by Haith Nori
November has welcomed back some much-needed positivity within the Global Equity Markets. In China, c.412 million people have further been affected by lockdown measures, due to their zero Covid policy, as cases have increased rapidly. There is civil unrest as people are protesting against President Xi Jinping and demanding that he resigns due to the handling of the current Covid situation. Russia continues to attack Ukraine, attempting to target their energy infrastructure, and has reportedly left Kyiv without running water or electricity. In the UK, the Autumn Budget was finally released announcing a number of significant changes. In the US, the FOMC have signalled a reduction in the pace of its aggressive interest rate hiking cycle. COP 27 has embraced world leaders once again who are attempting to act collaboratively to reduce climate change.
Since the start of November, sterling has strengthened against the dollar. The dollar has also weakened against both the euro and the yen as well ‘after U.S. economic data provided further evidence that inflation was starting to ease, improving investor appetite for riskier assets and reducing demand for the safe-haven greenback’[i]. Bond yields have begun to decrease with the US 10 year note, now offering a yield of c.3.6% and the UK 10-year Gilt offering c.3.1%. This is a dramatic change when just a few months ago, they were both yielding above 4%! Interest Rates are still increasing and in theory, the yield should increase but we are seeing an unusual correlation. The Federal Reserve is hinting at slowing the interest rate increases to reduce over tightening. After the minutes were released 23rd November from the Federal Reserve’s November meeting, European stocks went on to hit three-month highs. The US Federal Reserve increased interest rates by 0.75% for the fourth consecutive time which takes them to the highest levels since 2008. Jerome Powell has hinted at a change in policy at the next meeting or two. In the UK, the Monetary Policy Committee voted 7-2 to increase interest rates by 0.75% to 3%, the largest rate hike since 1989. On Thursday 10th November, the US released CPI data for the 12 months ending in October of 7.7%, which was lower than expectations and lower from September of 8.2%. This is positive news as, even though we are seeing small changes over the past 5 months, there has been a clear decrease: 9.1% in June, 8.5% in July, 8.3% in August, 8.2% September. There is still a long way to go for the CPI figure to reach the overall target of 2% but finally a positive trend has been witnessed. In the UK, the CPI data released November 16th for the 12 months ending in October was 11.1%, the most since October 1981, up from 10.1% in September, and 9.9% in August. The main driver of the headline figure has been ‘surging household energy bills and food prices pushed British inflation to a 41 year high’[ii]. The data was released one day before Jeremy Hunt released the Autumn Budget where the hope is that his tax hikes and plans to reduce spending will assist in reducing the CPI figure. The next meetings for the FOMC, BOE and ECB will all be held in mid-December where they will assess whether to increase interest rates once again.
The delayed UK Government’s Autumn budget, announced on 17th November, saw changes to the National Living Wage, several Tax changes and the cap on energy bills increasing to £3,000 from £2,500 for 12 months from April 2023. The key points that will have a significant impact in the new tax year (6th April 2023 to 5th April 2024) are the reduction in the Capital Gains Tax Allowance, Dividend Tax Allowance, and the Additional Rate Income Tax threshold. For individuals the Capital Gains Tax Allowance will be reduced from £12,300 to £6,000 and for most trusts from £6,000 to £3,000. The Dividend Tax Allowance will be reduced from £2,000 to £1,000 and, finally, the Additional Income Tax Rate threshold will reduce from £150,000 to £125,000. Effectively, these measures are an attempt at creating a budget tightening of £55 billion to restore the country’s credibility under new Prime Minister Rishi Sunak’s Government with Jeremy Hunt announcing these measures as being ’tough but necessary’[iii].
COP 27, which concluded on 20th November, saw a number of global leaders agreeing to work together once more to combat climate change. One key take away is that nations have, for the first time, agreed to establish a fund which is dedicated to providing pay-outs for developing countries that experience damage from issues relating to climate change, such as, storms, floods, and wildfire. China and the US have rekindled their relationship as China’s President Xi Jinping met with US President Joe Biden in Indonesia agreeing to ‘restart cooperation on climate change after a months-long hiatus due to tensions over Taiwan’[iv].
China has become a point of discussion around the globe. Over this past year China has been in and out of lockdowns both national and local due to its Zero Covid policy. After the latest surge in Covid cases and new lockdowns put in place, anti-lockdown protests rallied in multiple cities around China. Finally, at the end of November the Chinese Government have announced they are now attempting to ramp up their efforts to vaccinate the elderly. On the back of the announcement the Hang Seng closed 5% higher on Monday 28th November.
Overall, November delivered some positive returns for global equity markets, which are now up 11% from the October 12th lows. Brent Crude has returned to trade below $90 per barrel having fallen from c.$98 per barrel at the start of the month. Sterling has ended the month trading c1.21 against the dollar which is a significant rise since its tumble after Kwasi Kwarteng’s budget announcement at the end of September. Both the Yen and the Euro have also strengthened against the dollar since the beginning of November. Bond yields are decreasing whilst central banks hint at slowing the pace of interest rate hikes to hopefully give a soft landing at the beginning of 2023.
[i] www.cnbc.com/2022/11/15/forex-markets-federal-reserve-interest-rate-hikes-inflation-japan-yen.html
[ii] www.reuters.com/world/uk/uk-consumer-price-inflation-hits-111-october-ons-2022-11-16/
[iii] www.reuters.com/world/uk/uk-consumer-price-inflation-hits-111-october-ons-2022-11-16/
[iv] www.reuters.com/business/cop/key-takeaways-cop27-climate-summit-egypt-2022-11-20/
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