Global Markets Weekly Wrap KW 46 : Global Markets Face Volatility Amid Policy Shifts and Economic Data

Global Markets Weekly Wrap KW 46 : Global Markets Face Volatility Amid Policy Shifts and Economic Data 

The past week brought significant developments across global markets, influenced by political transitions in the United States, mixed economic data releases, and evolving corporate strategies. Investor sentiment was shaped by uncertainties surrounding the incoming U.S. administration's policy directions, creating fluctuations across various sectors. U.S. equities experienced a pullback from prior gains as the optimism surrounding the so-called "Trump Trade" started to waver. Financials and energy sectors benefitted from investor expectations of deregulation and potential merger approvals under the new administration. On the other hand, the healthcare sector saw sharp declines, driven largely by policy-related apprehensions.

The healthcare industry's volatility was sparked by the announcement that Robert F. Kennedy Jr. would head the Department of Health and Human Services. Kennedy's outspoken criticism of pharmaceutical companies and vaccine programs unsettled markets, with the iShares Biotechnology ETF falling sharply by 4.79% on Friday. This reaction underscored investor fears about potential regulatory tightening under Kennedy's leadership. The sector's vulnerability to shifts in policy sentiment served as a broader signal of the market's sensitivity to the new administration's decisions.

Digital currencies, particularly Bitcoin, demonstrated a strong surge during the week. Bitcoin reached a peak of 32.46% growth since the election, buoyed by optimism about potential regulatory changes under the incoming administration. This performance highlights the growing role of cryptocurrencies in global financial markets, driven by increasing acceptance and speculation on regulatory shifts.

The electric vehicle (EV) sector also experienced heightened volatility. Tesla's stock initially surged, supported by President-elect Trump's apparent preference for Tesla CEO Elon Musk to assume a prominent advisory role in his administration. However, this optimism was tempered mid-week following the announcement of the administration's intent to eliminate the $7,500 EV tax credit. The news caused significant sell-offs across EV stocks, with Tesla partially reversing its gains since the election and Rivian experiencing a pronounced 14.3% decline. These developments highlighted the sector's sensitivity to policy signals and the complex interplay between market sentiment and legislative expectations.

Economic data releases in the U.S. painted a mixed picture of the economy's health. Inflation figures for October indicated a modest rise, with headline prices increasing by 0.2% and core prices rising by 0.3%, primarily driven by higher housing costs. On an annual basis, inflation edged up to 2.6%, compared to the previous month's 2.4%. These figures pointed to a gradual increase in price pressures, raising questions about the Federal Reserve's future monetary policy direction. Federal Reserve Chair Jerome Powell's comments further dampened expectations of aggressive rate cuts, leading to futures markets pricing in lower probabilities of a December rate reduction. This sentiment was compounded by heavy corporate bond issuance, which contributed to an increase in the 10-year U.S. Treasury yield, reaching 4.51% by the week's end. The rise in yields highlighted the challenges faced by investors navigating a complex economic environment.

In Europe, equity markets marked their fourth consecutive weekly decline, reflecting concerns over U.S. trade policies and domestic political uncertainties. Germany faced particular challenges, with political instability weighing on investor confidence. The UK's economy grew by a slower-than-expected 0.1% during the third quarter, while wage growth showed signs of deceleration. Despite these headwinds, the eurozone reported a strong GDP performance for the third quarter, suggesting the possibility of a soft landing for its economy. However, industrial production data continued to reflect underlying challenges, casting doubt on the sustainability of the recent growth momentum.

Asian markets presented a varied picture, reflecting region-specific challenges and global economic trends. Japanese equities faced headwinds, with declines attributed to a weaker yen and concerns about U.S. trade policies. These factors underscored the interconnectedness of global economies and the ripple effects of policy shifts in major markets. In China, the equity market experienced significant declines, driven by persistent deflationary pressures and weaker-than-expected industrial data. Both the Shanghai Composite and the Hang Seng Index registered substantial losses, highlighting investor concerns about the health of the Chinese economy. However, positive developments emerged in China's property sector, where recent policy measures appeared to stabilize the market, offering a glimmer of hope amid broader economic challenges.

In other regions, Hungary's economic data provided insights into potential monetary policy adjustments. The country's inflation figures suggested room for future interest rate cuts, though concerns about currency weakness might delay such actions until 2025. Meanwhile, Mexico's central bank took proactive steps by reducing its benchmark interest rate, citing improvements in inflation trends and a slowdown in economic activity. This decision reflects a broader trend among emerging markets balancing growth objectives with inflation management.

Looking ahead, the upcoming week promises a range of key economic events that will provide further clarity on the global economic outlook. In the United States, investors will closely monitor initial jobless claims, the Consumer Price Index (CPI), retail sales advance figures, the Producer Price Index (PPI) final demand, MBA mortgage applications, industrial production month-on-month data, and continuing claims. These data points will shed light on labor market conditions, inflation trends, consumer spending, and manufacturing activity, offering critical insights into the health of the U.S. economy.

On the global front, several significant economic events are anticipated. Germany will release the ZEW survey results and Consumer Price Index (CPI) data, which will provide insights into investor sentiment and inflation trends in Europe's largest economy. Japan is set to publish its Producer Price Index (PPI) year-on-year figures, offering a view of inflationary pressures in the manufacturing sector. Argentina's Consumer Price Index (CPI) will be another focal point, given the country's ongoing economic challenges. In the United Kingdom, jobless claims data will provide a measure of labor market strength, while India's industrial production figures will reveal the state of manufacturing activity in one of the world's fastest-growing economies.

These upcoming events will play a crucial role in shaping market sentiment and guiding investment decisions, underscoring the importance of economic data in navigating an increasingly uncertain global environment. As markets continue to grapple with geopolitical tensions, policy shifts, and economic uncertainties, investors will need to remain vigilant and adaptive in the face of evolving conditions. 

Checklist for the next week:

Major economic events in the US include : 

Initial Jobless Claims; CPI; Retails Sales Advance; PPI Final Demand; MBA Mortgage Applications; Industrial Production MoM; Continuing Claims

Major economic events around the world include : 

Germany ZEW Survey Results; Japan PPI YoY; Argentina CPI; UK Jobless Claims; India Industrial Production YoY; Germany CPI