This week (November 4-8), the "Trump trade" continued to affect global markets, with the Federal Reserve cutting interest rates by 25 basis points as scheduled. However, due to political uncertainty, the market judged that its subsequent path of interest rate cuts would be more cautious. The US dollar and US stocks rose sharply, and non US currencies came under pressure, with Bitcoin rising sharply.
In terms of the US stock market, all three major indexes hit new highs this week, with the Dow Jones Industrial Average and the S&P 500 Index recording their best weekly performance of the year. The S&P 500 index closed at 5995.54 points, up 4.66% for the week; The Dow Jones Industrial Average closed at 43988.99 points, with a cumulative increase of 4.61% for the week; The Nasdaq index closed at 19286.78 points, up 5.74% for the week; The Russell 2000 Small Cap Index rose 8.47% for the week.
Among them, Tesla surged to a new high since April 2022, with a cumulative weekly increase of 29.01% and a market value exceeding one trillion US dollars. Nvidia once surpassed Apple to become the world's most valuable company again, with a cumulative increase of 9.03% for the week.
Most European stock markets have fallen this week, with the European STOXX 600 index experiencing a cumulative decline of 0.84% for the week, marking three consecutive weeks of decline; The German DAX index has fallen 0.21% this week; The French CAC40 index has fallen by 0.95% this week; The FTSE 100 index in the UK fell 1.28% for the week.
In the Asia Pacific market, driven by the weakening of the Japanese yen, Japanese stocks strengthened on a weekly basis, with a cumulative increase of 3.8% throughout the week; The Indian stock index closed down 0.30% this week; The South Korean Composite Index has risen by 0.74% this week.
In terms of the foreign exchange market, the US dollar index rose this week, with a cumulative increase of 0.6% for the whole week, closing at 104.95. Non US currencies are generally under pressure this week, with the euro falling 1.06% against the US dollar; The pound fell 0.25% against the US dollar this week
The 'Trump deal' has also driven the strength of cryptocurrencies. Bitcoin once reached $77000, continuing to hit a new historical high, with a cumulative weekly increase of over 10.57%.
In terms of commodities, oil prices have fluctuated greatly this week. At the beginning of the week, OPEC+issued a statement stating that it would once again postpone its oil production plan and extend the production reduction measures by one month until the end of December. Oil prices have risen sharply, but according to data from the US Energy Information Administration (EIA), US crude oil supply has reached a new high since August, dragging down the weekly increase in oil prices. WTI crude oil has risen by 1.35% cumulatively, and ICE crude oil has risen by 1.09% throughout the week.
This week, due to the strengthening of the US dollar and the Federal Reserve's indication of an open attitude towards suspending interest rate cuts, the market once again reduced its expectations of interest rate cuts from the Federal Reserve. Spot gold fell 1.85% for the week; The main futures contract for New York gold fell 2.09% for the week, with gold, silver, and copper all falling this week, and London industrial metals generally falling.
Next week, many Fed officials will give speeches, and Powell will also attend the event and give a speech. At the same time, US CPI data, PPI data, and retail sales data will become important references for investors to judge the health of the US economy and the extent of the Fed's interest rate cuts in 2025.
The 31st Informal Leaders' Meeting of the Asia Pacific Economic Cooperation (APEC) will be held in Peru next week, and the G20 Leaders' Summit in Brazil will also be held on November 18-19.
US CPI data
The Federal Reserve lowered its target range for the federal funds rate by 25 basis points to 4.5-4.75% as scheduled at its November 2024 meeting. However, Fed Chairman Powell's remarks after the meeting have become more hawkish. Unlike his statement in September that he will still start from data, Powell has made it clear that he needs to consider the possibility of suspending interest rate cuts in December and will be more cautious about the subsequent path of interest rate cuts.
Analysts generally believe that Powell's speech this time is clearly not as easy as it was in September, and the relative importance of inflation and unemployment rates in the eyes of the Federal Reserve may experience another reversal. On Wednesday, November 13th at 21:30 Beijing time, the US Bureau of Labor Statistics will release the Consumer Price Index (CPI) data for October.
In September this year, the US CPI rose by 0.2% month on month and 2.4% year-on-year, both of which were 0.1 percentage points higher than market expectations. The market expects the year-on-year growth rate to slow down from 2.5% to 2.3%.
The core CPI increased by 0.3% month on month in September, consistent with the increase in August, and failed to slow down to 0.2%; The year-on-year increase recorded 3.3%, a new high since June, and the market was originally expected to remain unchanged at 3.2%.
Sarah House, a senior economist at Wells Fargo, stated in a recent report that she expects US inflation levels to remain above the Federal Reserve's 2% target. The month on month growth rate of CPI in the United States in October was 0.2%, which was the same as the growth rate in September; The year-on-year growth rate may increase from 2.4% in September to 2.5%.
House said that the core CPI will still have stickiness, and it is expected that the US core CPI will maintain a month on month growth rate of 0.3% for the third consecutive month in October, while the year-on-year growth rate will remain at 3.3%.
The UBS analyst team believes that the year-on-year growth rate of US CPI is expected to remain at a high level in the coming months.
The current market concerns about US economic data have once again turned to the possibility that Trump's victory may accelerate the risk of secondary inflation. Cui Rong, Chief Analyst of Overseas Research at CITIC Securities, stated that the slightly higher than expected US core inflation in September has led to a significant increase in Powell's speech on inflation. If the unemployment rate no longer significantly rises, the relative importance of inflation and unemployment rate in the eyes of the Federal Reserve may flip again. Cui Rong also believes that Trump's impact on market inflation expectations may become a hidden concern that the Federal Reserve cannot ignore.
Analysts believe that if the US October CPI data falls below expectations, US bond yields and the US dollar may come under pressure. If the CPI data continues to exceed expectations, the rise of the US dollar may continue.
Federal Reserve officials deliver speeches
The November interest rate meeting cut interest rates by 25bp as scheduled, and the Federal Reserve released information that future interest rate cuts will slow down. Powell remains cautious about the future path of interest rate cuts.
Due to Powell's cautious statement, the market's current expectations for the future path of interest rate cuts have begun to fluctuate from one extreme to another. From the perspective of the final value of interest rates, the interest rate futures market expects the Federal Reserve to cut interest rates only three times, with a endpoint of 3.75% -4%.
On Friday, November 15th at 04:00 Beijing time, Powell was invited to attend a dialogue session titled "Global Perspective". Investors need to closely monitor their views on the future trends of US inflation, the economy, and the Federal Reserve's interest rate path.
Wellington Investment Vice President Johnny Yu told Xinhua Finance that various policy uncertainties after the US election will cause considerable disturbance and compress the space for future interest rate cuts by the Federal Reserve. Therefore, it can be expected that the Federal Reserve may maintain a cautious and flexible policy attitude in the next stage to address the risks of economic activity and inflation exceeding expectations.
Gao Ruidong, Chief Macroeconomist of Everbright Securities, said that the Federal Reserve is highly likely to push forward the interest rate cut cycle within the dual target framework of employment and inflation. It is worth noting that Powell has taken a tough stance on the independence of the Federal Reserve, while the Trump team has responded more gently. The latter may use this move to signal a temporary non intervention in the pace of the Fed's interest rate cuts.
Can the US stock market's upward trend continue?
This week, the US stock market hit a new historical high, with the S&P 500 index rising 4.66% and the panic index VIX falling sharply, marking the largest weekly decline since 2021, indicating a significant convergence of volatility after the election results came to fruition.
Analysts say that based on the historical performance of the US stock market, the end of the year is often the time when the US stock market rises. Over the past century, the average return in the last two months of each year has reached 2.2%.
In election years, year-end returns are further amplified. Over the past 40 years, the average return rate of the S&P 500 index from November election day to the end of the year was 6%. As political uncertainty decreases, stocks as risk assets are once again being sought after by funds.
According to Goldman Sachs' data, the total leverage ratio of long/short positions in the United States dropped to its lowest level since the Silicon Valley banking crisis in March 2023 one week before the election, indicating that traders tend to retain some funds in order to enter the market after the election results are announced.
Faced with an overly optimistic market, Daniel Ivascyn, Chief Investment Officer of PIMCO, recently issued a warning that the US stock market may experience a reversal after a sharp rise. As the US economy strengthens, the problem of "re inflation" resurfaces, and risk assets should not be blindly optimistic.
Next week, as Chinese concept stocks begin to disclose their performance, Tencent, Alibaba, JD.com, and NetEase will all release their latest financial reports.