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November was generally a positive month for most asset classes. Better-than-expected inflation data and a slightly more dovish tone from the US Federal Reserve was enough to send bond yields down and equities higher. Equities, bonds and alternatives all delivered positive absolute returns, the only exception to this was US equities (delivering negative returns in sterling terms) and global bonds which were flat. The main driver behind the move was the expectation that the pace of interest rate rises, from central banks, would begin to ease as the global economy starts to slow. US equities were negative purely because of the weakness in the dollar, declining over -5% vs sterling.

Asian and Emerging Markets equities were the standout performers delivering nearly 11% in sterling terms. News on hopes that the zero-COVID policy might soon ease in China, was a positive driver for China and the wider region, while a weakening dollar also provided a tailwind for Asian and Emerging Market stocks. Furthermore, Chinese shares rose strongly, with the Hong Kong’s Hang Seng Index soaring nearly 20%. This reflects hopes that following protests in cities across China, the zero-COVID policy will start to ease. The countries highly leveraged property market strengthened after the government announced measures to support liquidity in the sector.

European stocks outperformed the US in November. Natural gas prices have fallen 40% since peaking in September, reflecting a milder early winter and improving supply. This will support household spending and the earnings of energy-intensive manufacturers. It is also expected to help bring down inflation, which reached a record high of 10.6% in October, easing the pressure for steeper interest rate rises.

UK Equities performed well for the month returning 7.5%. With most sectors posting positive contributions. Larger companies were driven higher by basic materials, financials and the healthcare sector. Meanwhile, consumer discretionary stocks were also an important driver of broad market returns as well as strong performance from UK small and mid-cap equities. The latter occurred partly amid signs the UK economy is holding up better than expected, fuelling hopes for a milder recession. Recent macroeconomic data suggests underlying UK growth has been more resilient than previously thought. In its first quarterly estimate for Q3 GDP the Office for National Statistics revealed that the economy had shrunk by 0.2% in Q3, which was a much better than expectations. While the UK economy is likely to already be in recession, the new Chancellor Jeremy Hunt provided near-term fiscal support in his autumn statement. This statement came with a promise for the country to tighten its belt in the future

In the US there are signs that the higher interest rates are now starting to slow the economy, as unemployment increased to 3.7% in October, which was ahead of expectations. This was reflected in a bigger than expected fall in October inflation to 7.7%, leading investors to expect that interest rates will increase by just 0.5% at the December Fed meeting.

Looking forward the conundrum for markets is where the level of inflation will ultimately lie and how aggressive central banks will be in order to get inflation in line.