November market performance was exuberant across both equity and bond markets, buoyed by better-than-expected economic data in the US and an increasing consensus that the Federal Reserve (Fed) will engineer a soft landing in what has been a challenging financial environment.
Global equities, as measured by the MSCI World, finished strongly up 9.5%, while global bonds, as measured by the Bloomberg Global aggregate index, also rallied up 5.0% on a total return basis.
Inflation prints took centre stage. The US Consumer Price Index (CPI) for October rose 3.2% (annualised) compared to the prior month of 3.7%, while the more closely watched CPI ex Food and Energy rose 4.0%, its smallest change since September 2021. Shelter costs which make up a third of the index continue to remain elevated at 6.7% but is beginning to fall. It must be noted that US CPI peaked in June last year at 9%.
US jobs growth was lower than expected with non-farm payrolls adding 150,000 jobs last month while some prior months continue to be revised down. The unemployment rate edged higher to 3.9% and wage inflation remained elevated at 5.2%.
Furthermore, leading indicators of growth such as the manufacturing purchasing manager’s (PMI) index remain below the 50-level (negative activity) while the services PMI remains above the 50 level (positive business activity but new orders fell) indicating all is not rosy for the US economy looking ahead.
Therefore, US Federal reserve kept rates unchanged at 5.25%-5.5% and were perhaps led by the CPI data ahead of its release – as the language by Chair Powell was clearly digested by the market – was on dovish side. Furthermore, their most hawkish member Christopher Woller stated they were unlikely to rise rates further and cuts were on the table if inflation continued to slow.
Bond markets reacted positively with government benchmark yields shifting down and bond prices, which are inversely proportional to yields rising. (please refer to asset class analysis)
