While US stocks started the week higher, the post-election rally lost momentum as the week went on, with investors reacting to the first picks for the new Trump administration. Healthcare stocks were notably under pressure on Friday in response to Robert F. Kennedy Jr., a vaccine sceptic, being picked to lead the Health and Human Services Department. Meanwhile, Elon Musk was tapped to be co-head of a new Department of Government Efficiency, adding support to the Tesla ‘Trump trade’. However, the stock later lost ground and was ultimately lower for the week on news that consumer tax credits for electric vehicle purchases could be eliminated under the new government. For the week, the S&P 500 declined 2.1%, eroding some of the prior week’s gains. The Dow Jones Industrial average lost 1.2% while the Nasdaq Composite was down 3.2%.
After being somewhat overshadowed by the election, monetary policy re-emerged as a focal point for investors. The consumer price index rose 2.6% year-on-year in October from 2.4% in the prior month, while producer prices also picked up. On Thursday, Federal Reserve chair Jerome Powell delivered hawkish commentary, indicating that the current economic environment would allow the central bank to proceed carefully with rate cuts. This prompted traders to reduce their bets on a quarter percentage point cut at the next meeting in December, with CME’s FedWatch tool pricing it in at around 58% at the end of the week. This was reinforced by retail sales data, in which they climbed more-than-expected in October. In response, Treasury yields rose, with the 10-year note briefly hitting 4.505%, its highest level since late May, and ended the week at 4.439%.
European markets also declined on concerns around the new Trump administration and the implications on trade policy. The pan-European STOXX 600 declined 0.7% in its fourth consecutive weekly loss, while regional performance was mixed. Italy’s FTSE MIB actually managed to log a 1.1% advance, France’s CAC declined 0.9% while the German DAX managed to bounce back from losses earlier in the week to end flat. Minutes from last month’s European Central Bank meeting indicated that the quarter point cut was fuelled by “prudent risk management”. The UK FTSE 100 was slightly lower for the week, with the economy unexpectedly slowing in the third quarter, while annual wage growth excluding bonuses for the period was unchanged at 4.8%.
A number of Trump’s pick for his administration are seen as China hawks, putting further pressure on Chinese equities. Inflation data also failed to lift the mood. The consumer price index eased to 0.3% year-on-year in October, from 0.4% in the prior month, while producer prices once again remained in deflationary territory. In addition, other economic data released was mixed, with retail sales rising by a better-than-expected 4.8% in October while industrial production missed expectations. For the week, the Shanghai Composite dropped 3.5% and the Hang Seng lost 6.3%. In Japan, the Nikkei 225 declined 2.2% and was unable to benefit from the yen weakness. Declines in the yen could put pressure on the Bank of Japan to hike rates soon.
Weekly macro highlights
US CPI inflation rises in October
US consumer price index (CPI) inflation rose from 2.4% year-on-year (YoY) in September to 2.6% YoY in October, according to data published by the Bureau of Labor Statistics. October’s data was in line with market expectations and represented the largest 12-month change in inflation since the 2.9% recorded in June 2024. Food prices rose 2.1% YoY in October, with food at home and food away from home recording average price increases of 1.1% YoY and 3.8% YoY respectively. Energy prices fell 4.9% YoY in October, with a 12.4% decline in energy commodities prices offsetting a 4.0% increase in energy services prices. Excluding food and energy, core CPI inflation rose 3.3% YoY in October, unchanged from September’s 12-month inflation rate and in line with market expectations. Core goods inflation rose from 0.8% YoY in September to 0.9% YoY in October, while core services inflation rose from 4.7% YoY to 4.8% YoY.
UK GDP growth slows in Q3
UK gross domestic product (GDP) growth slowed from 0.5% quarter-on-quarter (QoQ) in Q2 to 0.1% in Q3, according to the first quarterly estimate published by the Office for National Statistics (ONS). The data was below market expectations for 0.2% QoQ growth. Services output rose 0.1% QoQ in Q3, with eight of the fourteen subsectors seeing an increase in output. Production output fell 0.2% QoQ in Q3, mostly reflecting a 2.7% decline in electricity, gas, steam and air conditioning supply. Within production, manufacturing output rose 0.2% QoQ. Construction output increased by 0.8% QoQ in Q3, with new work rising 2.0% and offsetting a 0.6% decline in maintenance. In addition to Q3’s GDP data, the ONS published labour market data for September last week. The unemployment rate rose from 4.0% in June to August, to 4.3% in July to September. Average weekly earnings growth slowed from 4.9% year-on-year to 4.8% over the same timeframe.
Japan’s GDP growth eases in Q3
Japan’s gross domestic product (GDP) rose 0.2% quarter-on-quarter (QoQ) in Q3 according to the first preliminary estimate published by Japan’s Cabinet Office. The data was in line with market expectations and represented a slowdown from the 0.5% QoQ growth rate registered in Q2, which was downwardly revised from 0.7%. Despite the slowdown in the overall GDP growth rate, private consumption rose 0.9% QoQ, up from 0.7% in Q2. Government consumption also increased in Q3 relative to Q2, rising 0.5% QoQ compared to 0.1%. These factors combined would have resulted in a 0.6% QoQ increase in GDP in Q3. The -0.4 percentage point contribution that resulted in GDP increasing by 0.2% QoQ, came from net exports of goods and services. Exports rose 0.4% QoQ in Q3 but imports, which are a subtraction from GDP, rose 2.1% QoQ, resulting in net exports making a negative contribution to GDP growth.
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