November Update
Global stock markets rallied in October, supported by stronger-than-expected corporate earnings and easing tensions between the United States and China. Investor confidence improved further as Japan delivered exceptional equity market performance, marking its strongest monthly gain in more than 30 years.
Global Overview: Strong Earnings and Trade Relief Lift Markets
Optimism around corporate earnings helped drive global equities higher during October. Around 85% of S&P 500 companies that reported earnings beat expectations, which is the strongest start to an earnings season in four years.
Trade sentiment improved after the United States and China agreed to a preliminary 12-month deal. Under the agreement, the US will reduce tariffs on Chinese imports, while China will ease export controls on rare earth minerals and resume the purchase of US agricultural products.
The US Federal Reserve cut interest rates by 0.25 percentage points for the second time this year, bringing rates to 3.75% to 4.00%. The decision was made without access to official jobs data due to the ongoing US government shutdown, the longest in history.
UK inflation held steady at 3.8% in September for the third consecutive month. Economists now believe inflation may have peaked following earlier increases driven by higher food prices and changes to National Insurance.
However, weakness in the labour market is becoming more visible:
- Unemployment rose to 4.8% in the three months to August, up from 4.7%.
- Wage growth slowed slightly to 4.7%.
Attention now turns to the upcoming UK Budget, where Chancellor Rachel Reeves is expected to raise taxes and reduce government spending.
United States: Earnings Strength and Policy Support
Alongside strong corporate earnings, the Federal Reserve’s rate cut aimed to support a slowing jobs market and broader economy. The continued government shutdown has blocked the release of key economic data, making policy decisions more difficult.
Despite this, investor sentiment improved and US equities continued to benefit from optimism around growth, earnings and trade progress with China.
US and China: Trade Truce Reached
The US and China reached a one-year agreement aimed at reducing tensions. Key elements include:
- US tariffs on Chinese imports reduced from 57% to 47%.
- China suspending export controls on rare earth minerals.
- China resuming the purchase of US agricultural goods.
The agreement boosted risk appetite globally and contributed to October’s equity rally.
Japan: Record-Breaking Equity Performance
Japan was the standout performer globally. Japanese stock markets surged to record highs in October following:
- The election of Sanae Takaichi as Japan’s first female prime minister.
- Expectations of increased defence spending, potential tax cuts and a revival of nuclear energy.
- A positive outlook for fiscal stimulus and economic reforms.
This was the strongest monthly gain for Japanese equities since January 1994.
China: Exports Rise but Growth Concerns Remain
China’s total exports grew by 8.3% year on year in September, the strongest level in six months. However, exports to the United States fell sharply by 27%, reflecting ongoing economic challenges.
Manufacturing activity contracted for the sixth consecutive month, highlighting continued weakness in domestic demand and business confidence.
Europe: Inflation Eases and Activity Improves
In the eurozone:
- Inflation rose to 2.2% in September before easing to 2.1% in October, close to the European Central Bank’s target.
- Private sector activity recorded its fastest expansion in almost two years.
- Political uncertainty persisted in France, where Prime Minister Sébastien Lecornu briefly resigned before being reappointed.
Despite political tensions, improving economic data and easing inflation provided some optimism.
Summary
- Global equities rallied on strong earnings, easing trade tensions and supportive monetary policy.
- Japan delivered its best monthly equity performance in more than 30 years.
- US markets were supported by robust earnings and a Federal Reserve rate cut.
- UK inflation held steady while unemployment increased ahead of the Budget.
- The US and China agreed to a temporary trade deal.
- Eurozone inflation eased while business activity showed improvement.