Stock and bond market rally

Falling interest rates and renewed hopes of a moderate change of course by the Fed drove both the equity and bond markets. Investors became increasingly confident that the central banks had reached the end of their cycle of interest rate hikes. Inflation data was lower than expected on both sides of the Atlantic.

The stock markets performed well for the most part in November. The German share index DAX climbed by 9.49%, making up for losses from previous months. The broad European index Stoxx Europe 600 rose by 6.45% and the US index S&P 500 increased by 5.77%. The Hong Kong Hang Seng Index fell by -3.10%. Overall, global equities, as measured by the MSCI World, advanced by 6.05% - all index figures in euro terms.

In the eurozone, the further decline in inflation from 2.9% to 2.4% in November came as a surprise. The inflation rate for services in particular fell significantly. The core rate (excluding food and energy) fell from 4.2% to 3.6%. In view of these figures - and also in view of the weak economic data - many market participants speculated that the European Central Bank could soon lower its key interest rates from the current 4.5%. However, the sometimes sharp wage increases are not yet reflected in the inflation figures, meaning that the inflation rate could rise again as soon as companies pass on labour costs to customers. The ECB is likely to take this into account in its interest rate policy and may not cut interest rates until the end of 2024.

In the US, inflation fell from 3.7% to 3.2% in October compared to the same month last year, and the core rate fell from 4.1% to 4.0%. This data confirmed the majority of market participants in their expectation that no further increase in key interest rates (from the current 5.25% to 5.50%) will be necessary in the US for the time being. The labour market data, which was weaker than in previous months, also contributed to this.

Economic data for the eurozone improved slightly in November compared to the previous month, but still points to a recession. Although the Purchasing Managers' Index for the manufacturing sector rose slightly from 46.5 to 47.6 points in November, it remained below the 50 mark for the sixth month in a row, indicating a contracting economy. This also applies to the Purchasing Managers' Index for services, which rose from 47.8 to 48.7.

The ifo Business Climate Index, which captures the mood of the German economy on a monthly basis, rose for the third time in a row in November - from 86.9 to 87.3 points - but still indicates a recessionary level. The long-term average since 2005 is considerably higher at 96.7. Companies were slightly less pessimistic about the coming six months, but still rated the current business situation as poor. The reasons for this are, on the one hand, the increased interest rate level and, on the other, the loss of purchasing power among consumers, which is also reflected in a negative consumer climate. The GfK consumer climate index stood at -28.3 points in November and has thus remained in negative territory since December 2021.

The purchasing managers' indices in China have also deteriorated further and are below the neutral mark of 50 points for both manufacturing and services. This indicates that weak foreign demand is being compounded by low domestic consumption.

Yields on the bond markets have fallen across the board, in some cases sharply. The yield on 10-year German government bonds fell from 2.81% to 2.45%. Their US counterparts were 60 basis points lower at 4.33%. US corporate bonds recorded the sharpest fall in yields. High-quality securities yielded 5.60%, 75 basis points lower, while the yield on high-yield securities fell by 106 basis points to 8.43%. In this environment, the price of a troy ounce of gold rose by 2.65% to USD 2,036.41.

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