Market Briefing: 18th November

Stock markets were muted last week after a strong recent run. Losses within Global share markets were limited to just 0.1% due to weakness in the Pound (and strength in the Dollar). The Pound fell by about 2.4% vs the US Dollar, reflecting a marginally stronger outlook for the US and a marginally weaker one for the UK. This week, the focus will remain on the US and on potential policy from President Elect Trump and we also have the much-awaited earnings from index heavyweight Nvidia on Wednesday night. Wednesday also sees inflation data here in the UK, with economists (as surveyed by Bloomberg) expecting it (CPI) to rise back above 2%.

Last week

• Global stock markets paused after a strong recent rally.
• The Pound sold off vs the US Dollar: having its worst week since February last year.
• UK Growth data came in a touch lower than expected.
• US economic data continued to be strong.
• Bond markets (notably in the UK) were largely flat on the week.

This week

• Nvidia’s earnings on Wednesday night will be the key watchpoint for markets this week.
• In the UK, we have inflation data out on Wednesday (we expect to see it rise from its current level of 1.7%) and Retail Sales data out on Friday.
• We’ll also see earnings from Walmart and Imperial Brands (Tuesday), Sage (Wednesday) and Gap (on Thursday).

Equity returns are in GBP, Oil is in USD. Gold is shown in GBP. Bond returns are all shown in GBP. Source Bloomberg.

More detail:

• Stock markets were muted last week after a strong recent run. Global stock markets lost 0.1% over the week, whilst UK share markets were flat. Global share markets still remain up over 3% for the month-to-date, with the bulk of that gain coming post the US election result.
• Last week saw continued strong gains from the Banking sector (with the global sub-index of Banks up 8% for the month-to-date), but a big pull-back in the Healthcare sector. This pull-back in health care names came following news that Robert F. Kennedy Jr., would be President-Elect Trump’s nominee to head the Health and Human Services Department. Kennedy has been a vocal critic of the Pharmaceutical industry, and this news helped contribute to an 8.3% fall in the week for Eli Lilly which has a 0.9% weight in the Global share index and a 1.2% weighting in the US share index.
• The Pound had its worst week vs the US Dollar since February last year, falling by 2.4% on the week. This fall in the Pound helped cushion the losses from overseas’ equity markets, making for flat returns once translated back to GBP. The drivers of this decline were a combination of Dollar strength and Pound weakness.
• Regarding Dollar strength, last week saw US Retail sales come in better than expected and Fed Chair Jerome Powell comment that “the economy is not sending any signals that we need to be in a hurry to lower rates”. This led the bond futures market to reduce its confidence of the likelihood of an interest rate cut at the December Fed meeting (hence the stronger Dollar).
• Conversely, UK economic data was incrementally weaker last week, with the 3^rd Quarter growth number coming in lower than expected (0.1% growth vs expectations for a rate of 0.2%). At the margins, this tilted the bond markets towards lower future interest rates in the UK (to support growth, hence Pound weakness).
• US earning season continued to motor along last week. 93% of the companies in the S&P 500 have now reported, with an aggregate growth rate of 5.4% (according to Factset). This puts us on track for better earnings growth than expected (4.2% was the expected growth rate back in September) and for the 5^th consecutive quarter of earnings growth. All eyes will be on Nvidia which reports on Wednesday night, with analysts (according to Bloomberg aggregate data) expecting an earnings growth rate of 85% compared to the year-ago period: a high bar to jump!
• UK Bond markets were flat on the week, with both government yields and UK credit spreads being little changed. Yields did rise in the US, which weighed on US bond markets and high yield markets (which have a large allocation to the US), as less interest rate cuts got priced in following Fed Chair Powell’s comments.

The value of investments and the income from them can go down as well as up and you could get back less than you invested. Past performance is not a reliable indicator of future performance.

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