US Market Review
Treasuries had mixed performance. US stocks rebounded. The dollar strengthened. Oil and gold surged. Cryptocurrencies, led by Bitcoin, continued their strong performance.
Treasury yields delivered mixed performance during the week. Short-term bonds rose by 7 bp, while yields on the rest of the curve declines, leading to a renewed inversion of the yield curve (2s10s), which reached its lowest level in two months.
US equity markets ended the week in positive territory, recovering from the previous week's losses. Wall Street saw strong gains, particularly among micro-cap and small-cap stocks, which rose by 5.20% and 4.50%, respectively. In comparison, large-cap equities posted a more moderate gain of 1.70%. Stocks in growth-oriented sectors performed exceptionally well; Hims, for instance, rebounded nearly 30% following a sharp decline the prior week. The top-performing stock was Super Micro Computer, which surged 78.42% on momentum driven by Nvidia. The "Magnificent 7" collectively gained 1.15%.
The US dollar strengthened against the euro, reaching 0.96013—its highest level since September 2022. Crude oil prices (WTI) increased by over 6%, supported by geopolitical concerns after Russia warned of potential nuclear weapon use in its conflict with Ukraine. Nonetheless, rising supply from non-OPEC producers and subdued demand, particularly from China, are expected to exert downward pressure on oil prices, mitigating the risk of substantial increases. Gold prices rose by 5.87%, rebounding strongly after their post-election decline. Cryptocurrencies continued their robust performance, with Bitcoin gaining 8.70% for the week. Solana also reached record highs.
US Market Views Synopsis
U.S. PMI data shows growth driven by services, easing inflation, and manufacturing improvement. Housing starts fell, but demand remains strong. Consumer sentiment rose slightly.
U.S. PMI data shows accelerating growth, with a strong services sector and easing inflation, as the Composite PMI hits a 31-month high. Manufacturing remains in contraction, though business confidence has improved, and supply chain strains persist. A recovery in manufacturing is expected by January, but material inflation may rise due to Trump’s policies. In housing, October housing starts fell by 3.1%, although builder sentiment improved, and demand for new homes remains robust despite high mortgage rates and construction challenges. Existing home sales rose 3.4%, but inventory remains tight. The housing market is expected to recover in 2025, with steady growth in single-family home construction. Consumer sentiment saw a modest rise, influenced by partisan divides, while year-ahead inflation expectations fell slightly, though long-term inflation expectations increased, pointing to continued uncertainty over future economic conditions.
Business Activity
U.S. PMI data shows accelerating growth driven by services, cooling inflation, modest manufacturing improvement, and supply chain pressures from rising imports and tariff anticipation.
The latest U.S. PMI data highlights a surge in economic activity, with the Composite PMI climbing to 55.3 in November, its highest in 31 months. This growth was driven by the services sector, which reached a 32-month high at 57.0, outperforming expectations of 55.0 and October’s 55.0. Meanwhile, manufacturing remained in contraction at 48.8 but showed improvement from October’s 48.5, marking the smallest output decline in four months. Business confidence in manufacturing rose to its highest level since May 2022, despite employment declining for the fourth consecutive month. Inflation pressures eased, with output price inflation falling to its lowest since June 2020, and services prices increasing only modestly. These trends suggest accelerating economic growth in Q4, underpinned by robust private sector activity and cooling inflation, with consumer inflation staying well below the Federal Reserve's 2% target. However, concerns linger over the economy's heavy reliance on services, as manufacturing output shrank to a 23-month low. Tariff expectations and protectionist policies have bolstered confidence in goods-producing sectors, leading to higher factory employment and increased imports of production inputs, straining supply chains to levels not seen in over two years. This could intensify price pressures if demand continues to exceed supply.
We anticipate that the manufacturing sector will begin to recover starting in January. However, material inflation is likely to increase, driven by Trump's policy measures.
Housing Market
October housing starts fell 3.1%, driven by single-family declines. Builder sentiment improved, while demand for new homes remains strong despite rising mortgage rates and ongoing challenges like high construction costs and labour shortages.
Housing starts in October fell short of expectations, with a seasonally adjusted annual rate of 1.311 million, marking a 3.1% decrease from the previous month. This decline was largely driven by a 7% drop in single-family housing starts. However, builder sentiment rose to its highest level in seven months in November, though it remains below the neutral threshold, indicating cautious optimism. Single-family permits, a key indicator for future housing starts, increased by 0.5% compared to the previous month. Despite the broader negative sentiment, builders are becoming more confident in selling newly constructed homes, with sales expectations for the next six months reaching their highest point since April 2022.
Demand for new homes remains strong, contrasting with weaker sales of existing homes. Builders benefit from incentives and increased inventory, bolstering new home sales. However, the rise in mortgage rates since October—driven by stronger economic data and hawkish signals from the Fed—presents a potential challenge to the broader housing market recovery. Builders continue to face obstacles such as high construction costs and labour shortages.
In the existing home market, sales increased by 3.4% in October, with gains seen across all regions. Both single-family home sales and condo/co-op sales rose. The median price of a used home in October reached $407,200, slightly up from the previous month’s $406,700, reflecting a 4.0% year-over-year price increase. While sales rebounded, tight inventory and high prices remain persistent challenges. The inventory of existing homes rose by 5.5%, but it remains limited, with only a 4.2-month supply at the current sales pace.
We anticipate that the housing market may begin to recover in Q1 or Q2 of 2025. We expect single-family home construction to grow steadily, supported by moderate declines in financing costs for both builders and buyers, as well as a continued shortage of existing homes due to the mortgage rate lock-in effect.
Consumer Sentiment
Consumer sentiment rose slightly, with partisan divides reflecting differing views on Trump's policies. Year-ahead inflation expectations fell, while long-term expectations and uncertainty increased.
Consumer sentiment showed little change this month, rising by 1.3 index points from October and extending a 4-month trend of modest increases. However, post-election interviews revealed sentiment to be 1.3 points lower than pre-election readings, tempering earlier improvements. This stability in overall sentiment masks significant partisan divergence. Similar to the pattern observed in November 2020, the expectations index rose sharply among Republicans while declining among Democrats, reflecting opposing views on the anticipated economic impact of Trump’s policies. Meanwhile, assessments of current conditions exhibited minimal change across political groups, highlighting the limited immediate economic effect of the election outcome. Considerable uncertainty remains regarding the future direction of Trump’s economic agenda, suggesting consumers will continue to adjust their expectations in the coming months.
Year-ahead inflation expectations edged down slightly from 2.7% to 2.6%, the lowest level since December 2020, aligning with the 2.3%-3.0% range observed in the two years before the pandemic. Conversely, long-run inflation expectations increased from 3.0% to 3.2%, accompanied by a rise in uncertainty as indicated by a wider interquartile range of expectations.
We previously discussed this rebound and remain confident that consumer confidence will continue improving through year-end. However, long-term inflation expectations may rise modestly further.
Disclaimer
This commentary is for information purposes only and does not take into account the specific circumstances of any recipient. The information contained in this commentary does not constitute the provision of investment advice nor a recommendation, offer or solicitation to acquire (or dispose of) any financial instruments and/or services. Prior to making any investment decision investors should seek independent professional advice and draw their own conclusions regarding suitability of any transaction including the economic benefits and risks and legal, regulatory, credit, accounting and tax implications. The past performance of financial instruments is not indicative of future results and you may get back less than the amount you invested.
Credit: Dolfin Europe
