After a high-speed summer for risk, markets finally put the brakes on in November, but only briefly. As Remembrance Day came and went, markets seemed to remember that risky assets could, in fact, move downwards in sync. With no particular trigger there was a unified sell-off in equities and bonds that started on November 9. Nothing was too severe though – by month end Sterling was climbing against the USD, markets were reaching record highs in the US and momentum seemed to have recovered. The positive monthly performance for the S&P in November represented the first time that there had been 13 months of consecutive positive performance in over 90 years. The DJ Stoxx ended the month -2%, but is still up 10.4% for the year, the S&P 500 added 3.1% to be up 20.5%, while the FTSE 100 lost 1.8%, but remains up 6.6% for the year.
In early November the Bank of England announced the first interest rate rise in 10 years in the UK in response mainly to inflation figures firming. This is the latest chapter in central bank synchronization globally with the US Fed widely expected to hike rates further in December and again in early 2018. Asset purchases by the US Fed and the ECB will also be contracting over time, in response to improved growth prospects in those economies. For now, the impact of this pullback is unknown, but it can be expected to add to volatility in fixed income markets, which like that of equity markets has also been at record lows recently.
In the UK the focus remained on Brexit negotiations, in Europe on nascent growth as well as some political uncertainty in Germany and in the US on tax reform. As of early December it does seem that some form of reform will pass US congress and markets have continued to be strong into December, reflecting that optimism.
Finally, November was a busy month for Emerging Markets risk, with Venezuela officially declared “in default” of its debt – in this case a $60 bn sovereign bond issue and an orderly military coup in Zimbabwe, which brought Robert Mugabe’s 37 year rule to an end. Neither of these countries is significant in the context of broader Emerging Markets investing, but, like any flashpoint, could serve as a trigger for less risk-seeking behavior. For now, markets appear resilient and optimistic, but much uncertainty remains.