November markets generally rallied, despite global trade tension and growth worries remaining prominent concerns. Longer-term yields declined, which boosted performance for U.S. Treasuries, income-generating equities, and select areas of REITs. Global equity markets rose, and although volatility fluctuated during the month, it never reached the peaks seen in October. While the U.S. dollar (USD) rose against a select number of developed-markets currencies, performance against other currencies faltered. Oil prices also fell, as supply remained robust in the face of slowing global growth.
Treasuries at the front end of the yield curve rose, but the 10- and 30-year Treasury yields fell. Short-term yields continued to gradually rise as markets factored in the probability that the Federal Open Market Committee (FOMC) will raise rates by 25 bps at the December meeting. Yields peaked on November 8th and steadily declined for the remainder of the month as new macroeconomic data continued to disappoint. As a result of the decline in yield, intermediate-term and long-term Treasuries increased. The drop in yields proved to be beneficial to other rate-sensitive securities, which were further boosted on November 28th, when Fed Chair Jay Powell stated that current interest rates were “just below neutral.” This was a noteworthy reversal from his statement that “we are a long way from neutral” at the beginning of October, which at the time contributed to the spike in asset price volatility. His comments helped to push yields lower and instigated a sharp equity market rally.
Global equity markets rebounded after a sharp downturn in October. Emerging markets (EM) equities enjoyed their strongest month since January. Much of the strength came late in the month, when headwinds that had weighed on the asset class over much of the year appeared to abate. The G20 summit spurred optimism that the U.S. and China might end trade tensions. EM equities were further bolstered by a more dovish tone from Powell and expectations that the Fed may slow the pace of interest rate hikes. Frontier equity markets also posted a gain in November, driven by a continued recovery in Argentina.
The 21.1% drop in crude oil prices was one of the largest monthly drops since 2008. Increasing supply and the potential for lower demand pushed prices sharply lower. On the supply side, bearish domestic data placed pressure on prices. Temporary waivers granted to eight countries under U.S. Iranian crude sanctions added to near-term supply concerns. Meanwhile, concerns regarding global growth added to the negative sentiment.
The Dollar Spot Index (DXY) rose in November. The strength of the U.S. dollar (USD) that was implied by the gain in DXY masked its depreciation to a larger subset of developed and EM currencies. Developed markets currencies that gained against the USD included the New Zealand and Australian dollars. In a few instances, the USD decline reflected a rebound in hard-hit currencies such as the Turkish lira and South African rand. In many cases, plummeting oil prices were the common denominator that affected currencies.
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