04/12/2019 - Markets: Monthly Commentary November

Markets-Monthly-Commentary-November

Climate shifts

The ifo business climate index rose again for the first time since March. Other leading indicators such as purchasing managers' indices and incoming orders also rose again. The good mood was also reflected on the stock markets, supported by hopes of a temporary solution to the trade conflict.

The majority of the large international stock indices performed well in November. The German stock index DAX rose 2.87% and the broad European index Stoxx Europe 600 increased up to 2.69%. On the other side of the Atlantic the S&P 500 Index climbed 4.62%. However, the Hang Seng index (Hong Kong) fell -0.80%. World stocks measured by the MSCI World rose 3.84% - all index data on euro basis.

In November several leading economic indicators in Germany and Europe reversed the negative trend. For the first time since March the German ifo business climate index recorded a higher result than the previous month with 95 points. The purchasing managers' indices for industry in Germany and the euro zone also recovered somewhat, but are still in the contracting range at 43.8 and 46.6 points. German incoming orders and exports increased compared to last month, with only industrial production declining slightly.

While the German economy grew slightly (0.1%) in the third quarter contrary to expectations, the US economy grew more strongly than expected by 2.1%. The purchasing managers' index for the manufacturing sector also improved in the USA. In addition consumer confidence remained high at 125.5 points, while consumer spending and retail sales in the US both rose by 0.3% month-on-month. Industrial production, on the other hand, contracted slightly.

In China, the signals were mixed. On one hand, the purchasing managers' index for industry improved to 51.7 points. On the other hand, growth in industrial production and retail sales declined, and the results for imports and exports were below the previous year's figures. In addition, Chinese industrial companies suffered a 9.9% drop in profits compared to previous year. To stimulate the economy the Chinese central bank lowered the loan prime rate (the new key interest rate) over five years from 4.85% to 4.80% and over one year from 4.20% to 4.15%. Financial institutions can now also obtain capital more cheaply from the central bank as the interest rate for medium-term loans was also reduced by five basis points to 3.25%.

The mood on the stock markets was also boosted by the hope that a provisional settlement in the trade conflict between the USA and China was imminent - US President Donald Trump had announced that negotiations with China were "in their final stages". Market participants also assumed that the USA would not impose import duties on cars from the EU for the time being, as European car manufacturers were planning high investments in the USA. The reporting season also developed positively, especially in the USA. Companies in the S&P 500 index reported profits for the third quarter that were only -0.5% lower than in previous quarter, while the market had expected profits to fall by -2.2%.

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