11/12/2024
Market review
US elections drive the markets
The dominant topic in November was clearly the US presidential election. Those who were well informed knew that Donald Trump had a good chance of being re-elected president. And that is what happened. Donald Trump was elected with a relatively clear majority of the votes. The Republicans now even have a majority in both chambers of Congress, which should give the new president some leeway to implement his announcements. Jitters on the capital markets quickly subsided after the elections, because market players dislike uncertainty, and that is now off the table. A business-friendly environment is being created under the new US administration, with plans for lower taxes and less regulation, among other things. The foreseeable deregulation gave the US markets a positive momentum, culminating in new highs. Yields on 10-year US bonds rose significantly, as the ever-growing national debt will likely continue to rise to unprecedented levels. The rise in bond yields contrasts with the Fed’s intention to lower rates, which it began with the first two rate cuts.
Inflation in the US is also currently running counter to the Fed’s interest rate decisions, as the target range of 2% seems out of reach. While the core rate is still stuck at 3.3%, overall inflation rose again slightly to 2.6%. In the near future, inflation could rise even further due to base effects, forcing the Fed to refrain from further interest rate cuts. Donald Trump’s political plans, such as his planned tariff policy, could also push up inflation further. The proposed deportation of illegal immigrants could also impact the US labour market and fuel wages in the low-wage sector, which could create additional inflationary pressure. In Europe, the overall picture is currently much bleaker. Structurally, the two largest economies, Germany and France, are on the ropes. Politically, the two countries are currently at an impasse. In Germany, new elections are on the horizon, and in France, the government coalition is facing a crucial test due to the planned massive cuts in the national budget. Neither economy is realising its potential, and both are currently stagnating. The Supply Chain Due Diligence Act, worsened building permit processes, failed climate protection measures and exploding unit labour costs have made doing business more expensive and deeply unsettled people.
Donald Trump’s election is also a call to action for Germany, France and all of Europe – at both the political and corporate level. In addition, inflationary pressures are also increasing again in Europe. The weakening currency and rising wage costs in the service sector could soon cause inflation to rise above the target range of 2% again, thus calling into question future interest rate cuts by the ECB. In China, it does not currently appear that the announced stimulus programme could usher in an economic turnaround. The government’s support, which is basically generously distributed among various sectors, has had little effect so far. The markets are eagerly awaiting an adjustment to the distribution of the stimuli in order to finally achieve the desired effect. In Switzerland, GDP growth slowed as expected, as foreign trade was unable to make a significant contribution. For the last quarter of this year, the KOF Economic Barometer indicates that the Swiss economy could pick up speed again somewhat. The weekly economic activity indicator of the State Secretariat for Economic Affairs (SECO) also points in the same direction. Despite the structural and economic problems in Germany, the outlook for the Swiss economy is not too gloomy.
Stock markets
The US equity markets clearly benefited from Donald Trump’s election victory. The planned deregulations and the return to fossil fuels helped the US markets to achieve higher prices of over 5% in November. By contrast, the European stock markets lost ground.
The French stock market in particular is weak, as the government is facing a major test with its upcoming decisions on austerity measures. In Switzerland, the equity market is also stuck in neutral, with heavyweights such as Roche and Nestlé continuing to weigh on the SMI.
Interest rates
As expected, the FED lowered its key rates by 0.25% in November. However, only three further rate cuts are expected by the end of 2025, which is considerably less than recently. Uncertainty about future inflation trends plays a major role here.
In Europe, up to 6 interest rate cuts are expected, reflecting the difficult economic situation. France is still the problem child, with French bonds now yielding more than Greek bonds.
In Switzerland, negative interest rates are no longer ruled out for 2025.
Currencies and commodities
In November, the USD continued to rise across the board. The EUR also lost ground against the CHF and is now barely above the lows seen at the beginning of the year. Precious metals are still consolidating, with gold losing over 3%.
Due to the uncertain developments in China and Europe, copper lost ground and fell by 5%. The cold weather in Europe is driving up gas prices by more than 20% in some cases.
Crude oil is moving sideways between $68 and $72. After the US elections, Bitcoin briefly reached the 100,000 mark against the USD.