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Sheldon Macdonald and Nathan Sweeney talk about the topics driving the markets in their weekly Monday update.
Monday Espresso Podcast - 2nd December 2024
[00:00:00] Nathan Sweeney: It is Monday, the 2nd of December. Today, I'm joined by Sarah Tardino and Sarah is our analyst for European funds. Good morning, Sarah.
[00:00:08] Sarah Todino: Good morning, Nathan.
[00:00:09] Nathan Sweeney: We'll get a quick recap from Sarah on markets last week. So Sarah, what was driving markets last week?
[00:00:16] Sarah Todino: There was a shorter week in the US with Thanksgiving and a rather subdued week for European equities amid fears over the implications of tariffs from Trump and weaker growth there.
[00:00:27] Sarah Todino: In currency, the Euro has had its worst month in a year on the back of all this. So there's also political instability in France and Germany. Which has impacted investor sentiment and within the bond market, French bond yields rose above Greece's for the first time and borrowing costs for France have hit a 12 year high relative to Germany.
[00:00:47] Nathan Sweeney: Okay. So, you know, with Thanksgiving, obviously it is a shorter week in the US this week, but Europe really taking the spotlight from the US and for the wrong reasons, so you can see that the implications of the new Trump presidency already hitting some markets. And, you know, this is really all around.
[00:01:05] Nathan Sweeney: Trade and what to expect coming forward. So will we get tariffs for Europe? And the likelihood is that we do get tariffs and those tariffs target the auto industry, because the US is just looking to help protect its own auto industry. So, what was the key focus in terms of data that was coming out in Europe, Sarah?
[00:01:27] Sarah Todino: We had Eurozone annual inflation this week. So, for November, it rose to 2. 3%. This was ahead of last month's 2 percent figure, but in line with market expectations. This was due to base effects as the sharp falls in energy prices last year are no longer factored in.
[00:01:45] Nathan Sweeney: Yeah. So the, key takeaway from that is that central banks want to get inflation down to around 2%. We're at 2.3%.
[00:01:53] Nathan Sweeney: You're pretty much there in terms of that target level. So from our perspective, we're not really concerned about inflation today in the way that we were concerned about inflation a year or two years ago. Because inflation is broadly in line with central bank's target. It's in around that 2 to 3% level.
[00:02:11] Nathan Sweeney: I suppose the big question going forward for a lot of people is what will be the implication of tariffs? Will that lead to higher inflation next year? We don't think so. And we'll be discussing this in quite a lot of detail in our outlook and in our webinars early next year, as some of those tariffs come into focus, but do watch out for those as we'll give a lot more detail on that topic.
[00:02:31] Nathan Sweeney: So does that inflation reading change the implications for interest rate cuts in the Eurozone?
[00:02:37] Sarah Todino: So we've had three interest rate cuts from the ECB so far this year, with the last one in September. So they're due to meet on December the 12th, and it was largely anticipated that there will be another interest rate cut, and it should still remain the case.
[00:02:52] Sarah Todino: Let's remember here that inflation has still come down a long way from its peak, and the small uptick in inflation was anticipated, and you're also seeing a fall in services inflation. With the decrease to 3.9% in November from 4% in October.
[00:03:07] Nathan Sweeney: So not a meaningful change there really.
[00:03:09] Sarah Todino: No. Nathan, do you have anything in the US this week?
[00:03:12] Nathan Sweeney: So if I look at the US there wasn't a lot of data. And the reason behind this is because the US stock market was closed Thursday and it was actually closed for a half day on Friday, but some of the data that did come out centered around inflation again.
[00:03:25] Nathan Sweeney: So if we look at the inflation, which came out in the US it really didn't change too much from the previous month. So we're looking at figures of around 2.3%. So as I mentioned, we're pretty much in line with central banks targets. So we've kind of said that we're not really that concerned about inflation at the levels we have today.
[00:03:43] Nathan Sweeney: Now, the other data we had was around US growth. And again, if we look at growth coming out of the US. A lot of people have talked about exceptionalism in the US the growth has been higher there than anywhere else really in developed markets. And growth is trending just below 3%, so it's about 2.8% the latest figures, and they're down slightly from 3%.
[00:04:03] Nathan Sweeney: So again, no meaningful change, broadly in line with expectations. You are seeing continued strength in the US economy generally, relative to say Europe and the UK. And we did also have some minutes from the central bank. So you have the central bank in the US, and they released the minutes after their meeting.
[00:04:22] Nathan Sweeney: And they've just said, look. We're not really in a hurry to lower rates because the economy is strong because we've got those growth figures coming through. So our central scenario is that you get this continued moderation inflation and growth moderates and you can see that happening and that leads to a gradual reduction in interest rates and you know, that seems to be continuing to play through.
[00:04:43] Nathan Sweeney: I suppose the other big theme we had this week is Black Friday. So it's, you know, it's a big, big shopping day within the US and obviously a lot of the, those sales have extended for, you know, pretty much the whole week.
[00:04:54] Nathan Sweeney: But just to give you an idea of the likely spend. It's expected that, people in the US will spend about 10.8 billion. So it's a big number and it's about a 10% increase from last year in the UK about 3.8 billion. And that's a 27% increase from last year. And so generally people looking to take advantage of deals.
[00:05:15] Nathan Sweeney: You know, this will be similar to the Trump presidency looking to broker
deals on tariffs. So individuals, obviously looking to play that playbook also. So Sarah, I suppose the key focus for us now is what's happening next week.
[00:05:27] Sarah Todino: So next week, the key data will be the unemployment rate from the US.
[00:05:32] Sarah Todino: We've also got trade balance for Canada, Germany, and Australia. And there's some final figures for PMI data in UK and Europe.
[00:05:40] Nathan Sweeney: Okay. So it's not too much of a busy week, but again, beginning of December. So we're into the final furlong for the year and returns have been pretty good. So we're hoping for a good December as well.
[00:05:50] Nathan Sweeney: Thanks everybody for listening. And if you do have any questions, please do send them into the pod. We would love to bring them up.