Investment environment overview 10/2024

In October, the global economic landscape did not demonstrate any significant improvements. Early in November, the Fed expectedly decreased its Federal Funds rate by 25 basis points to 4.75%, prompting the yield on the 10-y Treasury note to slide from 4.4% to 4.3%. Meanwhile, the ECB reduced rates by 25 basis points during its October meeting in response to potential stagflation in European economies. Equity markets experienced certain difficulties in October, with the S&P 500 decreasing by 1,0%. The Dow Jones lost 1.4%, while the Nasdaq-100 fell by 0.8%, meanwhile, the Russell 2000 took a 1.5% hit. European markets performed in a similar manner. The STOXX 600 declined by 3.3%, as high material costs and weakened industrial output weighed on overall market sentiment.

American greatest show

With the return of Donald Trump and a Republicans taking control of the Senate (and, most likely, the House), markets are showing the beginning (or continuation) of the so-called “Trump Trade”. On the 6th of November, major U.S. equity indexes grew by 2-3%, while the Russell 2000 added more than 6%. The dollar experienced its most significant gain against major currencies since 2020, with the U.S. Dollar Index (DXY) increasing by 1.9%. Bond markets were experiencing difficulties, as the yield on the 10-year Treasuries jumped to 4.4%, further reflecting fears of potential inflation and anticipated interest rate increases under Trump administration. Meanwhile, precious metals prices had been impacted negatively as a result of a stronger dollar, with gold dropping under XAU/USD 2 700 level, and silver diving under the $31 per troy ounce mark. Additionally, Bitcoin experienced a sharp rise, soaring 7.5% to $74 600 mark, suggesting that alternative assets are already benefitting from the “Trump Trade”.

In the long-term, Red Sweep is expected to drive budget deficit and inflation higher, possibly pushing the Fed to be hawkish and raising interest rates, while deregulation will boost business confidence. Investors will most likely concentrate on industries like energy, infrastructure, and defense that are anticipated to gain from Trump’s presidency.

European and US equity markets

Source: Bloomberg and Signet Bank

The Crown’s cost

The Exchequer’s new UK budget expenditure increase has overall negatively impacted British asset prices. After the announcement, the 10-y Gilts yields shot up over 4.5% for the first time in a year. While the effect is less severe than it was with Liz Truss’ “mini-budget” in 2022, Labor’s assurance that the British financial system is now stable has been spoiled. UK inflation projections were revised to 2.6% from 1.5% for 2025, adding pressure on the pound, which declined by 3.3% against the dollar in October. Despite the budget revision, the Bank of England reduced its Official Bank Rate by 25 basis points to 4.75% on the 7th of November.

Benchmark 10-year bond yields

Source: Bloomberg and Signet Bank

Causes for concern

U.S. and EU manufacturing sector continues to struggle, with ISM PMI levels well below the 50.0 mark. U.S. manufacturing activity has shrunk to 46.5 points, the lowest reading since July 2023. Additionally, U.S. factory orders have decreased by 0.5% MoM. Newest U.S. employment data is also not too positive, with U.S. Non-Farm payrolls decreasing drastically from 223K to 12K. The main cause of such a small payroll number is regarded to be the effect of natural disasters and labor strikes. The unemployment rate, however, has stayed unchanged at 4.1%. 

Germany continues to grapple with slow industrial performance, and this is particularly reflected in weaker earnings announcements from key industrial players like Volkswagen, Mercedes, BASF and ThyssenKrupp. Volkswagen, Germany’s massive industrial driver and country’s biggest employer, has revised its profit projections downwards for the third quarter in a row, and has finally decided to close three facilities, lower wages and eliminate tens of thousands of jobs in Germany.

High Yield bond Indexes

Source: Bloomberg and Signet Bank

Earnings season

At the time of writing, 70% of the companies in the S&P 500 have published their Q3 results. So far, 75% of these companies have reported actual EPS above estimates, which is below the 5- and 10-year averages. In terms of revenues, 60% of businesses have reported actual figures above estimates, which is below the 5-year average of 69% and below the 10-year average of 64%. 5.2% revenue growth for the quarter will mark the 16th consecutive quarter of revenue growth for the index.

55% of stocks in the S&P 500 lost in value in October, and 124 of them have fallen 5% or more. The pullback comes after the S&P 500 hit an all-time high during the month, as markets had largely been sustained by the expectation that the Fed will keep lowering interest rates and Trump will be back in the White House. While these factors are still relevant, Q3 earnings results from Big Tech players were still overall disappointing, with Apple, Nvidia, Microsoft, Alphabet and Amazon collectively posting earnings growth of 19%, representing the slowest collective expansion in 6 quarters, leading to the downturn in stock prices.

Goldprice, USD/oz

Source: Bloomberg and Signet Bank

No surprises in commodities and currencies

In the commodities market, gold prices kept posting new all-time highs, hitting our medium-term target of XAU/USD 2 800, thus we kept technically reducing our longs and were not caught off-guard by the sell-off during the U.S. election days. In October, silver was consolidating in the XAG/USD 32-33 region, looking to resume its uptrend. While platinum is still lagging behind silver and gold (hopefully gathering some steam) we certainly still consider it as a decent addition to the long-term precious metals’ portfolio.

Brent prices rose briefly to $81 per barrel at the start of the month, but dropped to $71 per barrel in late October, as OPEC signaled the start of oil output increases already in December. Additionally, increased U.S. oil output and decreased Chinese demand has created a short-term surplus of the commodity, while the strengthening U.S. dollar made oil more expensive for international buyers. For now, we keep monitoring the situation as it evolves and would try to add to our long positions should WTI prices drop to USD/bbl 60 region.

EUR/USD could not sustain a move above 1.1000, dipping back in what we see as a “neutral” territory of 1.0700-1.0900. U.S. elections results might help the market on setting further path for the greenback and possibly trigger sharp EUR/USD moves above 1.1200 or below 1.0700 with the largest risk for traders now being possible heightened volatility.

Regional Highlights

In October, the OMX Baltic Benchmark Index increased by 3% MoM. Eleving Group successfully completed its IPO on Nasdaq Riga and Frankfurt exchanges, marking a high point for regional markets in October, as the company raised EUR 29 million to fund expansion into green financing solutions. Latvian QoQ GDP and retail figures have remained weak during the third quarter of the year. Latvia’s GDP decreased by 2.4%, while consumer prices in the Baltic States rose 2% MoM (all figures are annualized), according to Eurostat.