Market Update

After hitting record highs, markets cooled this week as the initial euphoria surrounding President-elect Trump’s pro-business stance, known as the “Trump trade,” began to fade. Investors took profits following recent strong gains and reassessed the implications of Trump’s cabinet appointments.
Market focus also shifted back to the Federal Reserve and its future interest rate path. On Thursday, Federal Reserve Chair Jerome Powell dampened optimism, stating that while the economy’s performance remains “remarkably good,” there is no immediate need to lower rates. His comments came after data showed an uptick in factory-gate prices, steady consumer inflation, and muted initial jobless claims. While Powell’s positive outlook on the economy was encouraging, it led investors to scale back expectations for a rate cut in December.
On the data front, U.S. inflation came in as expected, with the consumer price index (CPI) rising 0.2% month-over-month in October 2024. The annual rate climbed to 2.6%, up from 2.4% in September, largely driven by smaller declines in energy costs. October retail sales also exceeded expectations, rising by 0.4% month-over-month, above the forecasted 0.3%, signaling continued strength in consumer spending.
In the UK, third-quarter GDP growth slowed more than anticipated, with a mild contraction in September. GDP rose by just 0.1% for the three months through September, down from 0.5% in the previous quarter and below the forecasted 0.2% gain. While the UK had been the fastest-growing G7 economy earlier in the year due to a rebound from last year’s mild recession, growth has since slowed. The Labour government, focused on boosting economic growth, expressed dissatisfaction with the figures for its first three months in office. Businesses have also raised concerns about the Budget tax increases, fearing higher prices and fewer job opportunities.
In the Eurozone, GDP data offered some hope for a soft economic landing. Eurostat’s second estimate confirmed a solid 0.4% expansion in the third quarter. The European Commission is projecting 0.8% growth for 2024, though Germany’s economy is expected to contract by 0.1%. Labor market data also indicated stability, bolstering hopes of resilience in the broader Eurozone economy.
China’s economic data painted a mixed picture, but signs of recovery are emerging as the government’s stimulus measures begin to take effect. Retail sales grew at their fastest pace in eight months, jumping 4.8% year-on-year in October, well above the expected 3.8%. Beijing has stimulated consumer spending through subsidies for appliances, equipment, and cars. Industrial output also rose by 5.3%, although it slightly missed expectations.
However, inflation data highlighted ongoing challenges. The consumer price index for October rose just 0.3% year-on-year, down from 0.4% in September, as food and energy costs eased. Core inflation, excluding volatile components, edged up to 0.2%, signaling weak demand.
Concerns over potential U.S. tariffs, combined with mixed economic data, weighed on Chinese markets, which closed the week lower. The key question now is how far Beijing is willing to go to boost domestic demand, particularly in light of the threat of heightened tariffs under President-elect Trump. Analysts speculate that Beijing may still have additional stimulus measures at its disposal.