Industry Insights
Market Insights Week 47
As we start a new week, let's take a look at the significant events in the global economy over the past week with our weekly financial update, presented by Bas Kooijman, the CEO and Asset Manager of DHF Capital SA. U.S. markets experienced a partial reversal of the gains associated with the “Trump Trade,” as uncertainties around the incoming administration’s policies continued to dominate investor sentiment. Sector performance varied significantly, reflecting potential policy impacts. Financials and energy stocks maintained their momentum, fueled by hopes for deregulation and favorable merger approvals. At the same time, Bitcoin prices surged by 32.46% since the election, driven by speculation about looser regulation of digital currencies. On the other hand, health care stocks faced considerable pressure. The iShares Biotechnology ETF dropped 4.79% following news that Robert F. Kennedy Jr., a vocal critic of the pharmaceutical industry, could be appointed to lead the Department of Health and Human Services. His potential oversight of Medicare, Medicaid, and other key health programs heightened concerns about increased scrutiny on the sector. Electric vehicle (EV) makers were also in focus. Tesla saw a strong rally early in the week, with its stock climbing 42.63% since the election, bolstered by President-elect Trump’s indication that CEO Elon Musk might have a role in his administration. However, optimism faded after Reuters confirmed plans to eliminate the $7,500 EV consumer tax credit. This policy shift weighed heavily on EV manufacturers like Tesla and Rivian, with Rivian shares falling 14.3% by the end of the week. Economic data provided a mixed picture. October inflation numbers met expectations, with headline consumer prices up 0.2% and core inflation (excluding food and energy) rising 0.3%. However, persistent housing costs pushed annual headline inflation from 2.4% to 2.6%, marking the first increase since March. Bond markets mirrored these dynamics, with the 10-year Treasury yield rising to a five-month high of 4.51%. While Treasury yields climbed across the curve, municipal bond yields remained stable, supported by robust secondary market demand. Investment-grade corporate bond issuance was heavy, and spreads widened due to increased supply. Similarly, high-yield bonds and bank loans saw heightened activity as issuers sought to capitalize on favorable conditions. European equity markets struggled for a fourth consecutive week, with the STOXX Europe 600 Index declining 0.69%. Investor concerns over the Trump administration’s potential trade policies and political instability in Germany weighed on sentiment. Federal Reserve Chair Jerome Powell’s cautious stance on U.S. interest rates added to the unease. Among major indices, France’s CAC 40 dropped 0.94%, Germany’s DAX remained flat, and Italy’s FTSE MIB outperformed with a 1.11% gain. The UK economy showed signs of weakness, with GDP growth slowing to 0.1% in the third quarter, down from 0.5% in the previous quarter and below the 0.2% consensus forecast. September’s contraction of 0.1%, driven by weaker manufacturing output, was a significant contributor. Although the construction sector grew by 0.8%, it wasn’t enough to offset broader economic sluggishness. Wage growth also slowed to 4.8% annually—the lowest in over two years—while unemployment edged higher. The Bank of England signaled ongoing inflationary pressures that remain above the 2% target. In the Eurozone, economic data provided some optimism. The region’s Q3 GDP growth was confirmed at 0.4%, driven by resilient labor markets and stable employment, which increased by 0.2% during the quarter. The European Central Bank’s recent 0.25% rate cut was framed as a precautionary measure against disinflationary risks and aimed at balancing economic stability with inflation control. Japanese equity markets declined, with the Nikkei 225 falling 2.2% and the broader TOPIX down 1.1%. The prospect of increased U.S. tariffs under the Trump administration weighed on sentiment, particularly for Japan’s export-heavy companies. The yen weakened to the JPY 155 range against the dollar, supported by a stronger greenback and rising expectations of U.S. inflation under the new administration. This currency move, while beneficial for exporters, also added pressure to Japan’s inflation outlook. Japan’s economy grew by 0.2% in Q3, down from 0.5% in the prior quarter. On an annualized basis, growth slowed to 0.9% from 2.2%. The expansion was driven by private consumption, supported by a one-time income tax cut and summer bonuses. The Bank of Japan reaffirmed its gradual approach to rate hikes, targeting a policy rate of 1.00% by late 2025. Meanwhile, the yield on 10-year Japanese government bonds rose to 1.07%, reflecting market adjustments to these expectations. Chinese markets faced significant headwinds, with the Shanghai Composite Index losing 3.52% and the CSI 300 dropping 3.29%. In Hong Kong, the Hang Seng Index plunged 6.28%. Persistent deflationary pressures and fears of potential U.S. tariffs under the Trump administration contributed to the declines. Consumer inflation in October rose just 0.3% year-on-year, while producer prices fell 2.9%, marking an acceleration of deflation in factory gate prices. On the brighter side, retail sales expanded 4.8%, the highest growth since February, indicating some resilience in consumer demand. Industrial production rose 5.3%, though it lagged forecasts, partly due to weaker auto sales. The property sector showed early signs of stabilization, with home price declines slowing to 0.5% in October compared to September’s 0.7% drop. Last week’s global market movements underscored the varied impacts of shifting policies and economic trends. While U.S. markets reflected sector-specific reactions to policy expectations, Europe grappled with mixed growth signals, and Asia faced challenges from external pressures and internal economic adjustments.
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