At a glance
Global stocks in November rose for a 13th consecutive month, to set fresh record highs, after hopes swelled that US Congress would cut corporate taxes. US companies overall reported better-than-expected earnings for the third quarter and reports showed the US and other major economies are thriving. However, European stocks fell after talks to form a coalition government in Germany collapsed and concerns mounted that the UK’s departure from the EU would damage the British economy.. A drop in the Australian dollar boosted gains in Australian dollars for those who have unhedged investments in global equities. The Morgan Stanley Capital International (MSCI) World Index rose 2.2% in US dollars and 3.2% in Australian currency.
Australian stocks rose for a second month after the Reserve Bank of Australia forecast core inflation will stay below 2% throughout 2018 and higher iron ore, oil and coal prices boosted energy and material stocks (even though commodities overall fell – the Bloomberg Commodities Index lost 0.6%). Gains were capped when bank stocks fell after major banks reported lacklustre earnings and the government announced a Royal Commission into the “alleged misconduct of Australia’s banks and other financial services entities”. The Reserve Bank in its quarterly Statement on Monetary Policy said more competition in the retail industry will help keep underlying inflation at about 1.75% “until early 2019”. The central bank, earlier in the month, held the cash rate at 1.5% for the 14th consecutive month. Economic reports released over November were underwhelming. Retail sales in September were unchanged from August. The Westpac Melbourne Institute Index of Consumer Sentiment fell 1.7% in November to 99.7, where 100 is the neutral level. The economy only added 3,700 jobs in October while the jobless rate fell 0.1 percentage points to 5.4%. The S&P 200 Accumulation Index rose 1.6%.
US stocks gained for an eighth consecutive month after earnings overall beat expectations. Hopes grew that US Congress would pass the biggest rewriting of tax laws since 1986 that would lower the corporate tax rate from 35% to 20%, and reports showed the US economy is growing at its fastest pace in three years. During November, a second reading showed the US economy expanded at an annualised pace of 3.3% in the September quarter, the fastest growth since the same quarter in 2014, up from an initial reading of 3.0%. Another report showed the economy added 261,000 jobs in the previous month when the jobless rate fell to a 17-year low of 4.1%. The Federal Reserve boosted expectations of a rate increase in December when its policy-setting board described economic growth as rising at a “solid rate”. The S&P 500 Index gained 2.8%.
European stocks stumbled for the first time in three months after Germany’s Free Democrats unexpectedly pulled out of talks aimed at forming a coalition government, with Angela Merkel’s Christian Democratic Union of Germany Party and the Greens, raising the prospect of fresh elections not long after September’s inconclusive poll. Economic news released during the month on the eurozone economy was buoyant. Consumer confidence at a 16-year high, rising wages, an improved jobs market, higher profits and more business confidence were among factors that prompted the European Commission to raise its growth forecast for the eurozone for 2017 to 2.2%, the fastest pace in a decade. In the UK, stocks fell for the second time in three months after the Bank of England raised the cash rate by 25 basis points to 0.5%, the first increase in a decade, to control inflation running at about 3%. The central bank acted even though it warned that “uncertainties associated with Brexit are weighing on economic activity”. The Euro Stoxx 50 slid 2.8% while the UK’s FTSE 100 Index lost 2.2%.
In Asia, Japanese stocks gained for a third month after a report showed the economy posted its seventh consecutive quarter of growth when it expanded at an annualised pace of 1.4% in the September quarter. In China, stocks were little changed after higher bond yields and stricter controls on ‘shadow banking’ offset positive reports on the economy. Japan’s Nikkei 225 Index added 3.2% while China’s CSI 300 Index, which tracks the biggest stocks on the Shanghai and Shenzhen exchanges, was flat. Movement in benchmark indices are in local currency unless stated otherwise. As is common practice, all indices mentioned are price indices apart from the MSCI indices and the S&P 200 Accumulation Index.
1. Prime Minister of Australia. Media release. “Royal Commission – Banks and financial services.” 30 November 2017. pm.gov.au/media/royal commission- banks-and-financial-services
2. Reserve Bank of Australia. “Statement on Monetary Policy.” November 2017. Page 69. rba.gov.au/publications/smp/2017/nov/pdf/statement -on-monetary-policy-2017-11.pdf
3. Federal Reserve. ‘Press release. Federal Reserve issues FOMC statement.’ 1 November 2017. federalreserve.gov/newsevents/pressreleases/monetary20171101a.htm
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