Global markets were lacklustre in November, with US and European markets moving in opposite directions. Market volatility was largely caused by the expected divergent monetary policy trends between the US Fed and other central banks around the globe.
Following the much stronger than expected US payroll number in October, the market has been anticipating that the Fed is very close to tightening policy rates for the first time in ten years, most likely in December. Recent economic updates reinforced this expectation. US payroll growth continues to be solid, with 211k new jobs created in November (above expectations of 190k) and October payrolls adjusted upwards to nearly 300k. The unemployment rate was unchanged at 5%, despite a slight increase in the participation rate by 0.1% to 62.5%. Meanwhile, Q3 GDP was revised upwards from 1.5% to 2.1% and, in particular, personal consumption expenditure was up by 3%, a positive signal that stronger domestic demand is driving the US economic recovery. Markets are now pricing in a 75% chance that the policy rate will indeed rise after the next FOMC meeting in December.Download
October was a positive month for most growth assets. This was largely driven by positive economic news out of the US.
The first major positive news was the US Federal Open Market Committee (FOMC) statement from Janet Yellen. Although there was no announcement on the first interest rate hike in the US in almost a decade, the statement itself was positive on US economic prospects. Two areas noted to have improved since their last meeting were household spending and business fixed investment. Equity markets reacted positively to the announcement.
Global markets have been tremendously volatile over the month of September. The Fed’s decision to defer “lift off” of US interest rates, the turmoil caused by Glencore and Volkswagen in Europe, and worries about the economic slowdown in China resulted in equity markets suffering their worst quarterly performance since the depths of the Eurozone debt crisis in 2011.Download
After months of market chatter that the US Federal Reserve will raise their interest rate for the first time in almost a decade (“rates lift off”) in September, the market no longer appears to be so sure after the selloff in global financial markets in recent weeks. At the time of writing, the market is expecting around a 30% chance of the US Federal Reserve raising interest rate at its September meeting, down from around 50% in early August.Download
In the first month of the new financial year, global developed markets performed well as diminished concerns over Greece allowed the US and European markets to recover. US equities were also buoyed by positive economic updates including Q2 US GDP growth, and the Fed maintained its signal that interest rates are likely to rise this year if the US economy continues to improve. Volatility remained elevated in emerging markets as the fear of a China “Hard Landing” re-emerged and Shanghai equities dropped another 15% in July. The interest rate hike in South Africa also caused uncertainty in the future growth of emerging economies.Download