Global stock markets traded sideways in the last full trading week of the year. UK stocks, on the other hand, bounced nicely: pushed higher by an interest rate cut and the hope of further cuts to come next year.
The Christmas week is a shortened one for investment markets, with a light trading calendar. This will be the last Magnus update until the new year.
Last week
- Global equities traded sideways.
- UK stock markets bounced hard, with miners and financials leading gains.
- The Bank of England cut interest rates to 3.75% (their 6th interest rate cut since August 2024).
- The Bank of Japan raised interest rates to 0.75%: amazingly, this is the highest level of base rates in Japan for 30 years!
- US economic data was mixed last week but supported the case for more interest rate cuts next year.
More details
Global stock markets traded sideways in their last full trading week of the year. Despite a sluggish December thusfar, Global stock markets are up nearly 15% for the year-to-date.
UK stock markets posted strong gains of c2.5% last week, with the index rallying hard on the back of lower-than-expected inflation numbers (on Wednesday) and the Bank of England (the “BoE”) cutting interest rates to 3.75% on Thursday. This marked the 6th interest rate cut that the BoE has made since August 2024.
The vote to cut rates was finely balanced (5-4), with Governor Andrew Bailey switching to a more dovish stance. Last week also saw the UK unemployment rate tick up to 5.1%: its highest level since January 2021. Lower inflation, combined with higher unemployment and a flatlining economy, gives the Bank of England an easier platform from which to cut interest rates, with bond futures markets currently pricing in 1.5 interest rate cuts for 2026.
Within the UK stock market, it was the miners, banks and life insurers which did best, with these 3 sectors all up over 4.5% on the week. These have been amongst the strongest performing sectors within the UK share market this year, with the materials sector up over 30% YTD, the life insurance sector up over 50% and the Banking sector up over 65%.
Japanese interest rates rose last week to 0.75% following a 0.25% hike from the Bank of Japan. Amazingly, this is the highest level of interest rates that Japan has had for 30 years. The move higher on interest rates has been prompted by the inflation rate (of 2.9%) being above the Bank of Japan’s 2% inflation target. Inflation at near 3% is a novel problem for Japan as they’ve battled years of deflation, with average annual inflation in Japan being just 0.7% over the last 40 years as compared to a 2.9% annual average rate in the UK and a 2.8% annual average rate in the US.
Bond markets posted modestly positive gains last week, with yields falling as interest rate cuts were priced into UK and US sovereign markets.
US economic data continued its catch-up pattern last week following the 43-day Government shutdown which ended on November 12th. Last week saw weaker than expected jobs data for October and slightly better than expected jobs data for November. The unemployment rate was seen to tick up to 4.6% (the survey number was 4.5%), whilst CPI came down to 2.7% from 3%. These 2 numbers, indicating lower future wage demands and lower inflation, helped the bond markets price in further interest rate cuts: 2 further interest rate cuts are currently priced by the US bond markets for next year.
| Equities and Oil | Last week (%) | YTD (%) |
|---|---|---|
| WTI Oil | -1.4 | -21 |
| Global | -0.0 | 14.7 |
| UK | 2.5 | 23.4 |
| US | -0.1 | 10.1 |
| Japan | -2.2 | 16.4 |
| Europe ex UK | 0.9 | 26.7 |
| Emerging | -1.2 | 16.1 |
| Bonds, Gold and Currencies | Last week (%) | YTD (%) |
|---|---|---|
| Sterling Corporates | 0.2 | 6.9 |
| GBP vs USD | 0.1 | 6.9 |
| High Yield | 0.3 | 9.7 |
| UK Government Bonds | -0.1 | 4.6 |
| GBP vs Japanese Yen | 1.3 | 7.2 |
Source: Bloomberg. Currency GBP.
The value of investments and the income from them can go down as well as up and you could get back less than you invested. Past performance is not a reliable indicator of future performance.
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