As Ukraine struck a military target inside Russia with US-made long-range missiles for the first time since the Biden administration lifted restrictions on their use, Russian President Vladimir Putin signed a decree lowering the potential threshold for the use of nuclear weapons.
US and Eurozone interest rates are expected to diverge next year: US inflation is forecast to stay above 2% throughout the whole of 2025, while eurozone inflation is forecast to drop below the ECB’s target of 2% as soon as February.
UK
The FTSE 100 rallied 2.8% over the two weeks.
The flash S&P Global UK composite PMI dropped to 49.9 in November from 51.8 last month, indicated falling private sector output for the first time since October 2023. Many companies say the £25bn NIC increase, which the new Labour government says is necessary to bolster public finances and invest in the NHS, will lead to job cuts and push up inflation.
Retail sales slumped 0.7% in October, marking the biggest monthly fall since June.
UK inflation jumped to a higher-than-forecast 2.3% in October, from 1.7% in September, dashing hopes that the Bank of England may cut rates again this year. Core inflation rose to 3.3% in October, up from 3.2% in September.
Shares of UK housebuilders have fallen almost 20% since the budget at the end of October on fears that UK rates will stay higher for longer.
The Fin¬an¬cial Con¬duct Author¬ity has been branded as “incom¬pet¬ent at best, dis¬hon¬est at worst”, accord¬ing to a scath¬ing report by MPs and Lords.
US
The S&P 500 gained 2.8% over the two weeks, while the Nasdaq rose 1.9% with both indices closing at free record highs. The small-cap Russell 2000 Index touched a new high for the first time in three years, buoyed by expectations that domestically focused smaller companies will benefit from corporate tax cuts and deregulation.
Donald Trump has said he will impose 25% tariffs on all imports from Canada and Mexico on his first day in the White House as well as an extra 10% on imports of Chinese goods on top of existing tariffs. The president-elect also threatened to impose tariffs of 100% on exports from certain emerging market nations unless their governments agree not to create a new currency as an alternative to the US dollar.
Hedge fund manager Scott Bessent will be the new Treasury secretary. The appointment raised hopes that some of Trump’s most extreme policies may be moderated given Bessent views tariffs as a negotiating tactic designed to enable a co-ordinated and gradual depreciation of the dollar in exchange for a gradual reduction in American tariffs. The news boosted US Treasury valuations and weakened the US dollar.
Mark Gaetz withdrew from his appointment as attorney general.
Minutes of the latest FOMC meeting showed policymakers discussed slowing the pace of interest rate cuts if the slowdown in inflation lessened.
The S&P Global US Composite PMI rose to 55.3 in November, up from 54.1 in October. Services activity accelerated to 57 in November, the strongest reading since March 2022, while manufacturing activity inched higher to 48.8 in November from 48.5 in October.
Shares of Alphabet slumped after the Department of Justice ruled it should be forced to sell its internet browser Chrome.
Europe
The Eurofirst 300 increased 1.6% over the two weeks.
In its annual Financial Stability Review, the European Central Bank (ECB) warned of another debt crisis if the eurozone cannot boost growth, lower public debt and fix “policy uncertainty”.
The HCOB Eurozone Composite PMI slumped to 48.1 in November from 50 in October and the lowest level since January. Services activity fell to 49.2 compared to October’s reading of 51.6, ending nine months of expansion, while manufacturing dropped deeper into contraction territory to 45.2. Investors are now pricing in a big¬ger chance of a 50-bps cut in interest rates at the ECB’s next meet¬ing in Decem¬ber.
Eurozone inflation accelerated for a second month to 2.3% in November from 2% in October. Core inflation held steady at 2.7%.
In France, Michel Barnier’s minority government is struggling to gain sufficient support for a budget that will impose €60bn of tax increases and spending cuts. The decision is largely in the hands of the far-right leader Marine Le Pen, whose RN party has threatened to vote with this far left to dismiss the budget.
Germany’s largest steelmaker Thyssenkrupp announced it would slash its steel workforce by 40% due to oversupply and a rise in cheap imports from China.
Japan
The Nikkei 225 lost 1.1% over the two weeks.
The au Jibun Bank Flash Japan Composite PMI was at 49.8 in November, up from 49.6 in October, although the measure remained in contraction territory for the second month in a row.
Pacific Basin ex Japan
China’s official NBS Manufacturing PMI rose to 50.3 in November from 50.1 in October, aligning with market consensus and marking the highest reading since April.
China’s official NBS Non-Manufacturing PMI unexpectedly slid to 50.0 in November. This was the same level as in September and the joint lowest level since November 2022.
The Bank of Korea cut interest rates by 25 bps to 3% in a rare back-to-back move reflecting concern over the impact of Donald Trump’s second presidency. The move came as the central bank cut its forecasts for this and next year’s growth by 0.2% apiece.
Emerging Markets
The MSCI EM Index slipped 0.5% over the two weeks.
Bonds
The yield on the 10-year US Treasury fell 15 bps over the two weeks to close 4.21%. Two-year yields slid 14 bps to 4.18%.
The yield on the 10-year German Bund closed the two weeks 26 bps lower at 2.09%.
France’s borrowing costs briefly rose above those of Greece for the first time on record amid fears that Michel Barnier’s government may fail to pass a belt-tightening budget. The sell-off in French debt also pushed the gap between 10-year French borrowing costs and those of Germany to as high as 90 bps, a level not reached since the Eurozone crisis in 2012.
Expectations of further dollar strength have caused investors to withdraw nearly $5bn overall from funds investing in dollar and local currency denominated emerging market bonds this month as of mid-November, taking this year’s total net outflows to more than $20bn.
