European Markets Under Pressure Post-US Election
Despite a significant rebound in European stock markets on Thursday, major indices remained under pressure following Donald Trump’s victory in the recent US election. The pan-European Stoxx 600 index recorded minimal movement for the week, in stark contrast to the substantial 4.3% surge in the S&P 500 and a remarkable 5.6% rally in the China A50. This disparity highlights the fragility of the European economy when confronted with external shocks. Trump’s proposed tariffs have certainly unsettled European markets, and the ongoing political uncertainties in Germany have added to the downward pressure.
Focus on Europe
The week was significantly overshadowed by the ramifications of the US election, with European markets largely reacting to the unfolding political landscape. However, some economic data provided encouraging insights into the eurozone’s economic trajectory. The final services and manufacturing PMIs for October were both revised upwards, although business activity in manufacturing still showed contraction. Notably, Germany experienced improvements in both sectors, with factory orders rising by an impressive 4.2% month-on-month in September—marking the highest increase since December 2023. Nonetheless, this positive momentum could be jeopardized if Trump were to implement additional tariffs on European goods.
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As of Thursday’s close, European stock benchmarks displayed a mixed performance over the week. The Euro Stoxx 600 fell by 0.2%, while Germany’s DAX appreciated by 0.56%. France’s CAC 40 edged up by 0.22%, but the British FTSE 100 slipped by 0.45%. On the earnings front, shares of Novo Nordisk plummeted to a 10-month low following disappointing guidance, even as robust sales growth for its weight-loss drug, Wegovy, was reported. The largest company in Europe saw its shares decline 5% this week, marking a staggering 43% drop from its all-time high in January. In contrast, Siemens Healthineers’ annual revenue and profit growth outlook for fiscal year 2024 met estimates, resulting in a 9% surge in its shares this week.
Meanwhile, the euro experienced a sharp decline against the US dollar and weakened against other G10 currencies. This movement suggests that the European Central Bank (ECB) may need to expedite its rate cuts to bolster the region’s economic growth. The prospect of Trump’s tariffs could further complicate economic challenges for the eurozone and have a ripple effect on China, which is the EU’s primary trade partner.
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In the UK, the Bank of England decided to cut interest rates by 0.25% as anticipated, marking the second reduction this year. However, this decision did little to uplift British stock markets, as Governor Andrew Bailey emphasized the bank’s need for a gradual approach to policy easing. Economists noted that UK Finance Minister Rachel Reeve’s announcement of £40 billion in tax hikes, coupled with potential Trump tariffs, could exert upward pressure on inflation.
Wall Street Performance
US stock markets were energized by the US election results and the Federal Reserve’s rate cut this week. The S&P 500 not only recorded the best election day rally ever but also experienced the best Fed day surge in 2024, rising 4.3% over the week and achieving a record high on its 49th session this year. The Dow Jones Industrial Average increased by 4%, while the Nasdaq soared by 5.3%.
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Wall Street’s impressive performance reflects investors’ sustained optimism amid a resilient economy, pro-growth fiscal policies, and accommodating monetary policy. Additionally, sector rotation highlights shifts in fund allocations based on the prevailing economic cycle. Growth sectors that are benefiting from tax cuts and a risk-on sentiment, such as Technology, Consumer Discretionary, and Communication Services, were among the top performers, whereas interest rate-sensitive sectors like Real Estate, Consumer Staples, and Utilities lagged due to expectations that the Fed might moderate its rate cuts. Trump’s proposed policies—including tax cuts, deregulation, and higher import tariffs—along with a possible Republican sweep in Congress, signal potential higher inflation and a strengthening US dollar.
Asia-Pacific Markets Rally
Stock markets across the Asia-Pacific region also enjoyed strong gains throughout the week, characterized by a broad-based rally. Chinese mainland stock markets were particularly robust, with the SSE Composite Index surging by 6.3% this week, fueled by optimism surrounding anticipated additional stimulus measures expected to be announced during the parliamentary meeting on Friday. Furthermore, Chinese economic data surpassed expectations, with exports rising by 12.7% in October, marking the highest increase in 19 months.
Other regional markets also experienced upward movement over the week, buoyed by optimism regarding China. The ASX 200 climbed by 2.3%, the Nikkei 225 increased by 3.8%, and the Kospi gained 1.26%.
