Market outlook 2024

Global equities rose in November as easing inflation boosted investor hopes that most major central banks were finished with their interest rate hikes and could turn to cuts in 2024. Crude prices fell, however, due to uncertainty about the demand outlook.

UK stocks increased as pricing pressures cooled and the Bank of England left interest rates unchanged. Annual inflation slowed to 4.6% in October, which was lower than expected, from 6.7% in September. The economy failed to expand over the third quarter, following second-quarter growth of 0.2%, as domestic spending and investment fell. In politics, former prime minister David Cameron was appointed foreign secretary in a cabinet reshuffle while the government announced tax cuts. Sterling gained against a weaker US dollar during the month.

US equities rallied as slowing inflation and the weakening economic outlook heightened expectations that interest rates had peaked, while some solid corporate earnings provided support. The US Federal Reserve (Fed) warned it could tighten monetary policy further as it again held interest rates at a 22-year high. Investors largely shrugged off these concerns as evidence of a cooling economy continued to emerge, with both consumer spending and jobs growth easing. The Consumer Price Index rose by 3.2% year on year in October, down from September’s 3.7% increase, while third-quarter GDP growth was upgraded to 5.2%, on an annualised basis, from an initial reading of 4.9%. The US dollar weakened against a basket of currencies on growing expectations that the Fed would cut rates in 2024.

European markets strengthened amid hopes that major central banks could turn increasingly dovish next year. Some favourable corporate results and a slowdown in eurozone annual inflation6, to 2.4% in November from 2.9% in the prior month, also cheered investors. Minutes of the European Central Bank’s October meeting showed that officials remained cautious about the outlook. The euro weakened against the pound, although it gained against the US dollar.

Japanese shares moved higher as some positive corporate results and the improved global mood boosted sentiment, while the government unveiled a huge new stimulus plan to support the economy. The core inflation rate, which excludes fresh food prices, edged up to 2.9% year on year in October from September’s 2.8% level. However, third-quarter GDP shrank more than expected, by an annualised 2.1%, following 4.5% growth in the second quarter, highlighting the challenges facing the economy. The yen strengthened against the US dollar.

Asia-Pacific equities (excluding Japan) gained, in aggregate, on optimism about a possible end to major central banks’ rate hikes. Chinese equities rose only modestly as increases in retail sales and industrial production stoked hopes the economy was gaining momentum, although the recovery remained uneven. South Korean equities advanced as the country’s financial regulator barred short selling until mid-2024, citing illegal moves by foreign institutional investors. Continued GDP growth and strong interest from foreign equity investors buoyed Taiwan’s market. In Australia, the positive global sentiment helped shares rise, while the country’s central bank raised interest rates.

Emerging markets moved upward, overall. Indian stocks were higher as they benefited from increased foreign investment inflows while GDP expansion beat forecasts. Brazil’s market rose strongly, with the country’s central bank continuing to loosen monetary policy. Argentinian shares surged higher as investors hoped populist Javier Milei’s win in the presidential vote would help restore the crisis-hit economy. South African stocks made gains, as did equities in Turkey, where inflation slowed for the first time in four months, albeit slightly, following a series of large rate hikes.

Yields on core government bond markets fell sharply (prices rose, reflecting their inverse relationship) on expectations that central banks were done with their aggressive rate hikes and could shift to cuts in 2024. The benchmark 10-year US Treasury yield ended at about 4.3%, down from more than 4.9% at the start of November. In corporate debt, US investment-grade and high-yield spreads tightened as bond markets rallied.