party has announced that it will charge President Yoon Suk Yeol with impeachment and treason. A great deal will depend on to what extent the president fights a potential impeachment campaign. Prior experience with presidential impeachments suggests a six-month timeline until a new presidential election is called. In that scenario, we see high odds of an opposition victory given the prevailing public discontent, in which case fiscal policy should tilt toward being more expansionary.

Our analysts believe that implications for the broader economy are negative at the margin. Sentiment shocks to consumers and potential investors might weigh on growth. Further, fiscal disbursement could be distorted in the event of a delay in next year’s budget, as the government may instead choose to pass a provisional budget with limited authority for spending.

On the other hand, there is a potential silver lining. A peaceful resolution demonstrates South Korea’s political maturity in addressing anti-democratic actions without descending into chaos. Furthermore, the rapid response from financial regulators has validated South Korea’s institutional strength. The pledge issued early on December 4 to provide “unlimited liquidity” support proved to be instrumental in this respect.

Poland

Policymakers leave rates unchanged, expect inflation to remain “markedly above” the central bank’s target

On Wednesday, Poland’s central bank concluded its regularly scheduled two-day monetary policy meeting and kept its key interest rate, the reference rate, at 5.75%. Other interest rates controlled by the central bank were unchanged.

According to the post-meeting statement, central bank officials observed that “economic conditions in the environment of the Polish economy” (i.e., the eurozone) “are still weakened.” They noted that third-quarter growth in the eurozone was “moderate” and “negative” in Germany and that “uncertainty about the activity outlook in the largest economies persists.”

In Poland, policymakers noted that third-quarter gross domestic product growth decelerated to a year-over-year rate of 2.7% from 3.2% in the second quarter—which they attributed to “a marked decline in consumption and investment growth” as well as “the negative contribution of net exports.” As for inflation, they observed that the annual consumer price index inflation rate in November fell to 4.6% from 5.0% in October. Nevertheless, they indicated that recent inflation has been higher than in the first half of the year primarily because of “increases in administered prices of energy carriers” and, to a lesser degree, “the higher annual growth in prices of food and non-alcoholic beverages.” Policymakers also claim that “inflation net of food and energy prices remains elevated, including due to the relatively high growth in services prices.”

Overall, central bank officials concluded that inflation is “currently significantly boosted by rising energy carriers’ prices and by other regulatory factors.” They also expect that inflation in the next few quarters “will remain markedly above” the central bank’s target, driven by previous increases in energy costs, as well as a “planned increase in excise duties and administered services prices.” As a result, policymakers decided to leave interest rates unchanged.

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