Tensions between the US and Venezuela rose last week after the US administration seized an oil tanker off the coast of Venezuela because the ship was “used to transport sanctioned oil from Venezuela and Iran”. This seizure further heightened existing political friction between the two countries, following recent activity by the US administration to curb alleged drug trafficking.
The quest for peace between Russia and Ukraine had a notable development last week as Ukrainian President, Volodymyr Zelenskyy, issued an updated version of the peace plan to the US. A notable feature of this is the development of a “free economic zone” in the Donbas region, though territorial disputes remain unresolved.
US Equity Market:
Last Wednesday, US stock markets responded favourably to the decision to cut interest rates. During the speech by Federal Reserve chair Jay Powell, the S&P 500 gained 0.8% and the NASDAQ rose 0.5%. At close on Wednesday, the S&P 500 was near another record high.
However, the rally in US equities last Wednesday was cut short by the third quarter earnings release from Oracle, a database company, which fell short of analysts’ expectations. The release triggered a sell-off in the stock last Thursday morning as its share price fell 14%. The sell-off dragged the broader market down, as the NASDAQ and S&P 500 indices fell 1.0% and 0.3% respectively by lunch on Thursday
Over the week to Friday, the S&P 500 and NASDAQ indices fell -0.61% and -1.92% respectively.
UK Equity Market:
Figures released last Friday by the Office for National Statistics revealed that the UK economy contracted 0.1% (as measured by GDP) in October. This figure came in below the 0.1% expansion expected by analysts, who have attributed the undershoot of GDP to the tax rises announced by Chancellor Rachel Reeves in the recent Autumn budget. This further reiterates the UK growth challenge the Labour government are aiming to overcome.
Shares in Evoke, a UK gambling company, have fallen more than 50% since rumours of a new gambling tax began in August. The Chancellor confirmed these plans in her recent budget announcement, and this drove the share price even lower. However, Evoke’s shares jumped c.13% last Wednesday after investors responded favourably to an announcement from the company that it could look to sell some of its assets.
Over the week to Friday, the FTSE 100 index fell -0.18%. Sterling trades around 1.34 against the US Dollar.
Inflation, Interest Rates and Bond Markets:
Last Wednesday, the US Federal Reserve elected to cut the headline interest rate by 25bps to 3.5% at the final Federal Open Market Committee meeting of 2025. This move marks the third consecutive 25bps cut this year as the Federal Reserve continues to act on signals of a weakening US labour market.
Even though the cut was in line with market expectations and therefore largely priced in, the yield on the two-year US Treasury note fell 8bps on the release of the news. As a reminder, bond yields move inversely to prices.
What’s on the horizon
On Wednesday, the Office for National Statistics is due to release the UK Consumer Price Index inflation figure for the 12 months up to the end of November. This release will inform the Bank of England Monetary Policy Committee (‘MPC’) who are set to make their final interest rate decision of the year on Thursday.
A fall in inflation rate from current levels of 3.6% could pave the way for another rate cut to support the weakening labour market. Whereas, a rise in inflation may cause the MPC to hold rates steady. According to a poll by Reuters, economists and markets are expecting a rate cut.
The Cambridge Team
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Source of financial market data: MorningstarDirect.