Markets in a minute 27th November 2023

Last week, the S&P 500 rose by 1.0% (MTD 8.9%, YTD 20.5%), while the Euro Stoxx 50 was up by 0.8% (MTD 7.8%, YTD 19.1%). Equities gained last week, supported by continued signs of economic health, especially in Europe.

In the US, the Fed's minutes from its last meeting illustrated that 'higher for longer' remains the likely policy path. The minutes stated that: "All participants judged that it would be appropriate for policy to remain at a restrictive stance for some time until inflation is clearly moving down sustainably toward the Committee’s objective."

On the data front, October US durable goods orders fell by 5.4% m/m, driven by a 49.6% fall in aircraft orders, which are often volatile. Excluding this and defence, orders were still down by 1.3%, accelerating from a 0.8% fall in September. However, the November composite PMI indicated an ongoing rise in economic activity. The index was unchanged from October, at 50.7 and in expansionary territory - a PMI above (below) 50 indicates economic expansion (contraction).

In the UK, the Chancellor's Autumn statement showed that increased inflation resulted in higher nominal tax receipts. This allowed the government to announce some fiscal easing, including reduced national insurance rates, while spending was left "broadly unchanged". As a result, the Office for Budget Responsibility (OBR) projects that the budget deficit will fall from 5.0% of GDP in fiscal year 2022/23 (year to April 5th 2023) to 4.5% in 2023/24.

Meanwhile, the UK GfK consumer confidence barometer rose by more than expected to -24 in November, reversing most of the fall in October. The composite PMI for November also rose back into expansionary territory, at 50.1.

The Eurozone composite PMI increased, rising from 46.5 in October to 47.1 in November, though still in contractionary territory. In Germany, the Ifo business confidence survey showed improvements in October. Both sentiment indices on the current economic situation and business expectations rose from September, with the former up for a third consecutive month.

Bond yields, particularly in Europe, rose (bond prices fall as yields rise) last week amid improving data. The 10-year German bund yield rose by 5bps to 2.64%, while that of UK gilts were up by 18bps to 4.28%.

This week, economic data is somewhat light. In the US, consumer confidence (tomorrow), the Fed's Beige Book on regional economic conditions and ISM manufacturing (Friday) may be of note. For the Eurozone, consumer confidence (Wednesday) and consumer prices (Thursday) are set to be in focus, with the latter particularly important given expected monetary easing from the ECB next year.