Shaw and Partners

US stocks made gains in a holiday-shortened week, closing out a strong November. Attention continued to be around Trump’s administration picks, with markets reacting positively to hedge fund manager Scott Bessent being picked for Treasury secretary. This pushed the small-cap Russell 2000 to a fresh high, last reached in 2021. On Monday, Trump posted on his Truth Social site that he would impose a 25% tariff on all imports from Canada and Mexico, as well as an additional 10% on Chinese imports, however it was primarily automakers under pressure from the announcement, with the wider market shaking it off. Economic data for the week was mixed, with personal income rising more than expected in October, however durable goods orders missed forecasts.

For the week, the S&P 500 and Dow Jones Industrial Average added 1.1% and 1.4% respectively, both closing at record highs. The two indices saw their best monthly performance of the year, helped by the Trump-fuelled rally. The tech-heavy Nasdaq Composite rose 1.1%. Most sectors ended in positive territory however the energy sector lagged, with oil prices declining as geopolitical tensions between Israel and Iran showed signs of easing. Meanwhile Treasury yields, particularly longer-dated notes, dropped. The 10-year Treasury note slipped to 4.192%, its lowest level in around a month.

European markets saw modest weekly gains, with the STOXX 600 adding 0.3%. There was some caution over the US tariff announcement and the implications for the region. Eurozone inflation picked up in November, rising 2.3%, although the European Central Bank is still expected to once again cut interest rates at its next meeting. France’s CAC 40 fell 0.3% as the political instability increased. On Thursday, France’s benchmark government bond yield briefly rose above the Greek equivalent for the first time, with growing concerns about the fiscal outlook and if the budget full of spending cuts would be able to be passed. Prime minister Michel Barnier bowed to pressure from the far-right and scrapped plans to raise electricity taxes.

In China, equity markets managed to log gains despite the US tariffs, instead finding support in hopes for additional government stimulus. The Shanghai Composite added 1.8% and in Hong Kong the Hang Seng rose 1%. Bucking the wider positive trend, Japanese equities logged slight losses with the yen strengthening against the dollar. The currency rise was further fuelled after the Tokyo consumer price index (CPI) came in hotter-than-expected at 2.2% in November, raising expectations for another interest rate hike in one of the coming Bank of Japan policy meetings.

Brazil’s Bovespa index fell 2.7% for the week, with the mid-month inflation figure coming in higher than expected for November. The Brazilian real fell to a record low on Thursday in response to the government’s proposal to find $12bn in cost savings over two years. The currency dropped 1.2% to break the six per US dollar threshold. Mexican equities retreated amid tariff concerns and how this would impact relations between Trump and Mexican President Sheinbaum. While the peso was initially lower, it managed to recover losses later on in the week.

Weekly macro highlights

US PCE inflation rises in October

US personal consumption expenditure (PCE) inflation rose 2.3% year-on-year (YoY) in October according to data published by the Bureau of Economic Analysis (BEA). The data was in line with market expectations and above the 2.1% YoY increase registered in September. In month-on-month (MoM) terms, headline PCE inflation rose 0.2% in October, having done so by the same amount in September. Goods inflation fell 0.1% MoM, with a 0.1% increase in average prices for durable goods offset by a 0.1% decline in nondurable goods prices. Average prices for services rose 0.4% MoM in October, above the 0.3% registered in September and marking the highest monthly rate of services inflation since March. Excluding food and energy inflation, which were 0.0% and -0.1% MoM respectively, core PCE inflation was 0.3% MoM in October. This contributed to YoY core inflation of 2.8%, above the 2.7% registered in September and in line with market expectations.

Tokyo CPI inflation rises in November

Tokyo consumer price index (CPI) inflation, a strong leading indicator for nationwide inflation in Japan, rose 2.6% year-on-year (YoY) in November, above the 1.8% increase registered in October. Core inflation, which excludes fresh food but includes energy prices, rose from 1.8% YoY to 2.2% YoY. This was above market expectations for a 2.1% YoY increase. Both headline and core inflation eased in Tokyo in September and October, largely due to base effects for energy prices. November’s data reversed this trend, with energy prices rising 7.4% YoY, above the 2.5% registered in October. Core-core inflation, which excludes both fresh food and energy prices and is a useful measure of underlying inflation, rose 1.9% YoY in November, above the 1.8% recorded in October. Additionally, services inflation, which the Bank of Japan has been monitoring closely, rose from 0.8% YoY to 0.9% YoY, the third consecutive monthly increase in YoY services inflation.

Eurozone flash HICP inflation rises in November

Eurozone harmonised index of consumer prices (HICP) inflation rose from 2.0% year-on-year (YoY) in October to 2.3% YoY in November according to flash estimates published by Eurostat. The data was in line with market expectations and represented the second consecutive month that YoY inflation has risen in the eurozone. The increase in headline inflation largely reflected base effects for energy prices which, although still in deflation territory at -1.9% YoY in November, were well above the -4.6% YoY posted in October. Food, alcohol and tobacco prices rose 2.8% YoY in November, marginally below the 2.9% YoY registered in October. Excluding energy, food, alcohol and tobacco, core HICP inflation rose 2.7% YoY in November, unchanged from the YoY rate recorded in October. This reflected an easing of services inflation, which fell from 4.0% YoY to 3.9% YoY and offset an increase in non-energy industrial goods inflation from 0.5% YoY to 0.7% YoY.