Investment environment overview 11/2024

The global investment environment during November continued to face challenges in the wake of various negative economic developments and political shifts, but remained resilient in many aspects. Manufacturing and services data in both the U.S. and EU showed further weakening, while equity markets and commodities remained strong amid ongoing geopolitical instability and the “Trump Trade”, which has bolstered U.S. equities, as well as crypto assets. Both Fed and ECB are expected to cut rates by 25 bps in December, but it is likely that approach to rate reductions will be quite cautious in 2025. In equity markets, the S&P 500 rose by 5.7%, the Dow Jones added 7.0%, and the Nasdaq-100 was up 5.2%. The Russell 2000 led U.S. equities, growing by 8.9% month-over-month. European equities, had a short boost, with the STOXX 600 rising by 1.0% and the STOXX 50 by 1.1%. Meanwhile, Bitcoin is continuing its climb after Trump’s election, and is currently at the level of BTC/USD 100’000.

European and US equity markets

Source: Bloomberg and Signet Bank

Trump chooses his stars

Donald Trump’s ongoing cabinet selection process has gathered significant scrutiny, particularly with the announcement of his plan to establish a new advisory commission, the Department of Governmental Efficiency (DOGE). The commission, to be led by Elon Musk and Vivek Ramaswamy, is intended to audit and streamline federal expenditures. Musk has stated his goal of reducing the federal budget by up to $2 trillion, though details of how this would be achieved remain unclear.

In terms of cabinet appointments, there have already been controversies and withdrawals. Matt Gaetz, initially considered for Attorney General, was dropped due to concerns over his viability. The selection of Marco Rubio as Secretary of State was less surprising, given his extensive foreign policy experience. However, the pick of Pete Hegseth as Secretary of Defense has raised questions, as he lacks senior military experience. Similarly, the choice of Tulsi Gabbard as Director of National Intelligence has faced skepticism due to her unconventional and controversial geopolitical views, and the choice of Kash Patel, one of Trump’s staunchest supporters, as FBI director has raised concerns that his close ties to president-elect will impede the agency’s work. Trump’s choice of hedge fund executive Scott Bessent as Treasury Secretary though seemingly calmed investors’ nerves about the future of the U.S. economy – after the pick was announced on November 25, the yield on the U.S. 10-year Treasuries fell, and is now currently standing at the 4.20% level.

Gold price, USD/oz

Source: Bloomberg and Signet Bank

Will policy easing revive a faltering giant?

China’s economic recovery has been uneven, prompting the government to roll out renewed measures aimed at promoting growth. At National People’s Congress (NPC), which was held on the November 8, policymakers announced a consequent mix of fiscal and monetary stimuli, including increased infrastructure spending, targeted tax breaks for small businesses and a slight reduction in the reserve requirement ratio for banks. These steps come as industrial output and retail sales continue to miss expectations, while the property sector remains a key drag on growth, with developer defaults disturbing both domestic and foreign investors.

A new RMB 10 trillion ($1.4 trillion) package was announced to address local government debt and support fiscal incentives. This initiative is expected to bolster local governments’ capacity to stabilize the economy, including potential actions to support the property market and consumption. In addition, NPC approved raising local government debt ceiling by RMB 6 trillion ($829 billion) to replace existing hidden debts.

As a response to new stimuli, the CSI 300 index has decreased by 0.4% this month, meanwhile the SSE Composite index increased by 1.6%. Analysts are anticipating further economic support from the government in 2025, focusing on consumer spending and the property sector, in order to increase the overall economic activity and stabilize growth.

High Yield bond Indexes

Source: Bloomberg and Signet Bank

Europe must shift its industrial focus, but is it even possible?

Rather than attempting to revive Europe’s once-dominant automotive manufacturing industry, which has shifted its focus to electric vehicles and has been gradually losing ground, Europe can try to redirect its focus and industrial funding toward becoming a leader in the production of essential semiconductors, but is it already too late?

As European automakers are struggling with decreasing demand, high costs and increasing regulations, new prospects can potentially emerge in semiconductor industry. With Europe’s reputation of high-quality industrial practices, engineering expertise and skilled technical workforce, the region can try to gain a competitive edge in semiconductor manufacturing in the future. The EU’s 2023 Chips Act, backed by a EUR 100 billion investment plan, aims to boost Europe’s semiconductor global market share from 10% to 20% by 2030, although this plan is currently facing mounting difficulties. In July 2024, the European Commission admitted that the EU’s share was projected to grow to only 11.7% by 2030. Additionally, one of the Act’s most important milestones, the construction of Intel’s €30 billion semiconductor facility in Germany, has been postponed for 2 years in September as a result of Intel’s Q3 net loss of USD 16.6 billion. European manufacturers such as Infineon Technologies, STMicroelectronics, and ON Semiconductor (ON: +6.4% MoM) are already key global suppliers of chips for EVs.

Gold price, USD/oz

Source: Bloomberg and Signet Bank

Dollar holds strong, commodities eye key levels

U.S. dollar maintained its strength in November, while commodities were looking for a potential breakout. The EUR/USD pair broke the 1.0450 support level we mentioned before, hence we set our new support at 1.0420, as the larger trend still favors a stronger dollar. If EUR/USD breaks above 1.0800, it could signal the start of a reversal, and a move beyond 1.0900 would likely shift the market to neutral stance, suggesting potential momentum for euro.

Gold has steered away from our medium-term target of XAU/USD 2800, currently standing at about XAU/USD 2650. Silver attempted to break XAG/USD 35 mark but fell back into 30-32 range. We’re holding our silver positions and expect it might only test XAG/USD 35 resistance again only next year. Brent is trading in a narrowing range, which often leads to sharp moves in either direction. Volatility is currently low but could increase soon, especially due to (again) increasing tension in the Middle East.

Regional Highlights

OMX Baltic Benchmark Index has posted losses and decreased by 2.7% in November. Meanwhile, Baltic states have posted Q3 2024 GDP results. Latvian GDP has contracted by 1.6% YoY, which is the second quarter of GDP contraction in a row, according to Latvian Central Statistical Bureau. Similarly, Estonian economy is also stuck in contraction and has lost 0.7% YoY in Q3, while Lithuanian economy has proved to be more resilient, with its GDP increasing by 1.1% YoY. According to various Baltic banks, economic growth in the Baltic states will pick up in 2025, with the GDP expected to increase by more that 2%, driven by declining ECB rates, stronger economic activity in the EU, and increased domestic demand and foreign investments.