Global markets were lacklustre in November, with US and European markets moving in opposite directions. Market volatility was largely caused by the expected divergent monetary policy trends between the US Fed and other central banks around the globe.
Following the much stronger than expected US payroll number in October, the market has been anticipating that the Fed is very close to tightening policy rates for the first time in ten years, most likely in December. Recent economic updates reinforced this expectation. US payroll growth continues to be solid, with 211k new jobs created in November (above expectations of 190k) and October payrolls adjusted upwards to nearly 300k. The unemployment rate was unchanged at 5%, despite a slight increase in the participation rate by 0.1% to 62.5%. Meanwhile, Q3 GDP was revised upwards from 1.5% to 2.1% and, in particular, personal consumption expenditure was up by 3%, a positive signal that stronger domestic demand is driving the US economic recovery. Markets are now pricing in a 75% chance that the policy rate will indeed rise after the next FOMC meeting in December.