Not so long-ago US Inflation was seemingly on the mend, as headline inflation fell to a two-year low of 2.4% in September. However, the latest data released on Wednesday showed an uptick to 2.7% in November, showing the battle against elevated inflation is not yet over.
US core inflation (year-on-year) remains stuck at 3.3% for the fourth consecutive month, a level that just won’t seem to budge. The US Federal Reserve will look at the data reports for positives and see that shelter (rent) and services inflation both rose at their slowest pace in almost three and a half years. Despite the increase in headline inflation, markets are almost certain we will see a 25bps (0.25%) rate cut next week from the US Fed but are forecasting fewer cuts in the new year as Trump takes power.
Elon Musk, the richest man in the world, has become the first person in history to have a net worth of $400bn. Tesla shares have been on a tear since election day and closed at a record high of $424.77 on Wednesday. The upcoming appointment of Mr Musk to government has been quite powerful as investors believe his mission to cut down on regulatory practices ultimately benefits his businesses in the electronic vehicle (EV) sector (Tesla) and artificial intelligence (AI) sector through his companies SpaceX and Neuralink.
The Swiss National Bank responded to the country’s weak inflation data report and the backward step in economic growth with a surprise 50bps (0.5%) interest rate cut. This takes the base rate to 0.5%, the lowest level since November 2022 and surprised markets as they anticipated a 25bps cut. The Swiss Franc weakened against the Euro after the new Chairman, Mr Schlegel, left the door open for further cuts but ruled out the likelihood of negative rates in the future. The Bank of Canada also cut interest rates by 50bps on Wednesday.
Staying on the topic of central banks, the European Central Bank (ECB) cut rates on Thursday afternoon for the fourth time this year. Interest rates are now down from the 16-year- high of 4.5% in April to 3.15%. Commentary from central banks is highly analysed by markets for insights on the future rate path, and the removal of key reference “keeping rates sufficiently restrictive” seemingly indicates an appetite for further cuts in future meetings. This cut was expected, with recent services PMI data dropping below 50 and continued weakness in economic growth.
The UK market has seemingly stalled since the Labour government took power and there was another blow to the London Stock Exchange (LSE) as equipment rental company, Ashtead, announced plans to shift their primary listing to New York. Ashtead, founded in 1984, has been listed on the LSE for the last 38 years but declared the main reason for the move was due to the US being a more natural home for the company, given that 98% of its profits are derived from the US. Shareholders are set to be consulted, and the final decision will be put to a vote, but the intent certainly highlights concerns over how attractive the UK is to investors.
UK GDP figures for October have been released this Friday morning and for the second straight month GDP shrank by -0.1%. The weak economic growth potentially stems from uncertainty over the Labour government’s Autumn budget, as the services sector flatlined and the manufacturing sector continued to decline. Chancellor Rachel Reeves admitted the GDP figures were “disappointing” but maintained the view that Labour has put policies in place “to deliver long term economic growth”.
Markets will certainly not take their Christmas break early as both the US Fed and Bank of England meet next week. We continue to emphasise the importance of diversification within portfolios, as this allows us to avoid being caught out by short term volatility and benefit from long term opportunities.
Nathan Amaning, Investment Analyst
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