Market overview – Richard Carter, Head of Fixed Interest Research
Markets were very much in thanksgiving mode last week. The US public holiday meant US financial markets were shut on Thursday and half-closed on Friday as Americans tucked into their turkeys and gave thanks for all that’s good in the world — presumably this includes rising stock prices after global benchmarks more than made up the previous week’s losses. A sense that the correction had been overdone appears to have driven the rebound in sentiment but there were other reasons for markets to be thankful last week, two in particular.
Firstly, and staying in the US, it is looking more and more likely that the Federal Reserve (Fed) is set to cut interest rates when it meets on 10 December. The probability of a rate cut has been steadily increasing and currently stands at around 90%. That is almost double the 46% level it had fallen to just two weeks ago. Federal Reserve (Fed) officials were in no mood to pour a dampener on the recovery in sentiment (or the festive spirit), at least those who came out with comments in support of lowering rates. And then there was a series of soft economic data, notably centred around the US consumer.
Exhibit#1: the Conference Board Consumer Confidence Index fell 6.8 points to 88.7 in November, the lowest reading since the dark days of April when US President Trump unleashed his tariff war against the world. This time round, a cocktail of concerns over “prices and inflation, tariffs and trade, and politics” was blamed for the weak number.
Exhibit#2: the Fed Beige Book. As well as noting, “employment declined slightly” and prices “rose moderately,” the report highlighted that “consumer spending declined further”. This was corroborated by Exhibit#3: the Commerce Department’s September retail sales data. Sales grew 0.2% over the month, a sharp slowdown from August’s 0.6% and below expectations of a 0.4% increase. Strip out auto and gas purchases and sales rose by a measly 0.1% in September. The US consumer feeling the pinch and in need of some cheer then. Step-up Small Mercy#1: some sort of relief in the form of a December interest rate cut could be on its way.
For Small Mercy#2, a quick hop over the pond. After months of speculation, leaks and U-turns, the Chancellor finally delivered her second multi-billion-pound tax-raising Budget last week. At £26bn, the final amount to be raised is less than the previous year’s £40bn (a small mercy itself). There was very little in the Budget however to address the UK’s poor growth outlook — the medium-term issue of how to kickstart growth remains. But based on the positive reaction of UK financial markets, that is one for another day. Markets instead chose to focus on the Chancellor’s commitment to fiscal responsibility and the more than doubling in headroom she has given herself to £22bn from £9bn. And for that, we should all be thankful.
Weekly economic announcements:
Last week, the MSCI All Country World Index (MSCI ACWI) put on 3.6%, bringing the year-to-date (YTD) figure up to +21.6%.
United States:
Definite whiff of holiday in the air with US stocks ending the week up 3.7% (+17.8% YTD). The recovery in sentiment and increased chances of a rate cut helped growth stocks (+4.2%) outperform value (+3.4%). Small caps topped the lot with a 5.5% gain on the week. YTD figures now stand at: +19.3% for growth; +15.1% for value; and +13.5% for small caps.
US Treasuries joined in on the rate-cutting party, though a tad more modestly than equities. The yield on the 10-year Treasury ticked five basis points lower to 4.02% (down 56 basis points YTD), while the yield on the 2-year Treasury edged down two basis points to 3.49% (down 75 basis points YTD).
United Kingdom:
For a gauge of what UK stock markets thought about the Budget, look no further than the performance of London’s mid caps. This more domestically oriented segment of the market was up 3.8% on the week (+11.1% YTD), easily trumping the more internationally focused large caps which were up 1.9% (23.0% YTD). The British pound also eked out a gain, ending the week at US$1.32 compared to US$1.31 previously. So too the 10-year UK gilt, the yield of which finished the week 10 basis points lower at 4.44% (down 13 basis points YTD).
Europe ex UK:
European equities failed to keep pace with global benchmarks despite the MSCI Europe ex UK Index adding 2.6% (+16.3% YTD). No Thanksgiving holiday or budget relief to give European stock markets that extra boost.
At the national stock market level, Germany was the standout with a 3.2% gain (+19.7% YTD) despite mixed economic data. On the one hand, the Ifo Institute’s Business Climate Index showed a fall in sentiment in November “due to more pessimistic expectations.” On the other hand, there was a modest uptick in consumer confidence according to surveys from GfK and the Nuremberg Institute for Market Decisions. Elsewhere, French stocks were up 1.8% (+13.7% YTD), Italy’s main market gained 2.8% (+33.2% YTD), while Switzerland was more subdued with a +1.6% rise (+14.2% YTD).
Good week for the euro which ended slightly stronger against the US dollar at US$1.16 compared to 1.15 previously. Finally, the yield on 10-year German bunds finished the week one basis point lower at 2.69% (up 32 basis points YTD).
Approver: Quilter Cheviot 01 December 2025
