Markets expect more political clashes in the US following the mid-term election results. While Democrats regained control of the House of Representatives, as expected, the Republicans held onto control of the Senate. Ironically, President Trump warned Democrats not to be confrontational, and called for bipartisanship, especially over trade and infrastructure.
The threat of gridlock in the US was not sufficient to prevent a continued rebound in equities on Wall Street after the brutal retreat in October. The mood was helped by the Federal Reserve's decision to keep US interest rates on hold, and a bullish statement on the country's economy. The Fed noted the continued fall in US unemployment, strong consumer spending and growing economic activity.
With US inflation close to its 2% target, the central bank seems likely to continue with its guidance of "gradual increases" in interest rates. The Financial Times suggests that "all the signs" point to a rate rise in December. In response, markets pushed the dollar higher by the end of the week despite the mid-term election result.
After the exodus from bonds in October, there was signs of life for the asset class last week. Indeed, global fixed income funds last week enjoyed their best period in four months. The rebound was fueled by a renewed appetite for American bonds but there was a continued outflow for debt funds focused on Emerging Markets and Europe.
The stronger US dollar, the likelihood of a delay in infrastructure projects and the continued threat of a trade war left metal prices sharply lower over the week. At the close in London on Friday, nickel was down 5.1% at US$11,430/t, and copper was off 3.9% at US$6,045/t. Zinc fell 2.9% over the seven-day period to close the week at US$2,504/t, and gold slipped 0.6% to US$1,224/oz on the stronger dollar. The only major metal to rise in price last week was iron ore (62% Fe), up 4.3% at US$77.3/t.
These metal price falls came despite surprisingly robust trade statistics out of China, with the country's exports growing 15.6% in October (in terms of the US dollar), with imports up 21.4%. Despite new trade tariffs, Chinese exports to the US grew strongly last month while imports shrank. The data is expected to strengthen Beijing's resolve to resist offering trade concessions.
Internally, Chinese car sales fell almost 12% in October, compared with a year earlier. The decline was the steepest in more than six years and pushes the year to end-October into negative growth for the first time since the early 1990s.
Perhaps the most worrying indicator announced last week was news that sales of luxury goods to China have stalled. The Swiss luxury goods group Richemont said growth in Chinese demand for exclusive brands had "fizzled out" in September. Analysts suggested that when you get to the end of the cycle in luxury goods, markets become much more volatile.