Market Pulse: END–NOVEMBER 2024

TRUMP WINS CONVINCINGLY THE US ELECTION AS COUNTRIES PREPARE TO A RAFT OF TARIFFS AND NEGOTIATION.


Equity Markets:

The concept of ”America First” is evident in the US equity markets, which continue to outpace global peers. Small- and mid-cap equities in the US have garnered significant investor attention, with the Russell 2000 and the S&P Midcap 400 indices achieving impressive gains of nearly 11% and 8.8%, respectively, in November. This outperformance reflects the resilience of the US economy, bolstered by investor optimism surrounding potential corporate tax cuts and economic policies introduced during the Trump administration. However, concerns about the medium-term fiscal sustainability of these policies remain due to expected federal budget adjustments. Outside the US, performance in global equity markets was varied. In Europe, the CAC 40 Index in France lagged its peers, reflecting current political instability and budgetary challenges tied to its fragile coalition government. Conversely, Spain's IBEX 35 Index emerged as a regional leader, delivering a robust year-to-date (YTD) return of 20.27%. In Hungary, the Budapest Stock Index gained 5.51% in November, with analysts attributing this success partly to the favourable relationship between Hungarian Prime Minister Viktor Orbán and the Trump administration.

In company news, Volkswagen continued to report challenges, citing factory closures and the write-down of its 21% stake in Northvolt, as the Swedish battery maker files for Chapter 11 bankruptcy. General Motors announced plans to enter Formula One motor racing under the Cadillac brand in 2026, positioning it as the 11th team in the competition. In the banking sector, UniCredit has made a €10.1 billion takeover bid for Italian rival Banco BPM. If successful, this acquisition would position UniCredit as Europe’s third-largest lender by market capitalization. Meanwhile, Thyssenkrupp has announced a significant 40% reduction in its workforce as the German industrial giant grapples with stiff competition from Chinese imports and an oversupply of steel in Europe. In healthcare, Brookfield Asset Management has withdrawn its bid for Grifols, a Spanish healthcare group. Grifols has faced scrutiny from short-sellers over allegations of manipulating its debt and earnings. On a more positive note, EasyJet reported a 34% increase in pre-tax profits, marking a second consecutive record-breaking summer. The company remains optimistic about the travel outlook moving forward.


Sector Performance

All sectors in the U.S. posted positive returns, with Consumer Discretionary leading the pack, delivering an impressive monthly gain of 13.34%. Financials followed closely, up by 10.28%, driven by heightened investor interest as potential deregulation initiatives under the Trump administration are anticipated to make banking more accessible and adaptable to economic changes. Overall, sector movements were largely cyclical, with defensive sectors underperforming but still achieving positive returns.

In contrast, Europe experienced mixed results, with several sectors facing declines. Materials, Consumer Staples, and Energy sectors contracted over the month, reflecting broader challenges. However, there were bright spots as Information Technology, Communication Services, and Industrials each delivered gains exceeding 3%, highlighting pockets of resilience in the European market.


GEO-Ppolitics and Central Banking

Geopolitical developments have been in full swing, with the U.S. election impacting the global political balance. Europe has emerged as a hotspot for political uncertainty. Germany’s federal election, scheduled for February 23, will play a crucial role in shaping the future of Europe’s largest economy. The election, happening seven months ahead of schedule, was triggered by the collapse of the ruling coalition last November. Support for the "traffic light" coalition—comprising Chancellor Olaf Scholz’s Social Democrats (SPD), the Greens, and the Free Democrats (FDP)—has notably declined since the last election in September 2021. Meanwhile, the centre-right Christian Democratic Union (CDU) and its Christian Social Union (CSU) alliance have made notable gains in the polls, as have the far-right Alternative for Germany (AfD) and the populist left-wing Sahra Wagenknecht Alliance (BSW).

Michel Barnier’s tenure as France’s prime minister may be nearing its end, with his government on the brink of losing a no-confidence vote expected later this week. This pivotal parliamentary showdown comes after days of escalating tension and carries the potential to create financial uncertainty in the eurozone's second-largest economy, raising alarm across the European bloc. Amid this uncertainty, Barnier has been working to calm anxious markets while striving to secure approval for a budget aimed at addressing a significant shortfall in France's finances. The outcome of the vote will not only determine the prime minister's political future but could also have far-reaching economic consequences.

The Federal Open Market Committee (FOMC) convened on November 6–7, 2024, to discuss recent economic developments, financial market conditions, and monetary policy adjustments. Following a comprehensive evaluation, the Committee decided to lower the target range for the federal funds rate by 25 basis points to 4.5–4.75%. This decision is aimed to support continued economic expansion and further progress toward the inflation target while maintaining balance in the labour market. The FOMC’s actions reflect a continued focus on sustaining economic momentum while addressing inflationary pressures. The Committee remains committed to monitoring economic and financial conditions closely, ensuring that policy decisions align with its long-term goals of price stability and maximum employment.


Commodities

Despite the historically strong correlation between commodities and geopolitical events, broad commodity indices remained relatively flat in November, even amid significant developments such as the Republican Party's victory in the U.S. elections. However, certain commodity categories experienced notable price movements. The energy sector saw most of the action, with natural gas prices surging. TTF next-hour prices and U.S. LNG prices increased by over 20% during the month, contrasting with relatively stagnant or negative trends in crude oil and broader energy prices. In Europe, LNG prices faced mid-month volatility following Austrian energy company OMV's legal victory against Gazprom, which resulted in a €230 million ruling due to contractual breaches and irregular supplies. This also raised concerns about potential disruptions to Russia's supply, which now represents just 5% of Europe’s LNG imports. Former President Trump's stance on lifting the moratorium for new LNG export facilities is expected to bolster supply. Meanwhile, Europe remains heavily reliant on LNG, with consumption driven largely by weather conditions. On the trade front, LNG imports may become a strategic bargaining tool in U.S.-Europe negotiations, potentially helping reduce trade deficits—a mutually beneficial outcome.


Currencies

The U.S. dollar strengthened during November as investors sought higher-yielding U.S. assets, a continuation of the so-called "Trump trade." Despite Trump’s advocacy for a weaker dollar to boost exports, foreign interest in U.S. assets drove record net capital inflows of approximately $380 billion, propelling the U.S. dollar index upward. The U.S. dollar weakened slightly against the yen, breaching the ¥150 level and closing at ¥149.77. This was driven by unexpectedly high inflation in Japan, raising expectations that the Bank of Japan (BOJ) might hike rates in December. The BOJ's policy divergence from other developed central banks remains a focal point, as a strong yen could influence its rate decisions. The pound continued to decline against the dollar for the second consecutive month. The dollar's momentum was supported by optimism around the U.S. economy’s "soft landing" narrative and Trump's "America First" policies. Elevated core inflation in the UK has left the Bank of England cautious, with no rate cuts expected in December.


Overall

Global markets and economies continue to navigate a complex landscape of geopolitical tensions, economic adjustments, and evolving policy decisions. U.S. equity markets remain resilient, outpacing global peers with notable gains across sectors, especially Consumer Discretionary and Financials. However, concerns about the sustainability of fiscal policies underline the importance of prudent economic management. In Europe, challenges persist as political instability and economic uncertainty weigh on market performance. While some sectors and regional markets, such as Spain's IBEX 35, show promise, others face significant headwinds, reflecting broader structural and political issues. The upcoming German elections and France's parliamentary crisis add further layers of unpredictability, underscoring the need for stability in the eurozone.

General disclosure:This material is intended for information purposes only, and does not constitute investment advice, a recommendation or an offer or solicitation to purchase or sell any specific investment product, strategy, plan feature or other purpose in any jurisdiction, nor is it a commitment from Aria Capital Management (Europe) or any of its related companies to participate in any of the transactions mentioned herein. This material may contain links to third-party websites or content. These links are provided for your convenience only and do not constitute endorsement or approval by ARIA Capital Management (Europe) and is not responsible for the content of linked third-party websites and does not endorse or guarantee the information, opinions, products, or services offered on these websites. Please review the terms of use and privacy policy of any third-party website you visit. The products managed by ARIA Capital Management (Europe) are typically available via professional advisers rather than individual investors, who should not rely on this information, but contact their financial adviser. This information is not intended to be complete or exhaustive and no representations or warranties, either express or implied, are made regarding the accuracy or completeness of the information contained herein. Reliance upon information in this material is at the sole discretion of the reader. Investing involves risks. Please refer to the relevant Prospectus and other relevant documents and/or the terms and conditions for any services offered for detailed information. Past performance does not guarantee future results. References to future returns are not promises or even estimates of actual returns a client portfolio may achieve. Any forecasts contained herein are for illustrative purposes only and are not to be relied upon as advice or interpreted as a recommendation. Investors should seek financial advice before making any investment decisions. The products and services here may not be available to residents of all jurisdictions. The investments underlying the company and its sub-funds do not take into account the EU criteria for environmentally sustainable economic activities.

ARIA Capital Management (Europe) Limited is authorised and regulated by the Malta Financial Services Authority, with Firm Reference number FEXS. A Limited Company registered in Malta No: C 26673. ARIA Private Clients is a trading name of ARIA Capital Management (Europe) Limited. Padraig O'Riordan and Paul Dee act as tied agents of ARIA Capital Management (Europe) Limited in Ireland.

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