US markets ended slightly higher, extending strong November gains which have arisen from a more benign outlook on the direction of inflation and interest rates.
These themes have dominated investor sentiment this year and, despite conflicting remarks from two Federal Reserve officials, markets have priced in an end to the rate hiking cycle almost unanimously. For its part, the Fed has not changed its mantra that the outlook will remain data dependent and that rates could stay higher for longer until victory in taming inflation can finally be declared.
In the meantime, the latest comments from two Fed members were net neutral, with one confident that rates are now sufficiently restrictive and the other leaving the door open to the possibility of another hike if inflation cannot be reined back in a timely manner.
Elsewhere the consumer returned to centre stage. It is largely accepted that some 70% of US economic activity and growth comes from household spending, and the latest consumer confidence survey came in at the upper end of expectations. In addition, the early indications are that the so-called “Cyber weekend”, kicked off by Black Friday, has been an immediate success.
While this could provide a springboard for retailing gains throughout the remainder of the festive period, it is also possible that these discounted prices have simply brought forward Christmas spending. In either event, the weekend has provided a boost to retail activity while also seemingly underlying the resilience of the consumer.
The rest of the week unfolds with two economic releases which will add further colour to the state of the nation. The latest estimate for third quarter GDP and the release of the Personal Consumption Expenditures report, which is the Fed’s preferred measure of inflation, are both due and will receive extra scrutiny in an otherwise light economic week of releases.
With positive momentum having gathered over the course of this month, risks from these reports are skewed to the downside, with any unpleasant surprises likely to be pounced on by investors.
Even so, market strength in November has added to a period of strong growth in the year to date for the main indices, with the benchmark S&P500 having added 18.7%, the Nasdaq 36.5% and the more traditional Dow Jones Industrial Average 6.8%.
Asian markets continue to be tainted by Chinese economic woes, with a wave of selling rippling through the technology and property sectors. In terms of the former, the escalating fragility of relations between China and the US has manifested in some reciprocal actions, while the real estate sector has been plagued by the possibility of defaults amid tepid demand. Investor sentiment is in contrast to that of Japan, where an economy in rude health has propelled the Nikkei to stand at or around multi-decade highs.
The FTSE250 opened cautiously higher against the ongoing uncertainty of the current UK economic outlook. Some welcome and relatively rare positive news has come from the consumer, if not to the extent of their US counterparts.
It has been reported that while Black Friday got off to a start which was ahead of normal volumes but slightly down against last year, spending ramped up over the weekend, the net result of which is an estimate hike of around 6% compared to 2023. Despite this boost, the outlook remains cloudy, with recent surveys pointing to weaker retail sales activity this month. As such, the FTSE250 remains down by 2.1% in the year to date.
The FTSE 100 was unable to attract any buying interest in opening exchanges, not only drifting lower but also into negative territory for the year. The premier index has now lost 0.4% in 2023, seemingly unable to consolidate any of the gains seen earlier in the year when the index touched record highs.
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The renewed search for growth by international investors has left the index on the sidelines, despite the underlying quality of its constituents which can provide exposure both to pricing power and overseas earnings. Whether this fall from grace can be reversed could be an investment theme for 2024, should the discount on which the index trades compared to its global peers be revisited.
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