Market Update

Global markets navigated heightened geopolitical uncertainty this week as tensions in the Russia-Ukraine war intensified. Reports early in the week confirmed Ukraine’s authorization to deploy US and UK missiles, escalating the conflict. In response, Russian President Vladimir Putin accused the US and UK of direct involvement, citing their provision of advanced weaponry, satellite intelligence, and operational support to Ukraine. On Tuesday, Putin raised the stakes further by announcing a review of Russia’s nuclear doctrine, potentially lowering the threshold for nuclear strikes. Despite the gravity of these developments, market reactions remained muted. The S&P 500 climbed more than 0.5% on Thursday, nearing its 50th record high of the year.
While investors remain cognizant of geopolitical risks, the subdued market response reflects a greater focus on economic growth and monetary policy. Market participants are prioritizing optimism around AI-driven earnings growth, potential corporate tax cuts under Trump’s second term, and interest rate strategies from major central banks. However, with geopolitical stakes rising, vigilance remains crucial.
Japan's Inflation Moderates Slightly
Japan’s Consumer Price Index (CPI) rose by 0.4% month-on-month in October, with goods and services contributing equally. On an annual basis, inflation slowed to 2.3% from 2.4% in September, largely due to government subsidies that mitigated energy costs. Despite this slight moderation, inflation has stayed above the Bank of Japan’s (BOJ) 2% target for 31 consecutive months, reflecting persistent price pressures. BOJ Governor Kazuo Ueda signaled that the central bank will assess monetary policy dynamically in December. Should economic data align with expectations, markets anticipate a potential 25-basis-point rate hike.
Economic Challenges for the Eurozone and UK
Eurozone and UK Purchasing Managers’ Index (PMI) data released on Friday underscored persistent economic headwinds in November. The Eurozone composite PMI fell unexpectedly to 48.1 from October’s 50, indicating a contraction in manufacturing and business services activity. Economists attribute this to concerns over potential US tariffs on European imports, with rates of up to 20% proposed by President Trump during his campaign. Meanwhile, the UK composite PMI also declined, reaching its lowest level in over a year. Survey respondents cited diminished confidence, partly due to payroll tax increases announced in the Autumn Budget.
UK Retail and Market Performance
UK retail sales dropped by 0.7% in October, reversing September’s growth. Economists suggest that consumer caution ahead of the Autumn Budget and unseasonably warm weather, which delayed winter purchases, contributed to the decline. However, sales volumes for the August-to-October period rose 0.8% compared to the previous quarter, indicating resilience. Retailers are optimistic that Black Friday promotions, following the resolution of Budget-related uncertainty, will bolster November sales and improve sentiment.
Despite these challenges, the FTSE 100 posted its largest weekly gain in over six months, supported by a weaker pound. The currency's decline boosted UK-listed international companies, which derive substantial revenue from overseas markets, providing a lift to investor confidence.