Commentary
Global equity markets finished in positive territory in November.
Investors look to central banks to pilot a soft landing
Global equity markets rallied sharply in November. Signs of slowing inflation in the U.S. and Canada spurred investors’ optimism that the Fed and BoC won’t need to raise interest rates further and that these economies could be primed for a “soft landing,” in which growth and inflation slow but the economy does not enter a recession. Developed markets outperformed their emerging-market counterparts for the month.
The Nordic countries were the strongest performers among developed markets in November, led by Sweden. The Pacific ex Japan region was the primary market laggard due mainly to underperformance in Singapore and Hong Kong. Latin America posted a double-digit gain and was the top-performing region within the emerging markets during the month due primarily to strength in Brazil. In contrast, the Gulf Cooperation Council (GCC) countries—Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates—saw a less significant upturn and comprised the weakest-performing emerging-market region during the month.
Global fixed-income assets, as represented by the Bloomberg Global Aggregate Bond Index, gained 5.0% in November. Corporate bonds were the top performers within the U.S. market for the month, while U.S. Treasury securities saw relatively smaller gains and were the most notable market laggards. Treasury yields moved lower for all maturities of three months or longer. Yields on 2-, 3-, 5- and 10-year Treasury notes decreased 0.34%, 0.42%, and 0.51%, respectively, over the month. The spread between 10- and 2-year notes moved from –0.19% to –0.36% during the month, further inverting the yield curve. Canadian bonds largely followed suit.
The minutes of the Fed’s October 31-November 1 meeting indicated that the central bank most likely will maintain the federal-funds rate at the current range of 5.25% to 5.50% in the near term. The Federal Open Market Committee (FOMC) meeting participants agreed that they were ”in a position to proceed carefully and that policy decisions at every meeting would continue to be based on the totality of incoming information and its implications for the economic outlook as well as the balance of risks.” However, the FOMC members acknowledged that “further tightening of monetary policy would be appropriate if incoming information indicated that progress toward the Committee’s inflation objective was insufficient.” The FOMC also noted that “data arriving in coming months would help clarify the extent to which the disinflation process was continuing, aggregate demand was moderating in the face of tighter financial and credit conditions, and labour markets were reaching a better balance between demand and supply.”
On the geopolitical front, a one-week ceasefire in the military conflict between Israel and Hamas expired on November 30, after the two sides could not reach an agreement on an extension. The truce had led to several hostage and prisoner exchanges between Israel and Hamas. Each side blamed the other for the failure to extend the ceasefire, and fighting resumed following the expiration of the truce. Elsewhere, President Joe Biden and China’s President Xi Jinping met in California on November 15. The leaders of the world’s two largest economies agreed to resume military communications in an effort to improve relations between the countries amid speculation about China’s intention to invade Taiwan, as well as the Xi administration’s support of Russia in its ongoing conflict with Ukraine. At a news conference following the meeting, Biden noted that he and Xi had agreed that if there were concerns about “anything between our nations, or happening in our region, we should pick up the phone and call.”
Global commodity prices, as measured by the Bloomberg Commodity Total Return Index, declined in November. The West Texas Intermediate (WTI) and Brent crude oil prices fell 6.2% and 4.9%, respectively, due to a significant increase in production in the U.S. and weakening global demand, particularly from China. The New York Mercantile Exchange (NYMEX) natural gas price tumbled 27% over the month due to an increase in inventories and forecasts for above-average winter temperatures in the U.S. On the positive side, the gold spot price rose 3.2% in November, bolstered by a decline in U.S. Treasury yields, as well as higher demand spurred by investors’ hopes that the Fed may begin to ease monetary policy sooner than previously anticipated. Wheat prices were up 7.5% in November attributable to a reduction in exports from Ukraine, along with a delayed harvest in France due to above-average rainfall.
unless otherwise noted, data sourced to Bloomberg
(November 2023)
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