A very buoyant month of November has just come to a close on the financial markets. Both equity and bond investors enjoyed the bounty of good returns, whether in Europe or the Americas. Thus, global equity markets returned nearly 6% in euros, ending three consecutive months of decline that spanned from August to October.
Equity markets were buoyed by inflation on the verge of rapidly reaching target levels and statements from central bankers that offered hope to investors. As a result, they had their best month of the year and bond yields fell sharply. The US 10-year yield fell from almost 5% to 4,3%. A significant downward movement also affected its counterpart: from a level close to 3%, the 10-year Bund dropped to 2,3% at the end of November. Investors in both asset classes therefore benefited from the most successful month of 2023.
In addition, more good news came from the oil front: the price of Brent lost nearly 10%. As a result, the oil-related anxiety that the situation had generated in October due to conflicts in the Middle East quickly receded as investors digested the news.
The characteristic symptom of the return of risk appetite also appeared: the dollar lost ground against the euro.
On the economic front, markets were celebrating encouraging inflation figures. In Europe, the latest annual inflation figure stood at 2,4%, very close to the 2% target. In the United States, the situation was the same: the downward slope was clearly in effect, with the latest inflation figure at 3,2%. Compared to last year’s levels at the same time, there has been considerable progress.
PMIs, an indicator of economic activity that investors are closely monitoring, still pointed to a contraction in the manufacturing sector, but it was clear that they were stabilising on both sides of the Atlantic.
In terms of positioning, we have been neutral on equities since October. Indeed, we found it opportune to increase equity risk after the decline observed between August and October. Moreover, we also continue to believe that the rate hikes over the past two years have recreated value in the bond market, which now offers an attractive yield and significant capacity for capital gains in the event of economic adversity and/or a stabilisation of inflation.
In geographical terms, we have had a preference for US markets since increasing equity exposure in October, as they continue to lead global markets this year.
Finally, in terms of sectors, our preference continues to be for Consumer Staples, as it offers substantial earnings safety in difficult economic periods, and for the Utilities sector, which is in a recovery phase with the fall in bond yields.