Market overview – Richard Carter, Head of Fixed Interest Research
If anyone was wondering what’s been exercising markets the most in recent weeks - the longest ever US government shutdown, valuation concerns in the artificial intelligence (AI) space or something else – last week promised to narrow down the field. That’s because after 43 days, US President Donald Trump signed a bill that finally ended the shutdown on Wednesday evening. How did markets react? US stocks promptly sold off the next day. To be fair, the main US market had traded higher at the beginning of the week on hopes a shutdown deal would be struck, but by close of play on Thursday the majority of the ground made had been ceded. So much so, the main US market largely finished the week flat.
The shutdown, not uppermost on investors’ minds then, particularly when compared to tech valuation concerns. That may be so, but don’t write the shutdown off, and not just because the bill signed by Trump keeps the government funded through to the end of January 2026 - get set for Shutdown the Sequel in the new year.
Although affected government departments can now get back to work, questions remain over how long it will be before business returns to normal, specifically with regards to economic data releases. Reports that the important jobs and inflation data for October might not be published raise the prospect that Federal Reserve (Fed) policymakers won’t have key stats to chew on when they next meet in December. That could be enough to swing the odds against the pre-Christmas rate cut markets had been pricing in. Rate setters coming out and stressing the need to proceed with caution certainly wouldn’t have helped. Neither would the reasons that were given: inflationary pressures and mixed signals from the labour market.
One stat that is still widely available is the probability the market is placing on a December Fed rate cut. By the end of the week, this had dipped to 46%, having been 67% just seven days prior and as high as 95% a month ago. The shutdown may have ended, but it has arguably helped shine a light on what will likely be a key market sentiment driver in the weeks ahead (other than AI hyperscaler valuations) – the future direction of US interest rates. 'Twas ever thus and thus shall always be.
Weekly economic announcements:
The MSCI All Country World Index ticked 0.5% higher last week which was enough to push year-to-date (YTD) gains back above the 20% level (20.3% YTD).
United States:
For the second week running US stocks underperformed the global benchmark, although the main equity index did manage to finish in positive territory, albeit by the tiniest of margins (+0.1%). While that didn’t do much for the YTD performance (+15.7%), it could have been worse. Were it not for a recovery on Friday that helped undo much of the damage inflicted by Thursday’s sell-off, US markets would have ended down on the week.
With the prospects of another interest rate cut this side of Christmas receding, US Treasuries yields ticked modestly higher with the 10-year yield finishing the week up five basis points at 4.15% (down 42 basis points YTD).
United Kingdom:
It was a week of two halves for UK equity benchmarks. First half of the week saw UK large-cap stocks set new highs. Second half, markets were on the back foot as Thursday’s global risk-off move took its toll. A strong finish on Friday meant both large and mid-cap indices ended the week up 0.3% — large caps are now up 22.6% YTD, while the mid-caps are edging towards double figures (9.2% YTD). The positive weekly performance was all the more impressive because there was yet more Autumn Budget flipflopping by the government. Turns out chancellor Rachel Reeves is no longer considering income tax rate hikes. This comes days after giving a strong hint that she planned to do just that in a speech she made in Downing Street.
UK government bonds took the news more badly - the 10-year UK gilt yield rose 14 basis points on Friday, its worst daily performance since July. Over the week, the 10-year yield gained nine basis points to 4.57% (up one basis point YTD). This during a week that saw expectations of a rate cut in December rise after disappointing labour market and economic growth data: unemployment in the three months to end of September rose to 5%; while Q3 Gross domestic product (GDP) growth came in at a measly looking 0.1%. Sterling was unmoved by the Budget shenanigans, remaining flat at US$1.32.
Europe ex UK:
European equities were among last week’s winners with the MSCI Europe ex UK Index rising 2.4% (+16.4% YTD). At the national level, Germany’s main index finished 1.3% higher (+19.9% YTD); Italy was almost double that at 2.5% (+33.7% YTD); while Switzerland fared even better up 2.7% (+12.4% YTD). France topped the lot, ending the week 2.8% higher (+14.3% YTD), perhaps helped by hopes the country’s long drawn-out budget process may be coming to an end – one wonders what Reeves would give for that? Like sterling, the euro finished the week unchanged against the US dollar at US$1.16 for EUR. The yield on 10-year German bunds added five basis points to 2.72% (up 36 basis points YTD).
Approver: Quilter Cheviot 18 November 2025
