Global stock indexes closed out November with solid weekly gains amid a busy stretch that included a key policy speech from Federal Reserve (Fed) Chair Jerome Powell, a plethora of economic data, and several geopolitical headlines that garnered attention. Among the key drivers for stocks was the Fed chair’s speech on Wednesday. In it, Powell indicated that interest rates are closer to the Fed’s target level than what he previously communicated in October; a December rate hike is still expected, however. The mid-week speech came amid a slew of top-tier economic data that continued to paint an upbeat picture of the U.S. economy though several sets of housing data indicated that the sector continues to struggle in an otherwise healthy economy, and core Personal Consumption Expenditures data, the Fed’s preferred measure if inflation, ticked lower; both lending support to the notion of potentially seeing fewer than the four hikes the Fed currently anticipates in 2019. Equities subsequently rallied as lower interest rates increase the present value of stocks, all else equal.
Major foreign indexes also caught a tailwind from Powell’s speech as a change in the Fed’s outlook could cause the dollar to revert back to its (very) long term downtrend and support international equity markets, particularly emerging markets. However, per LPL chief investment strategist John Lynch, "Despite aggressive ongoing monetary policy support and some structural reforms in Europe and Japan, we maintain our preference for emerging markets."
Turning our focus to the week ahead, eyes and ears will be on alert for any major developments stemming from the G20 summit in Buenos Aires this weekend as President Trump and Chinese President Xi Jinping are scheduled to discuss trade policy. Looking at economic releases for next week, the monthly nonfarm payrolls report headlines the docket, but look for a bevy of Purchasing Managers Index data out of the U.S., Eurozone, and China to be among other important releases on investors’ radars. Track these and other important events on our Weekly Global Economic & Policy Calendar.
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