Stocks finish November quietly. The TPP weekend wrap by Edward Davies

Stocks finish November quietly.

The FTSE 100 ended the week 0.24% higher, similar to the pan-European STOXX Europe 600 Index which finished 0.32% higher, overcoming uncertainty about U.S. trade tariffs and the outlook for interest rates.

However, major European stock indexes were mixed. Germany’s DAX rose 1.57%, but Italy’s FTSE MIB fell 0.70%, and France’s CAC 40 lost 0.29%.

The U.S. market continued upwards leading many to wonder whether it can continue now the CAPE ratio for the S&P 500  has reached 38.11, its highest level since late 2021, according to data featured on a website maintained by Shiller. Prior to that, it has only been higher around the peak of the dot-com bubble.

U.K.

Good news for the property market this week. Mortgage approvals for house purchases, an indicator of future borrowing, rose to the highest level since August 2022.

Bank of England data showed 68,303 approvals in October, well above forecasts. Net borrowing rose to £3.4bn, supported by declining mortgage rates, which fell to their lowest level since May 2023.

“First, quoted mortgage rates fell markedly between May and October,” said Matt Swannell, chief economic advisor to the EY Item Club.

“Second, forward-looking buyers will have been keen to set purchases in train before the temporary increase in stamp duty thresholds expires at the end of March.

Property marketing platform Zoopla reported that lower mortgage rates spurred a recovery, with house prices rising across all regions in October. Average prices edged 1% higher year-on-year to £267,200, and buyer demand surged 25% compared to last year.

“The housing market has returned to growth in 2024, with more sales and higher house prices compared to 2023,” Zoopla said. “The sales market has performed better than we expected a year ago, thanks to faster growth in household incomes and lower mortgage rates.”

Consumer credit growth slowed to its weakest level in nearly two years, while the distributive trades survey of the Confederation of British Industry showed a sharper-than-expected drop in retail sales volumes in November and the retail sector’s worst confidence reading in two years.

The British Retail Consortium reported a 4.5% year-on-year decline, with high street footfall down 3.7% and shopping centres seeing a 6.1% drop.

Retail parks also slipped 1.1%, reversing October’s 4.8% rise.

The figures, covering the four weeks to 23 November, excluded Black Friday, which this year fell later in the month. We’ll get more detailed information from the BRC Retail sales monitor on Tuesday.

Europe

Annual inflation in the eurozone accelerated for a second month in November to 2.3% from 2.0% in October, according to a preliminary estimate. The increase was expected as last year’s declines in energy prices are no longer incorporated in the annual rates. However, underlying inflation unexpectedly eased. Services’ prices ticked down to 3.9% from 4.0%, while core inflation—which excludes volatile food, energy, alcohol, and tobacco prices—remained at 2.7%. Financial markets still expect the European Central Bank to lower borrowing costs next month, although the size of the reduction remains uncertain.

Mixed economic data showed that the German economy continued to struggle in the last quarter of this year. Retail sales in October decreased 1.5% sequentially in seasonally adjusted terms, much worse than a 0.5% drop forecast by analysts polled by FactSet. Still, the labour market demonstrated some resilience in November. The number of unemployed rose by a seasonally adjusted 7,000 to 2.86 million, much less than the 20,000 consensus forecast. The jobless rate held steady at 6.1%.

In France, Prime Minister Michel Barnier amended the proposed 2025 budget that seeks EUR 60 billion of savings, dropping plans to raise electricity taxes after far-right leader Marine Le Pen threatened to call a no-confidence motion and bring down the coalition government.

Wall Street

U.S. stocks recorded another week of gains, lifting the Dow Jones Industrial Average, S&P 500 Index, and S&P 400 MidCap Index to record intraday highs. On Monday, the small-cap Russell 2000 Index hit an intraday high of 2,466.49, eclipsing the record high it had established a little over three years before. Markets were closed Thursday in observance of Thanksgiving Day, although T. Rowe Price traders observed that trading was relatively robust in the runup to the holiday. Markets also closed early on Friday.

Domestic policy and geopolitical factors appeared to be large drivers of sentiment during the week. On Monday, investors seemed to welcome President-elect Donald Trump’s nomination of Scott Bessent, a veteran hedge fund manager, as Treasury secretary. According to our traders, Bessent is thought to bring a Wall Street mindset to the seat, prioritizing economic stability and inflation control with a measured approach to tariffs, easing fears of an out-of-consensus selection.

Personal income rose 0.6% in October, roughly double consensus estimates, while personal spending rose 0.4%, a tick above expectations. Pending home sales also defied expectations for a decline and rose 2.0%, even as September’s gain was revised up to 7.5%, the strongest gain in nearly two years.

Conversely, the manufacturing sector appeared to remain in a slump. Durable goods orders missed expectations in October, rising only 0.2%, well below consensus expectations of around 0.5%. Excluding defence and transportation goods—commonly accepted as a proxy for capital investment, orders fell 0.2%.

Asia

Japan’s stock markets registered modest losses over the week, with the Nikkei 225 Index down 0.2% and the broader TOPIX Index falling 0.6%. Markets trended lower as geopolitical risks weighed on global investor risk appetite, driving demand for assets perceived as safer. Subsequent yen strength posed a headwind for Japan’s export-heavy industries.

Within fixed income, the yield on the 10-year Japanese government bond fell to 1.06%, from 1.08% at the end of the previous week. It continued to hover near its highest level in 13 years on BoJ rate hike speculation. BoJ Governor Kazuo Ueda has repeatedly said that interest rates will be increased if the economy and prices perform in line with the central bank’s forecasts.

On the political front, Japan’s Prime Minister Shigeru Ishiba made a speech to parliament outlining his latest policy vision as he seeks approval for an extra budget to fund a new stimulus package aimed at boosting the economy, particularly in rural areas, and helping to counter the adverse effects of inflation on businesses and households. Measures include subsidies to curb rising energy costs and cash handouts to low-income households, as well as an increase in the tax-free salary threshold to boost disposable incomes. In a sign of policy continuity with his predecessor Fumio Kishida, Ishiba wants to bring about conditions in which wage gains outpace inflation and growth is investment driven.

Chinese equities rose as hopes for greater government support offset concerns about potential tariff hikes in the U.S. The Shanghai Composite Index gained 1.81%, while the blue chip CSI 300 added 1.32%. In Hong Kong, the benchmark Hang Seng Index was up 1.01%, according to FactSet.

The People’s Bank of China injected RMB 900 billion into the banking system via its medium-term lending facility and left the lending rate unchanged at 2%, as expected. With RMB 1.45 trillion in loans set to expire next month, the operation resulted in a net withdrawal of RMB 550 billion from the banking system for November. A sharp increase in local government bond issuance will add to liquidity pressures in the banking system toward the end of the year as Beijing ramps up efforts to stimulate the economy, according to Reuters. With tighter liquidity conditions and threats of additional U.S. tariffs, analysts anticipate that the government will implement further policies to consolidate the economy in 2025.

The Week Ahead

It’s a fairly quiet week for economic data. House price figures will be in focus in the UK, while unemployment and non-farm payroll data will dominate in the US.

Monday brings Nationwide’s house price report before Lloyd’s Halifax offers up its insight on the market on Friday.

As mentioned property firm Zoopla most recently reported an increase in prices through October, alongside a surge in activity thanks to falling interest and solid wage growth.

According to Trading Economics, the consensus is for Nationwide to report a 2.4% increase for November.

Retail figures are due on Tuesday, alongside a string of PMI data from S&P for both the UK and US over the week, before all-important job market numbers across the pond on Friday.

Having added just 12,000 jobs in October, expectations are for non-farm payrolls to show a 183,000 uptick in roles across the US economy through November.

Unemployment is anticipated to have remained flat at 4.1% in the meantime.

October’s non-farm figures had been impacted by hurricanes and strikes by Boeing workers, leaving attention on any revision for the month, AJ Bell analysts noted.

“Downward changes to preliminary estimates tend to portend of a slowdown or recession, and upward changes of ongoing strong economic growth,” AJ Bell said, with the figures set to provide clarity on the Federal Reserve’s December interest rate decision.

Legal & General, Balfour Beatty, Marston's and Watches of Switzerland are all in line to update next week.

Following a quiet Monday, pub chain Marston's will offer up final results under the cloud growing costs on the back of last month's Budget.

Wednesday then brings Legal & General's update on its institutional retirement wing, before Balfour and Watches of Switzerland's Thursday updates.

Berkeley Group's interims on Friday round up the week in terms of company news from London.

In the U.S the major earnings will come from Salesforce on Tuesday, GameStop and Synopsys on Wednesday and HP and Lululemon on Thursday.

Markets should quieten down in the run-up to Christmas, but as the conflict in Ukraine escalates, we remain very cautious. Geopolitical tensions are almost as high as US equity valuations.

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