The final month of the year brings fresh challenges and opportunities in global markets, as political shifts, economic data, and policy decisions shape the financial landscape. With the US presidential election resolved and Labour’s first UK budget creating ripples, it’s been a dynamic period. Let’s break it all down.

The UK: Labour’s Growing Pains

Labour’s long-awaited return to government hasn’t been smooth sailing. The first budget in 14 years sparked heated debate, and the UK economy is showing signs of a slowdown.

Growth figures for Q3 2024 reveal a modest 0.1% increase, a marked decline from 0.5% in Q2 and 0.7% in Q1. This drop exceeded analysts’ expectations of 0.2% growth and highlights headwinds in key sectors. Manufacturing faltered, IT struggled, and a weak trade position compounded the challenges. While car sales offered a glimmer of hope, falling exports overshadowed gains.

Businesses are grappling with higher National Insurance costs and uncertainty about the pace of future interest rate cuts. While November’s 0.25% base rate cut to 4.75% provided some relief, the markets aren’t banking on another reduction in December. The Chancellor has promised to prioritise growth, but her limited time in office means she’s being judged on outcomes she can’t fully control.

Europe: Manufacturing Slump Deepens

Across the Channel, the eurozone continues to grapple with persistent economic troubles. Manufacturing activity contracted sharply in November, with the Purchasing Managers’ Index (PMI) sinking to 45.2. Germany, France, and Italy are struggling with declining orders and reduced factory headcounts.

External pressures, including a 10% US tariff on imports, are exacerbating the decline. Inflation ticked up slightly to 2.3% in November, while underlying inflation held steady at 2.7%. These numbers are unlikely to alter European Central Bank policy significantly but may temper the pace of interest rate cuts.

In France, political uncertainty adds another layer of difficulty. PM Michel Barnier has gone, rattling French bonds and equities.

United States: Trump’s Second Act

The US election ended with Donald Trump securing a second term, a result that brought relief to markets craving predictability. His victory was largely priced in, but his aggressive trade tariff rhetoric has raised eyebrows.

Proposals for tariffs of up to 60% have prompted manufacturers to accelerate plans to shift operations out of China, stoking fears of a renewed trade war. Still, the Federal Reserve’s cautious approach to rate cuts – including a November reduction to 4.75% – suggests stability in monetary policy for now.

The employment market remains a key concern for the Fed, even as inflation stays in check. For global equity portfolios, the US remains a crucial driver of performance.

Far East: Stimulus and Uncertainty

China’s government unveiled a significant stimulus package, including 2 trillion yuan in sovereign bonds and a 50-basis-point cut in the reserve requirement ratio. Early signs suggest these measures are beginning to stabilise the economy, with manufacturing and export orders on the rise. However, Trump’s tariffs could dent growth, potentially shaving 1% off GDP according to BBVA Research.

Japan faces its own challenges. Core inflation is edging higher, fueling speculation of a December rate hike. Factory output and corporate profits are down, while uncertainty around US trade policy hampers investment.

Emerging Markets: Mixed Fortunes

Emerging markets faced a volatile period as the US dollar appreciated, driven by Trump’s rhetoric supporting its reserve status. This strength pressured currencies in regions like Brazil, where the real hit a record low.

India continues to attract foreign investment, buoyed by robust economic growth and a thriving consumer market. Meanwhile, Mexico received an upgrade from JPMorgan, thanks to strong US growth and favourable remittance trends bolstering consumer spending.

Oil-importing nations benefited from lower energy costs as Trump pushed for increased US oil production, while exporters faced economic strain from declining prices.

Looking Ahead

With the US election in the rearview mirror, markets are turning their focus to economic fundamentals and policy trajectories. The direction of interest rate normalisation remains intact, albeit at a cautious pace influenced by political and economic uncertainties.

For investors, the balance of risks and opportunities remains delicate. However, with steady performance in key markets, particularly the US, equity portfolios continue to find reasons for optimism.

And Finally…

Did you know that a day on Venus lasts longer than a year? Thanks to its slow rotation, Venus takes 243 Earth days to complete a single day, but only 225 days to orbit the Sun. Something to ponder as we move into 2025 – where time, like markets, often feels relative!