European equities maintained their recent rally last week, reflective of growing optimism that the European Central Bank (ECB) may cut interest rates in the not-too-distant future. The pace of the slowdown in inflation over the past few months has fueled those hopes with headline CPI now only modestly ahead of the ECB’s 2.0% target level. Last week saw several senior ECB policymakers signal that future rate increases are unlikely given the disinflationary backdrop[1] and that helped to lift the MSCI Europe ex UK Index by +1.6% by the close of play on Friday. The ECB hosts its final policy meeting of the year this week and whilst no changes are expected to interest rates on this occasion, any hint of a near term change in direction will be welcomed by the Market.

In the US, the S&P 500 inched +0.2% higher with growth stocks outperforming their value counterparts thanks to the likes of Alphabet and Apple, the latter of which returned to a $3.0tn market capitalization. Elsewhere, mid-caps outperformed their large cap peers in the UK with the FTSE 250 returning +1.6% against the FTSE 100’s +0.3%. Lower gilt yields were supportive with the ten-year security briefly declining below the 4.0% mark, a level not seen for seven months. Losses were seen in several of the key Asian indices with the Nikkei 225 in Japan and Shanghai Composite in China declining by -3.4% and -2.1% respectively. Weak revised economic growth data in Japan was a notable headwind whilst in China, a credit downgrade for the country’s sovereign debt by rating agency Moody’s was not well received by investors.

A late jump on Friday wasn’t enough to stave off another weekly decline for oil, its seventh consecutive retreat. Brent crude declined by -4.0% to $75.84 a barrel on oversupply concerns heading into the New Year. Copper prices also fell, the metal falling by -2.0% to $8,366 a tonne whilst gold finished the week -2.5% lower at $2,004 an ounce. An uptick in the US Dollar did put some pressure on the precious metal which pulled back from its recent record high just above the $2,100 mark.

Week Ahead

Source: Refinitiv Workspace, 11/12/23

[1] T. Rowe Price – Global Markets Weekly Update 11/12/23

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