- 11th Dec 2015
November market commentary
After the drama of August, September and the rebound in early October, markets were somewhat more subdued in November. Volatility, as measured by the VIX index (a widely used measurement of market risk, based on the S&P 500 stock market), has fallen steadily from its closing peak of over 40 in August to between 15 and 20, a level which investors have become accustomed to over recent years. Higher figures suggest more uncertainty amongst investors.
After slight falls in the early days of the period, bond markets recovered with UK Gilts and Index-Linked Gilts ending the month up circa 1.00% and Investment Grade Corporate bonds returning 1.84%. High Yield bonds suffered minor losses of -0.58%.
Despite oil and other commodity prices falling over the period, the UK stock market which has a high exposure to these, returned 0.33%. Whilst far from spectacular, this is not bad given these external influences. Real wage growth continues to come through which is helping support GDP growth so far. However, as we draw closer to the end of the year, attention is beginning to focus on the referendum on the UK’s membership of the EU which is pencilled in for June or September of 2016. Uncertainty is likely to defer investment in the UK by Corporations and this may have a significant impact on growth and financial markets in the short term.
The first estimate of economic growth for Q3 was revised sharply upwards from 1.50% to 2.10% during November. This stronger growth combined with robust consumer spending suggests that the economy has not been as affected by market events in China as feared and should give the Fed confidence to raise rates. Having said that, we have been here before.
The slow and gradual recovery in the Eurozone is expected to continue with GDP growth estimated to be 1.50% this year and forecast to be 1.60% next year. The prospect for more Quantitative Easing (QE), a steady recovery in GDP growth, improving credit growth and a weaker Euro all bode well for European equities.
Consumer prices in Japan rose by 0.30% year-on-year in October. When excluding the effect of energy and fresh food cost, a new indicator published by the Bank of Japan showed consumer prices rose by 1.20% year-on-year in October. This is good news for “Abenomics” (the economic policies of the Prime Minister of Japan, Shinzo Abe) although the need for further stimulus is questionable following this more positive data.
“Emerging Markets” are a diverse and broad set of economies each with their own tailwinds and headwinds. Some will benefit from the fall in the oil price whilst others will suffer.
The divergence between developed and emerging markets reasserted itself in November with Asia Pacific ex Japan equity ending the month flat and Emerging Markets falling -1.40%. The developed markets ranged from returns of 0.33% (UK) to 3.93% (Japan).
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