Market Update: Focus turns to Europe
Another week of gains with Europe’s recent losers coming up from the rear, Macron invites Trump to the Notre Dame for mass and maybe dialogue, while hopes rise for ECB action next week.November asset returns review
A month of overall gains that disguised very different market performance across the world. Trump’s win boosted the US, but the EU and Emerging Markets did poorly.
The Future of Carbon Credits
Will the boost from the recent COP29 be enough to give life to a dwindling market as long term flaws become real obstacles?November was a month to remember in terms of news and, for the US especially, one which was positive for economic and market optimism. We cover asset class performance in our usual monthly market review in an article below.
This week, global equity markets have gained about 1% but, despite Europe’s political turbulence, both French and German equity markets are beating most of the rest; Sterling has gained against most currencies.
Bonds are marking time ahead of central bank rate decisions in the run up to Christmas. The US Federal Reserve (Fed) meets on the 18th, the Bank of England (BoE) the 19th, but most importantly, the European Central Bank (ECB) meets next Thursday the 12th.
US investors are very bullish and have been so almost all year. Since the election, overseas investors have bought substantially into US-listed stocks as well, helping to drive the general US stock outperformance. Last week we showed the US Conference Board’s measure of domestic investor sentiment and this week we bring our indicator, derived from the weekly measure published by the American Association of Individual Investors (AAII). We normalise the responses and also take a longer timeframe aggregating over a year. The result is shown below:

It tells us the US is a crowded market, one which we know is highly valued. It doesn’t tell us that the positivity is misplaced. However, we think there is a mild danger in the optimism. US investors expect rapid policy enaction but that also raises the possibility of missteps.
Heading into the last weeks of the year, stock market trading volumes are likely to tail off while some investors will need to rebalance portfolios before the year’s end – and that may mean some selling of strongly performing stocks.
Despite his relative quietness, Trump still managed to be involved in the major story of the week – French politics. He will probably meet a number of world leaders, chief among them being Emmanuel Macron. The French President is very keen that the US President-Elect attends Sunday’s mass and celebrations for the reopening of Notre Dame.
While French political turbulence has been building for weeks, it reached a particular height when Prime Minister Barnier forced through his budget at the cost of losing a vote of no confidence. There is no majority bloc yet to be formed, and there can be no parliamentary elections within a year of the last election which was at the end of June. Barnier remains in charge of a caretaker government which has little chance of instituting further budget reduction policies which might help stem the rise in government debt financing costs.
What will Macron hope to achieve with Trump? The primary aim must be to gauge what policies are acceptable to prevent an imposition of tariffs on the European Union. Any (probably brief) discussion may include other European leaders.
The secondary aim for Macron will be to see if it’s possible for the US to play nice with China. All the cabinet appointments suggest there will be a very hard line towards China. However, the hard line is still likely to be focussed on trade rather than issues such as freedom of speech or human rights. Europe needs China to have a deal with the US so it’s not forced into having to choose between its most important markets.
It’s worth noting that America can’t be great all by itself, and Trump likes being a global President. Trump’s engagement in discussions cannot be described as US isolationism and he wants the discussions to be meaningful, which probably means working towards a deal of some sort, and raising the stakes in the meantime.
European leaders must hope that they can generate some export market growth and maintain private sector spending if they are to have any chance of reducing government deficits at the same time. As Europe and China have already found out, it’s very difficult to keep domestic business and consumer confidence up while there is a decline in exports markets.
A fall in the euro would ordinarily help but tariffs mean that a sharp decline in the currency is needed in order to offset the imposed trade costs (and that’s without generating any growth). However, if tariffs can be avoided and exports can grow, private sector domestic demand should be stabilised by lower interest rates and a reasonably small fall in the currency, which then should allow government deficits to shrink somewhat.
As mentioned before, this week’s ECB meeting is extremely important for both France and Germany. Various members of the ECB governing council have said they are “less data dependent”. In other words, the potential for a hit to confidence and growth because of trade disruption is going to mean a rate cut.
Concerns over inflation are no longer relevant, and that helps them to look past the still-low overall Eurozone unemployment rate of 6.3%. Markets are now fully expecting that the 2-week repo rate will come down 0.25% to 3.15% (which brings bank overnight lending rates below 3%). There is some hope that the central bank could cut by 0.5% but comments from hawks such as the Bundesbank’s Nagel have probably nailed that one.
Still, last week it was notable that the French equivalent of the FTSE 100, the CAC-40, has risen nearly 3% and the German DAX-40 is up 4% (in euro terms). Sentiment has been smacked down so much that there’s little room for it to go lower.
The remarkable turn of events in South Korea ultimately has resulted in only small impacts on markets. We admit we were stunned when the news that martial law had been suddenly imposed flashed across the screen. Clearly, so too were the South Koreans.
President Yoon Suk Yeol will be deposed and probably prosecuted after his total loss of self-control. Investors were startled that a nation on the cusp of being declared fully developed could go through such a paroxysm.
There was comfort in the peaceful and swift return to democracy (6 hours). Nevertheless, South Korea’s politics has become more fractious in recent times and its currency has declined by nearly 7% against the US dollar this year, and 2% down last week. In sterling terms, the KOSPI main equity index was down 15% for the year to end of November, and finished the week on its lows, down another 3%.
Lastly, despite the UK government’s bad press, our situation looks relatively good when viewed from outside our borders. Sterling’s mild strength, and the strong performance of insurance companies and telecoms may have nothing to do with last week’s “definitely not a” policy relaunch by Keir Starmer.
This week’s writers from Tatton Investment Management:
Lothar Mentel
Chief Investment Officer
Jim Kean
Chief Economist
Astrid Schilo
Chief Investment Strategist
Isaac Kean
Investment Writer
Important Information:
This material has been written by Tatton and is for information purposes only and must not be considered as financial advice. We always recommend that you seek financial advice before making any financial decisions. The value of your investments can go down as well as up and you may get back less than you originally invested.
Reproduced from the Tatton Weekly with the kind permission of our investment partners Tatton Investment Management
Who are Vizion Wealth?
Our approach to financial planning is simple, our clients are our number one priority and we ensure all our advice, strategies and services are tailored to the specific individual to best meet their longer term financial goals and aspirations. We understand that everyone is unique. We understand that wealth means different things to different people and each client will require a different strategy to build wealth, use and enjoy it during their lifetimes and to protect it for family and loved ones in the future.
All of us at Vizion Wealth are committed to our client’s financial success and would like to have an opportunity to review your individual wealth goals. To find out more, get in touch with us – we very much look forward to hearing from you.
The information contained in this article is intended solely for information purposes only and does not constitute advice. While every attempt has been made to ensure that the information contained on this article has been obtained from reliable sources, Vizion Wealth is not responsible for any errors or omissions. In no event will Vizion Wealth be liable to the reader or anyone else for any decision made or action taken in reliance on the information provided in this article.