Market and Macro Overview for the Week (1st – 8th Nov 2024)

Macro Trends

Financial markets experienced a tumultuous week, with a widening gap between Europe and the United States. Wall Street enjoyed a wave of optimism, with major indices reaching new record highs, driven by Donald Trump’s election victory and the Federal Reserve’s interest rate cut. Meanwhile, Europe faced a downturn, impacted by disappointing corporate earnings, especially in the luxury goods sector. Political instability in Germany and concerns over potential U.S. tariff hikes dampened the outlook further.

Stock Markets

The U.S. small-cap Russell 2000 Index led gains, rising 8.57% for the week, though it remained below its November 2021 record. The S&P 500 also saw a significant 4.66% increase, marking its best performance in a year. In Europe, the EuroSTOXX 50 fell 1.54%, as concerns over President-elect Trump’s trade policies dampened investor sentiment, with major indexes like Italy’s FTSE MIB, France’s CAC 40, and Germany’s DAX showing declines. In Japan, stock markets climbed, with the Nikkei 225 and TOPIX indices gaining 3.8% and 3.7%, respectively.

Fixed Income and STIRs

The Federal Reserve cut the federal funds rate by 25 basis points, the first reduction since a 50-point cut in September, amid persistent concerns over inflation linked to a strong economy and growing deficit. Bond yields are at a pivotal level around 4.46%–4.55%, reflecting inflationary pressures. Meanwhile, the Bank of England reduced its key rate to 4.75% as inflation slows, favouring a gradual approach to easing while maintaining restrictive policy for now. The 10-year government bond yield in Japan rose to 1%, with speculation that the Bank of Japan may raise rates by early 2025, as noted in the bank’s recent policy meeting minutes.

FOREX Markets

The dollar struggled to sustain its post-election gains, limited by declining Treasury yields and signalling the potential for further correction. In Europe, the Euro was the week’s weakest currency, accompanied by drops in key stock indexes like Germany’s DAX and France’s CAC 40, as fears of renewed trade tensions with the U.S. under Trump affected sentiment. Meanwhile, commodity-linked currencies benefited from risk-on sentiment, with the Australian Dollar leading, though questions remain about this momentum following China's modest stimulus announcement. The Canadian Dollar and Yen followed as strong performers, while Sterling and the New Zealand Dollar held mid-range positions.

Cryptocurrency

Following Trump’s election victory, Bitcoin surged to unprecedented levels, trading around $76,500—a record high since its inception in 2009 and a jump of over 10% since Monday. This rally reflected optimism around the newly elected president’s pro-crypto stance, highlighted by his statement at a Nashville conference where he aimed to make the U.S. “the bitcoin and cryptocurrency capital of the world.” The crypto industry anticipates more favourable regulations under Trump’s administration than Biden's approach, though it's yet to be seen how these promises will translate into policy. Other significant crypto assets also saw gains, with Ether (ETH) rising 18% to nearly $3,000 and Solana (SOL) up 20% to around $200.

Commodities & Energy

Oil markets drifted following the Republican victory in the U.S. presidential election. While a pro-fossil fuel administration may curb electric mobility and slow the energy transition—factors that could boost oil demand—it could also facilitate increased U.S. oil production, adding supply pressure. In the short term, two elements support prices: Hurricane Rafael’s disruption of Gulf of Mexico production and OPEC+ delaying its output increase until the end of December due to current low prices. Consequently, crude prices saw a slight uptick, with Brent and WTI trading at $73.70 and $70.38, respectively. Base metal prices were volatile, with Trump’s win seen as a setback for industrial metals like copper, which faces demand challenges due to its role in the energy transition and potential tariff impacts. However, expectations of a more potent stimulus from China offered some support, with copper fluctuating around $4.3060. In precious metals, election-related pressures have eased, leading to profit-taking in gold, now trading at $2,684.

What to watch next week

MON - Holiday: US Veterans Day, NZ Inflation Forecast, BoJ SOO TUE - Australian NAB Business Conditions, UK Jobs, EZ/German ZEW, NY Fed SCE, OPEC MOMR / Speakers: BoE’s Pill; ECB’s Rehn, Cipollone; Fed’s Waller, Barkin, Kashkari, Harker WED - Australian Wage Price Index, US CPI, EIA STEO / Speakers: Fed’s Logan, Musalem, Schmid; RBA’s Bullock THU - Australian Jobs, EU Jobs, GDP, US Initial Jobless Claims, US PPI (Final), NZ Manufacturing PMI, Japanese GDP QQ, IEA OMR; ECB Minutes / Speakers: ECB’s de Guindos, Schnabel; Fed’s Powell, Barkin, Williams; BoE Governor Bailey FRI - Chinese Retail Sales, House Prices, Unemployment Rate; German Wholesale Price; UK GDP, Estimates, US Retail Sales, Capacity Utilisation, BoC SLOOS / Speakers: ECB’s Lane, Cipollone

MARKETS WEEKLY PRICING COMPARISON