Market Update – November 2024
November has been heavily defined by events in the US, particularly Donald Trump’s winning the presidential election. Currency markets have shifted in response. Additionally, the impact of the UK’s budget has been affecting economic forecasts, public opinion and investor sentiment. In Europe, the outlook is more positive, with an interest rate cut expected in December. In Asia, as shares slip across the continent, the yen aims for its best performance in 4 months.
UK policy
It has now been over 4 weeks since the Autumn Statement. Markets have had mixed reactions to Labour’s first budget in 14 years.
The budget announced a £70 billion rise in borrowing (2% of GDP) per year over this parliament (5 years). On the day after the announcement, the 10-year UK gilt yield rose to 4.4%, having sat at the recent low of 3.75% in September.
Many high-profile retailers were particularly negative about the Autumn Statement. The sector is the main private sector employer in the UK, and the rise in employer NI contributions (from 13.8% to 15%) is expected to damage profits.
Sainsbury’s says their costs could rise by £140m from April 2025, with costs potentially rising by £60m for Marks & Spencer. Many of the costs will need to be passed down to consumers.
The UK economy
The British pound (GBP) weakened against the US dollar (USD) in November. The latter is now at a six-month high compared to GBP and a two-year high against the euro.
In response to the budget, the Office for Budget Responsibility (OBR) has revised forecasts for inflation and interest rates over the long term. The new policies could add 0.5% to inflation in 2025, potentially pushing it above the Bank of England target of 2%.
The extra borrowing announced in the budget also slows down the reduction of the UK’s deficit relative to the previous Government’s plans. Borrowing could fall to £71 billion (2.1% of GDP) in 2029-30, which would take the UK’s debt-to-GDP ratio from the current 98.4% to 97.1%.
The budget rewrote many established “fiscal rules” for the UK. Some changes are welcome (e.g. targeting a range for the current budget rather than a single limit), but the Chancellor now has very little headroom left (£9.9bn) against her fiscal rules.
The UK market
The FTSE 100 and FTSE 250 were delineated leading up to—and immediately after—the Budget. Investor sentiment was heavily affected by the announcement to raise taxes by £40bn, which could erode earnings as taxes undermine household spending power.
The UK’s overall tax burden is now projected to reach a record 38.3% of GDP by 2027-28 (levels not seen since 1948). However, not all UK market activity has been gloomy. Small caps and AIM shares performed well in post-budget trade.
UK house prices have fallen in November, with Rightmove reporting an unusual 1.8% drop in average asking prices (0.8% above the seasonal fall). Budget uncertainty appears to have played its part here. However, prices are expected to rebound in 2025, potentially rising by 4%.
The Global Outlook
The US Presidential election had a big impact on markets in November. US equities rose as investors widely expected president-elect Trump to introduce more business-friendly policies in 2025, joined by a Republican-controlled Senate and House of Congress.
The Nasdaq and Dow Jones all rose on the 6th of November, with even the small-cap Russell 2000 closing nearly 6% higher. The S&P crossed the 6,000 milestone, surpassing the previous significant milestone of 5,000 seven months earlier.
As November progressed, US market leaders started to adjust as investors digested the possible impact of Trump policies – e.g. agenda of tax cuts, deregulation and even tariffs. The overall expectation is a pro-growth agenda, which could boost US growth by 2.8% in 2024 and 2.2% in 2025 – underscoring the resilience of the underlying economy.
Both bond and equity markets reacted favourably to Trump’s appointment of financier Scott Bessant for the position of Treasury Secretary. Deutsche Bank’s Jim Reid labelled Bessant a “ “fiscal hawk” who would ease some of the more extreme deficit fears” due to his advocacy for achieving “a 3% deficit by 2028.”
In Europe, following months of doldrums, Q3 GDP data surprised many. Across the 20 nations sharing the euro, a 0.4% growth rate was achieved compared to the previous 3-month period (beating the 0.2% forecast).
However, the outlook for the continent remains muted, especially with the threat of “Trump tariffs” hanging over the economy in 2025. The continent still suffers from a lack of investment and innovation. No company has been set up from scratch in the last 50 years with a market capitalisation of over €100 billion.
Over China, investor confidence levels remain low. Widespread calls for effective monetary stimulus – e.g. those targeted directly boost consumption – are yet to be heeded. The real estate sector arguably needs shoring up. The country is undershooting its 5% aspirational target for GDP growth. It is highly reliant on manufacturing and industrial production growth – two areas which are highly vulnerable to possible US tariffs next year.
In late November, the MSCI’s broadest index of Asia-Pacific shares (excluding Japan) was down 0.5%. The Japanese yen rose 0.9% after Tokyo inflation data applied higher pricing pressure than previously expected. Traders are now pricing in a 60% chance of an interest rate increase in December by the Bank of Japan.
