SUMMARY

  • Global political developments continued to capture headlines.From rising optimism about the passage of a tax bill in the U.S. to German Chancellor Angela Merkel’s challenges in forming a coalition government, to turmoil in the Middle East, headlines over the month once more focused on geopolitical events.
  • Economic activity remained steady as data pointed toward an uptick in momentum. Growth and labor market data released in November suggested solid momentum in the U.S. economy. Similarly positive trends were also evident in Europe and Japan, where measures of economic activity were generally robust.
  • Markets were mixed, but risk sentiment remained well supported. The U.S. yield curve continued its flattening trend, and equities marched higher alongside solid third-quarter earnings and strong political momentum backing a tax bill that would, among other things, lower corporate tax rates. Notably, credit struggled – high yield bonds, in particular – and the dollar lost ground to many developed and emerging market counterparts.

In the world

Global political developments continued to capture headlines. In what markets perceived to be a vote of policy continuity, President Donald Trump nominated Federal Reserve Governor Jerome Powell to replace Chair Janet Yellen at the helm of the Fed. Yellen announced she would step down once Powell was confirmed, while William Dudley, president of the Federal Reserve Bank of New York and permanent voting member of the Federal Open Markets Committee, announced his plans to retire as soon as a successor was chosen. In Washington, momentum built around tax reform: The House passed its tax bill on a party-line vote, and the Senate’s version of the bill made its way out of committee and to the floor for debate. Political turmoil brewed elsewhere: German Chancellor Angela Merkel failed to form a coalition government following elections last month; President Robert Mugabe of Zimbabwe resigned following military intervention, marking the end of his 37-year rule; and Lebanese Prime Minister Saad Hariri resigned under mysterious circumstances during a trip to Riyadh. Meanwhile in Saudi Arabia, a corruption probe led to the arrests of prominent businessmen and members of the royal family, and a missile fired from Yemen was intercepted near Riyadh. Venezuela missed deadlines to make interest payments on its government bonds and announced that it would need to restructure its foreign debts.

Economic activity remained steady as data pointed toward an uptick in momentum. U.S. growth measures were more upbeat than previously reported: The latest estimate for GDP growth in the third quarter showed the economy expanded at a 3.3% annualized pace, the strongest reading since 2014, thanks to an acceleration in investment that boosted output. The U.S. labor market also showed signs of resilience, adding 261,000 jobs despite the impact of the recent hurricanes in certain parts of the country. The unemployment rate fell to 4.1%. Preliminary estimates for third-quarter growth in Japan were similarly optimistic: GDP expanded at an annualized rate of 1.4%, the seventh consecutive quarter of expansion, as exports offset a decline in domestic demand. In the eurozone, strong growth in manufacturing orders and a record accumulation of backlogs underpinned robust PMI (Purchasing Managers’ Index) data, indicating strong growth momentum. Bucking the trend of stubbornly low inflation in developed markets, consumer prices in the UK rose 3.0%, unchanged from the previous month and above the Bank of England’s (BOE) 2.0% target. Against this backdrop, the BOE raised its official policy rate by 0.25% to 0.5%, its first rate hike in over 10 years.