Weekly Market Update - chaos, confidence, and comebacks

The latest economic news and market highlights from the UK and abroad.

The key takeaways

👋 Au revoir Michel – a historic vote of no-confidence ousts the French Prime Minister

🪧 Chaos in Korea – a surprise declaration of martial law in South Korea 

🏠 Hot Property – strong figures from the Nationwide and Halifax UK house price indices 

📈 Life on the (non) farm – expectations of 200,000 US jobs added in November

This week saw political chaos in France as Prime Minister Michel Barnier resigned following a no-confidence vote in parliament, just three months after he was appointed by President Emmanuel Macron. This was the first time in over 60 years that a French government had been voted down by parliament – and comes on the heels of Macron’s decision in June to call snap elections. Macron is set to name a new Prime Minister whilst resisting opposition pressure to stand down himself. Last week, the gap between French and German 10-year government bond yields reached its highest level since the Eurozone debt crisis of 2012-13 – and there may well be more pain to come for French assets.

We saw chaos in South Korea this week as President Yoon unexpectedly declared martial law, blaming the opposition Democratic Party as being an enemy of the state. Amongst huge protests, the National Assembly gathered within hours and the President’s declaration was unanimously overturned. Market reaction was ultimately modest, and this story is already starting to feel like old news. Having been in contact with our favoured Asian fund managers, the outlook for Korean equities in 2025 is a cautious one given the combination of increased political uncertainty and the prospect of US tariffs on Asian exports (courtesy of President Trump).

UK house prices have seen a strong week. On Monday it was reported that the Nationwide House Price Index rose by 1.2% month-on-month and by 3.7% year-on-year in November. This was the largest monthly gain since March 2022 and well ahead of expectations of +0.2%. This in turn propelled the year-on-year figure to its highest level since November 2022. Additionally, it was reported this morning that the Halifax House Price Index rose by 1.3% month-on-month and by 4.8% year-on-year in November. Halifax’s index recorded its largest monthly gain since June 2022, with the average house price now a smidge above £298,000. It would certainly appear that lower mortgage rates are boosting the confidence of home buyers. Without getting carried away, combined with lower interest rates and inflation, this could potentially seep into an improvement in UK consumer confidence.

The latest US Non-Farm Payrolls figures are released on Friday afternoon (UK time). The US economy is expected to have added 200,000 jobs in November, which would represent a significant rebound from what was a very weak October, when just 12,000 jobs were created. This October figure was heavily influenced by strikes at Boeing and the disruption caused by Hurricanes Helene and Milton. This was particularly disappointing given that it followed a strong September with 223,000 jobs created. Overall, the hope and expectation is that a strong November will get US Non-Farm Payrolls back on track.

Chart of the week - UK equity market leverage

Source: Charts sourced from Man Group and Lazarus Economics and data by Bloomberg. November 2024.

It’s well known that the UK equity market has been unloved over recent years. The spotlight has very much been on the US equity market, with some additional attention going to the likes of Japan and China (for different reasons). What’s less well known is that the UK equity market has been quietly deleveraging, as shown in the above chart (courtesy of our friends at Man GLG). Market leverage (defined as net debt/EBITDA) has come right down from levels seen during the Covid pandemic and is expected to decline further.

Many fund managers favour investing in less-indebted companies, as such companies typically have greater capacity to invest in growth (such as R&D (research and development) spending and bolt-on acquisitions), to pay dividends and to engage in share buybacks. Lower market leverage is one point in the argument in support of UK equities. The dispersion of indebtedness across different sectors of the market provides opportunities for active fund managers.

• A reasonably quiet week for markets overall, with a lack of major economic data releases to influence proceedings ahead of US Non-Farm Payrolls figures today.
• The Nasdaq has led US equity market performance this week, whilst it has been a particularly strong week for Japanese equities, both in local currency terms and in Sterling terms.
• The gold price has come off its recent highs (with traders perhaps taking profits) but still exhibits very strong gains year-to-date.
• Both UK and US 10-year yields have been relatively flat this week, reflecting the lack of major economic data releases thus far.

This article is for financial professionals only. Any information contained within is of a general nature and should not be construed as a form of personal recommendation or financial advice. Nor is the information to be considered an offer or solicitation to deal in any financial instrument or to engage in any investment service or activity. Parmenion accepts no duty of care or liability for loss arising from any person acting, or refraining from acting, as a result of any information contained within this article. All investment carries risk. The value of investments, and the income from them, can go down as well as up and investors may get back less than they put in. Past performance is not a reliable indicator of future returns.