Episodes
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Macroeconomic Events and Risks
In the US, nonfarm payrolls surged by 227,000 in November, a significant increase from the previous month, although the unemployment rate edged up to 4.2%. Wage growth also exceeded expectations with a 0.4% rise for the month, and 4.0% year-over-year. Consumer inflation rose slightly at 2.7%, driven largely by rising shelter costs, while the Federal Reserve lowered interest rates by 25 basis points, signaling fewer cuts in 2025. Tensions over trade resurfaced, with President Trump threatening tariffs on imports from Canada, Mexico, and China, a move that could disrupt existing trade agreements and escalate inflation risks.
In Europe, inflation rose to 2.3% in November, with services inflation remaining high. The European Central Bank cut its key interest rates further to 3.00%, reflecting continued concerns about economic growth. Investors are pricing in further rate cuts through 2025, particularly in response to persistent inflationary pressures and weaker economic signals.
Geopolitical Events and Risks
President Trump and his transition team are working on a plan to facilitate negotiations between Ukraine and Russia, with the aim of reaching a peaceful resolution to the conflict. Trump has suggested that both sides may need to make compromises to achieve peace. On the trade front, Trump has threatened to impose tariffs on imports from Canada, Mexico, and China, which could disrupt trade relationships and contribute to inflation risks. Additionally, sanctions targeting Russian oil exports have had limited impact on the global oil market so far.
Market Trends
US equity markets experienced mixed performance. The S&P 500 dropped by 0.8%, with tech stocks rallying while cyclical stocks underperformed, partly due to tariff concerns. Meanwhile, European stocks rose, particularly Germany’s DAX, benefitting from a weaker euro and a dovish ECB stance. Emerging markets saw modest gains, with Hong Kong’s Hang Seng and Japan’s Nikkei posting slight increases.
In the bond market, US Treasury yields rose in response to a more hawkish Federal Reserve stance and concerns over potential inflation from Trump’s trade policies. The 10-year US Treasury yield increased to 4.51%, up from 4.37%, and the 2-year yield rose to 4.35%. In Europe, bond yields generally fell, with the German 10-year yield dropping to 2.25%, reflecting the ECB’s continued dovish approach.
In commodities, gold dropped by 1.0%, trading sideways after peaking in October, while oil prices remained steady. Bitcoin surged 9.0% over the month, hitting an all-time high as expectations of a pro-crypto administration under Trump grew.
Currency Trends
The US Dollar Index increased by 1.7%, with the US dollar gaining against most currencies. The euro weakened by 2.0% against the dollar, while the Canadian dollar and Japanese yen both saw significant declines against the greenback.
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Macroeconomic Events
The U.S. economy is showing mixed signals. October's nonfarm payrolls rose by only 12,000, the smallest gain since late 2020, largely due to factors such as the Boeing strike and disruptions caused by hurricane Helene. The unemployment rate held steady at 4.1%, while Inflation inched up to 2.6%, with shelter costs driving over half of the increase. The Federal Reserve lowered interest rates by 25 basis points to 4.50%-4.75%, prioritizing employment over inflation control. Despite the rate cuts, Treasury yields and mortgage rates have risen sharply, with the 10-year yield at 4.37%. GDP growth moderated to 2.8% in Q3 and is forecast at 2.4% for Q4.Eurozone inflation rose to 2.0% in October, led by food and services, with Germany and France posting notable increases. The European Central Bank (ECB) also cut rates by 25 basis points, citing progress in curbing inflation but acknowledging weaker economic activity. Policymakers suggest further rate cuts are likely as they aim for a 2% inflation target.
Geopolitical Events
Tensions escalated as the Biden administration allowed Ukraine to use U.S.-made long-range missiles against Russia, prompting a stern response from Moscow, including updates to its nuclear doctrine. These developments increased geopolitical risks, unsettling global markets. In the wake of these events, U.S. and European equities saw declines, with investors wary of potential escalation.
Market Trends
Equities
U.S. equities experienced volatility, with the S&P 500 up 0.9% for the month but retreating from record highs due to concerns over Trump’s proposed tariffs and regulatory changes. European markets suffered declines, with the DAX and CAC indices down nearly 5%, impacted by geopolitical tensions and trade fears. Emerging market equities also struggled, with notable drops in Hong Kong and Japan.Bonds
U.S. Treasury yields climbed as expectations of slower Fed rate cuts under the Trump administration grew. European bond yields showed mixed movements, with Germany's 10-year yield rising to 2.32% while shorter-term yields fell.Gold and Commodities
Gold prices hit a high of $2,801 before retreating by 1.5% amid a stronger dollar and a shift toward riskier assets. Oil prices dipped slightly, with geopolitical developments providing only temporary support.Cryptocurrencies
Bitcoin surged 37% to a record $92,000, fueled by optimism about Trump’s pro-crypto stance and potential investments in the sector by Trump Media.Currency Trends
The U.S. dollar strengthened broadly, rising 5.2% on the Dollar Index, driven by higher Treasury yields. The euro, sterling, and yen all weakened against the dollar, with euro-dollar exchange rates now at $1.056.
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Missing episodes?
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1. Macroeconomic events and risks
In the US, nonfarm payrolls surged by 254,000 in September, with unemployment edging down to 4.1%. Wages grew 0.4% monthly and 4.0% annually, beating forecasts. US Treasury yields spiked after the report, as markets increased bets on rate cuts in November and December, signaling healthy labor market momentum. Meanwhile, US CPI inflation hit 2.4% in September, with core CPI rising 3.3%—both slightly higher than expected.
In Europe, the ECB followed through on its anticipated 25 basis point cut, lowering its deposit facility rate to 3.25% at the October 17 meeting. The ECB’s dovish stance reflects easing inflation risks and slow economic growth. Markets are pricing an additional 25 basis point reduction in December, which could lower the rate to 3.0%.
Oil prices have been volatile. After surging in early October due to Iran's attack on Israel, prices fell as fears of a wider conflict abated. Brent crude sits at $75, up 2% for the month, while US crude remains flat at $71. The geopolitical risk premium has partially unwound, but tensions in the Middle East keep the oil outlook highly uncertain.
2. Geopolitical events and risks
The situation in the Middle East remains fluid. Following Iran’s rocket attack on Israel, tensions have risen, though an attack on Iran’s oil infrastructure seems unlikely at this stage. Israel’s plans remain unclear, but the possibility of a broader conflict continues to loom. A direct confrontation could drive up oil prices, although for now, geopolitical risks are largely priced in without dramatic market moves.
3. Market trends and potential risks
US equities have continued to climb, with the S&P 500 up 3.5% and the Dow Jones gaining 3.4% over the past month, driven by optimism around potential Fed rate cuts. European equities have also risen, with Germany’s DAX up 4.1%. Emerging market equities have been mixed, with Hong Kong’s Hang Seng Index rising 15.1% due to Chinese stimulus but later retreating.
US bond yields have risen sharply due to inflation fears tied to the ongoing oil uncertainty. The US 10-year Treasury yield now stands at 4.03%, while the 2-year yield is at 3.95%.
4. Currency trends
The US dollar index strengthened by 2.6% over the past month, appreciating versus the euro by 2%. The dollar also gained 1.2% against the Canadian dollar and 4.8% against the yen.
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Macroeconomic Overview
In the US, nonfarm payrolls rose by 142,000 in August, improving from July but falling short of forecasts. The unemployment rate edged down to 4.2%, and wage growth exceeded expectations, reflecting a resilient labor market. The Federal Reserve responded by cutting interest rates by 50 basis points, bringing the rate to 4.75%-5.00%, signaling confidence that inflation is moderating. US inflation slowed to 2.5% in August, its lowest since 2021, although housing costs remain a concern, contributing to ongoing price pressures.
In Europe, inflation declined to 2.2%, with reductions in Germany, France, and Spain. The European Central Bank (ECB) implemented a 25 basis point rate cut, its second this year, as the eurozone contends with sluggish growth and cooling inflation. While markets anticipate further rate cuts, ECB officials are cautious, opting for a data-driven approach to future policy decisions.
Geopolitical Risks
Tensions in the Middle East have intensified, especially in Lebanon, where Hezbollah vowed retaliation against Israel following a deadly attack in September. Despite the heightened elevated risks, markets have shown resilience, as seen in the ongoing decline in oil prices, driven largely by demand concerns from China.
Market Trends
US equities experienced minor declines, with the S&P 500 falling 0.9% over the past two months. Despite an all-time high in mid-September following the Fed’s rate cut, concerns about underlying economic weakness led to a pullback. European stocks remained stable, with Germany’s DAX up 1.0% while France's CAC and the STOXX Europe 600 saw slight declines. In Asia, Japan’s Nikkei dropped over 10%, reflecting volatility from the unwinding of yen carry trades.
Bond yields in the US fell, with the 10-year Treasury yield down to 3.71%, driven by softer inflation data and expectations of further rate cuts. In Europe, yields also dropped, reflecting weaker economic outlooks across the region.
Gold performed strongly, rising 4.6% to a new high of $2,611, as market volatility and recession fears boosted demand for safe-haven assets. Conversely, Bitcoin fell by 7.5%, as riskier assets faced greater selling pressure.
Currency Trends
The US dollar weakened over the past two months, with the Dollar Index down 3.2%, driven by falling Treasury yields. The euro gained 2.1% against the dollar, while the Japanese yen surged 10.3% as speculators unwound carry trades. The British pound also strengthened, rising 1.9% against the dollar, reflecting optimism about the UK economy.
