Macroeconomic Overview for November 2024

Eugeniu Chirau

Dec 18, 2024

In November, the macroeconomic environment in the world changed little, and most of the market dynamics were driven more by factors of global economic policy. Trump's victory triggered a sharp rally in stock markets, while debt markets remained under pressure from increased uncertainty about tariff policy and inflation. The US Federal Reserve continued to cut rates, despite inflation stabilizing at a level above the target. As a result, this led to the yield curve of Treasury bonds becoming almost flat, and the yields to maturity of short- and long-duration bonds nearly equalized.

Last month, the index of global high-quality bonds rose by 1.2%, recovering losses from previous weeks in the last days of the month. Global high-yield bonds added 0.82% in value, and emerging market bonds — 1.1%. US high-quality bonds also rose by 1.1%, and high-yield bonds — by 1.2%. The developed countries' stock index increased by 4.6%, particularly the S&P 500 — by 5.9%. The seven largest companies in the S&P 500 index rose by an average of 9.4%. Emerging market stocks fell by 3.6%, and Chinese company stocks (MSCI China index) — by 4.4%. The expected volatility of the S&P 500 index for the coming month dropped to 13.5 amid growing investor optimism.

Macroeconomic statistics for the US did not bring any surprises to investors. The labor market continued to add jobs (227 thousand in November and nearly 2 million since the beginning of the year), and unemployment rose from 4.1 to 4.2%. The labor force participation rate, on the contrary, fell to 62.5%. Wages continued to grow, adding 0.4% for the month and 4% year over year, and still remain below the overall growth in labor productivity, which reached 2.2% at the end of the third quarter, and inflation, which was 0.3% in November and 2.7% over the past 12 months. Consumer price growth appears to have stabilized closer to the 3% annual mark, which is above the Fed's target but corresponds to the average historical level of inflation in the US. The growth in rental housing prices, which are one of the main components of the CPI, decreased from 0.4 to 0.3% per month. This still confirms the previously stated Fed thesis that the gradual extension of rental contracts will lead to a slowdown in inflation in this part of the consumer basket. At the same time, the trajectory of price growth still indicates that the regulator's September forecasts are likely to be exceeded. In turn, this raises the question of whether the Fed will be able to cut the rate next year below 3.5% (as the regulator predicted in September) or will be forced to pause at a higher level of values. The investor consensus still converges on the opinion that next year the rate is likely to stabilize between 3.75 and 4%, but history shows that the consensus is accurate only in the perspective of a few weeks and extremely inaccurate when it comes to even a few months. Long-term inflation expectations remain stable despite some surge after Trump's victory. The pricing of US inflation-protected bonds indicates that the inflation expected by investors in the next 2–3 years is 2.5%, and in the next 10 years — about 2.3%. Stock and corporate bond markets have become more expensive than ever since the beginning of the century: in November, the risk premium for 'BBB' rated bonds fell to a minimum of 0.92 percentage points, and risk premiums in the stock market fluctuate in the range of values reached before the 2008 Global Economic Crisis, the Great Depression, and the Dot-com Bubble.

The macroeconomic situation outside the US remains quite bleak. Growth forecasts for European economies at best indicate a low pace of this growth, and the political situation in many countries is becoming less stable. The French government must resign following a vote of no confidence, which was the result of disagreements over next year's budget. A similar question of confidence in the government is likely to be raised in Germany, which could lead to early elections in 2025. In the UK, a petition for new elections has gathered about 2.6 million votes and will be considered by parliament in January. In Romania, in the first round of presidential elections, an unexpectedly little-known far-right candidate, who is attributed with ties to Russia, became the leader. However, soon the Constitutional Court made an unprecedented decision to completely annul the results of the first round of elections, citing interference by external forces. Economic problems increasingly lead to political problems, and unlike the US, in Europe, there is absolutely no clarity on which political actors could become the chosen force capable of implementing painful but necessary economic reforms.

In China, despite low rates and fiscal stimuli, deflationary trends only accelerated. In November, consumer prices fell by 0.6%, and inflation over the past 12 months was only 0.2%. Real estate prices, which are a major part of household wealth, continued to fall: over the past 12 months, new housing prices in the 70 largest cities in China decreased by 6.2%, and secondary housing prices — by 9%. The population's frenzied demand for gold also turned around, as evidenced by sharply declining jewelry sales figures. Despite the fact that in conditions of falling stock prices and housing values, gold became one of the few assets in which the Chinese population found a way to preserve their capital, the price, which reached almost $2,800 per troy ounce, deters retail buyers, despite the negative dynamics of other assets. Apparently, this was the main reason for the sharp drop in gold prices in November, which exceeded 8% by mid-month. By the end of November, the price recovered some losses, coinciding with the resumption of gold purchases by the Bank of China after a six-month pause. This once again shows how volatile the price of gold is and can change not so much due to changes in the expected returns of securities in developed markets, but under the influence of the balance of supply and demand in emerging markets, a significant part of which is tied to direct purchases by central banks and retail investors who do not find or do not have more effective alternatives for preserving their capital.