November Market Update

Deceleration

October proved to be a challenging month for various asset classes and regions. Although it was not sufficient to disrupt what has been an overall positive year so far, it certainly slowed momentum. Markets often experience volatility leading up to significant events, such as elections, and the competitive race for the presidency heightens this uncertainty. As Kamala Harris and Donald Trump make their final appeals to the electorate, the election remains highly competitive. Betting odds had initially favoured Trump, but this trend has shifted somewhat in recent days. Attention is focused on key swing states, but it is important to temper expectations regarding an immediate determination of the winner.

During October, the U.S. equity market stood out as the best performer, although in Dollar terms, it slipped into negative figures. Changes in currency values typically balance out over time, but during periods when central banks are adjusting interest rates, there can be notable short-term fluctuations that attract attention.

Budget announcements

After what seemed like an long wait, the Autumn Budget was finally presented. Discussion has largely cantered around the introduction of £40 billion in new taxes, accompanied by a notable increase in borrowing. This change has already impacted UK Government Bond yields. The yield on 10-year bonds climbed to 4.5%, approaching recent peaks. While the volatility is not at the levels seen during the Truss/Kwarteng period, it is significant enough to warrant attention, with gilts closing the month almost 2.5% lower.

UK Gilt yields have experienced considerable fluctuations this month. Initially, they fell sharply after a 1.7% inflation reading, which was below the 2% target and even the anticipated 1.9%. A decline in petrol and airline prices contributed to this, but the most unexpected factor was the decrease in the persistently high ‘Services’ sector – a development that merits close observation.

Global outlook

The European Central Bank has implemented its third rate cut of 0.25%, bringing the overnight deposit rate down to 3.25% in an effort to boost growth and reduce borrowing costs. The journey ahead is likely to be challenging, as the bank's effectiveness hinges on a variety of external factors, including developments in China. As a key market for European exports, China's economic performance and consumer sentiment are crucial. However, ongoing trade tensions, highlighted by the EU imposing a 35% tariff on Chinese electric vehicles and a 39% tariff on brandy exports to China, may pose obstacles.

On a more optimistic note, China's Manufacturing PMI reached a six-month high of 50.1 in October, indicating a shift from contraction to expansion. Although the margin is slight, it provides some reassurance that the recently introduced stimulus measures may begin to positively impact the economy.

Disclaimer: Any information contained within this article is of a general nature and should not be construed as a form of personal recommendation or financial advice. Nor is the information to be considered an offer or solicitation to deal in any financial instrument or to engage in any investment service or activity.

Journey Invest Limited accepts no duty of care or liability for loss arising from any person acting, or refraining from acting, as a result of any information contained within this article. All investment carries risk. The value of investments, and the income from them, can go down as well as up and investors may get back less than they put in. Past performance is not a reliable indicator of future returns.