Weekly Investment Insights

In an age where you can carry a computer, music player, phone, TV, camera, calculator and notebook all in one small device that fits in your pocket, you wouldn't expect CD and vinyl sales to be enjoying a resurgence. One would have thought that the days of taking your CD out of your turntable and rubbing it against the sleeve of your sweater to get it to play were long gone. But that doesn't seem to be the case - as the Financial Times highlighted last week, music industry revenues soared last year, overtaking even cinema revenues. Much of it due to the popularity of streaming platforms, of course, but they are not the only ones that have benefited - physical music sales of CDs and vinyl have also risen, with vinyl up 15.4% last year.

Turning to the markets, President-elect Trump's nomination of Wall Street old timer Scott Bessent as Treasury Secretary came as a relief, with markets happy to see a familiar face in the role of chief economic spokesperson. Their hope is that Bessent will be able to soften the edges of Trump's proposed trade tariffs, which have prompted warnings from companies within the US about the negative impact they will have on their businesses. Trump's latest tariff announcement last week was a 25% tariff on all imports from Canada and Mexico, seemingly as a bargaining chip to compel them to do more to curb illegal immigration and drug trafficking into the US. The announcement caused the Canadian dollar and Mexican peso to fall.

US stock indices continued to rise last week, with the small cap Russell 2000 index hitting a new intraday high. European gas prices also remained elevated as colder weather and the approaching end of Russian gas transit through Ukraine raised supply concerns.

Weekly roundup

US consumer confidence and personal spending on the rise

The Conference Board consumer confidence index rose to 111.7 in November, from 109.6 in October. The survey showed that consumers have grown more confident about current and future conditions, as well as the one-year inflation expectations. These results show a growing optimism among US consumers, which was also highlighted in last week's personal spending report, which showed a 0.4% increase in October.

The increase in spending was largely driven by demand for services, including healthcare, housing, utilities, financial services and insurance, eating out, hotel stays, transportation and recreation. The spending is underpinned by strong household balance sheets and low layoffs. Furthermore, we have entered a busy holiday shopping season, which should continue to support spending in the coming months despite higher prices.

The rise in both confidence and spending suggests that the outcome of the US election, and President-elect Trump's potential trade war, have so far not caused much concern among US consumers.

Source: Bloomberg, BIL

Eurozone inflation rose for the second consecutive month in November

According to flash estimates, inflation in the Eurozone rose to 2.3% YoY in November, from 2% in October. This increase in inflation towards the end of the year was largely expected due to base effects, as last year's sharp falls in energy prices are no longer included in the calculation.

Energy prices continued to fall in November, but at a slower pace than in October. The cost of food, alcohol and tobacco rose by 2.8%, slightly slower than the 2.9% in October. Inflation also slowed for services, but picked up for non-energy industrial goods.

Source: Eurostat, BIL

The annual core inflation rate, which excludes volatile categories such as energy, food, alcohol and tobacco, held steady at 2.7%, the same as in the previous month.

As the rise in inflation was largely due to base effects rather than underlying price pressures, it is unlikely to prevent the ECB from cutting rates again in December. However, the market continues to price in a 25bp cut rather than 50bp.

US automotive industry under the threat of Trump’s tariffs

The European car industry's struggle to stay afloat during the painful transition to electric vehicles has frequented headlines this year. President-elect Donald Trump's promise of trade tariffs could mean the same for the American auto industry in 2025.

Last week, Trump said that one of his first executive orders in office would be to impose a 25% tariff on all products from Mexico and Canada, blaming the US neighbours for letting drugs and migrants into the US. The problem this could cause for the American car industry is that there is no such thing as an entirely American-made car, with many of the cars sold by American brands having been produced across the borders, or using parts imported from neighbouring countries.

The introduction of these tariffs would not only make these cars more expensive for the American consumer, but it could also cut into company profits, putting pressure on payrolls. Furthermore, cars assembled in the US would also likely become more expensive, given that Mexico and Canada account for over 50% of all auto parts exported to the US.

Shares in several major carmakers that would be affected fell on the announcement.

Some of Trump's proposed tariffs are now seen as potential negotiating tactics to pressure partners on completely different issues, rather than proposals that are set in stone.

French markets shaken by budget tension

The ongoing budget debate in France has made markets concerned about the economic outlook of the country and the fate of the new government. The budget proposal put forward by Prime Minister Barnier’s minority government includes 40 billion euro of spending cuts and 20 billion in tax hikes aimed at putting a stop to France’s increasing debt problem. Barnier’s proposal has been strongly questioned by his opposition, however, and he is now under pressure to pass his budget by the 21 December.

This has caused French stocks to fall, borrowing premiums to soar and bonds to hit parity with Greece. France’s heavy debt burden has long been a concern for investors and bonds have especially taken the hit for the current uncertain political situation.

Source: Bloomberg, BIL

Without the needed support for his budget, Barnier now faces the threat of a no-confidence vote by the far-right Rassemblement National, led by Marine Le Pen, unless their demanded changes in the budget are met.

Arabica coffee bean price surges

Coffee drinkers were worried last week when the futures for luxury Arabica coffee beans rose to their highest price since 1977 on supply fears. A severe drought in Brazil this year has raised concerns that production in one of the world's biggest coffee producers will fall significantly next season. Similar concerns have already arisen in Vietnam, the market leader for the cheaper robusta bean, as the growing season has been hit by dry weather and the harvest has been flooded by rain.

Coffee manufacturers have scrambled to secure as many beans as possible, pushing up the price of Arabica beans by more than 70% this year. It appears that coffee growers in Brazil have already sold much of their current crop, meaning that supplies are likely to be tight until the next harvest starts in May.

On top of the unpredictable weather that dictates harvests, EU legislation on deforestation is due to come into force in January, forcing importers to prove that the coffee beans they buy haven't been grown on deforested land. EU authorities are due to delay the legislation for 12 months, but until it is made official, European importers will continue to buy up beans to secure their supply.

Source: Bloomberg, BIL (As at 29/11/2024)

Economic calendar for the week ahead

Monday – Switzerland Retail Sales (October), Manufacturing PMI (November). Eurozone, France, Germany, UK, US Manufacturing PMI (Final, November). Eurozone Unemployment Rate (October).

Tuesday – Switzerland Inflation Rate (November). US JOLTs Job Openings/Quits (October).

Wednesday – Eurozone, France, Germany, UK, US Services PMI (Final, November). US Factory Orders (October).

Thursday – Switzerland Unemployment Rate (November). Germany Factory Orders (October). Eurozone Construction PMI (November), Retail Sales (October). US Challenger Job Cuts (November), Balance of Trade (October), Jobless claims.

Friday – Germany Balance of Trade (October), Industrial Production (October). US Non-Farm Payrolls (November), Unemployment Rate (November), Michigan Consumer Sentiment (Prel, December).