5 December 2023
Author: Griffin Tory
November saw a powerful rally across global equity and fixed income markets as real interest rates declined sharply. The cause of this was an expectation of much looser monetary policy over the next several years, with pricing for the end-24 Federal Funds Rate falling from 4.7% to 4.2%. These moves were supported by further declines in US inflation, as well as commentary from the Fed’s Waller in support of “lowering the policy rate” if inflation fell further. There was also evidence of a broad cooling in US economic growth, which bolstered perceptions that the Fed could eventually shift to a more accommodative policy stance. In the Euro Area, activity remained weak, with incoming data consistent with either stagnation or a mild recession. On the inflation side however, data continued to improve, with the Consumer Price Index rising just 2.4% (YoY) in the first reading for November. The UK also recorded inflation declines, though underlying price pressures remained more stubborn than elsewhere, and Bank of England (BoE) Governor Bailey pointedly pushed back against the prospect of rate cuts.
Elsewhere, in Asia, Japan saw further strength in inflation, though the Bank of Japan (BoJ) kept policy on hold. In China, growth in the manufacturing and property sectors continued to disappoint, and the government announced moderate but continuous stimulus measures in response. Oil recorded sharp idiosyncratic declines, as perceived geopolitical risk declined, and fears built around the prospect of oversupply.
Against this backdrop, global equities were up +9.3%1 and fixed income saw its sharpest rally in almost 40 years, with global bonds returning +5% 2 over the month. The US dollar declined by -2.7% 3 , which, along with the fall in real interest rates, coincided with a jump in precious metals. On aggregate, commodities declined -2.3%4, led by a slump in energy.
Source: Bloomberg
