Emerging Markets
Markets were higher over the week. EM (Emerging markets) were the only outlier and continue to be buffeted by the potential impact of any proposed tariff regime by the incoming Trump administration. While valuations in EM equities remains attractive, the potential negative impact of higher tariffs alongside the ongoing challenges that continue to face the Chinese economy remain a major drag for EM. At this stage, the US$ is set to remain stronger for longer as the potential that the Fed will be more cautious on any further cuts in cash rates through 2025. While we have moderated our EM position in more recent periods, we believe that the continued pressure on EM will remain in the near term.
The US
Over the week US Core Personal Consumption Expenditures (Oct) was in-line with market estimates (0.2% m/m, 2.8% y/y), while jobless were also consistent with expectations. This week ISM (Institute for Supply Management) data along with the JOLTS (job opening) reports will be the major focus for markets outside the ongoing analysis of what the Trump Presidency 2.0 will look like. We continue to maintain a reasonable growth outlook for the US, although the recent softness in housing data was the only negative over the week.
The RBA
In Aust, the release of the Oct CPI (Consumer price index) figures (act 2.1% y/y v’s 2.3% est) continued to show further disinflation across the economy. However, the trimmed mean inflation figure was 3.5% y/y (+0.3% pcp) and reiterates the view from the RBA (Reserve Bank of Australia) that while inflation in moving lower it is still above the RBA 2-3% target band. Accordingly, we find it difficult for the RBA to cut cash rates when it meets in Dec. While the slowdown in the domestic economy is clearly evident and potentially may gather pace should property prices continue to soften through the 1q25, the RBA remains transfixed in achieving a 2-3% inflation outcome and in the absence of a material increase in the Un rate we now expect they will hold the line on maintaining the current cash rate level.
Europe & China
In Europe, the release of PMI (Purchase managers index) data and 3q24 GDP (Gross domestic product) figures (f’cst 0.4% q/q, 0.9% y/y) is likely to show a continued weakness in the region. In China PPI (Producer Price Index) and CPI data for Nov will be the main focus as the economy continues to grapple with ongoing deflationary pressures, although recent PMI surveys (manufacturing & services) are showing some form of expansionary activity. Whether this can be maintained in the face of higher tariffs and ongoing trade disputes with the US and EU will be critical for a more sustained economic recovery in 2025.
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