Monthly Market Report - November 2015

28th October 2015

With commentary from David Stevenson

It's been another strange month on the markets. After worrying that a global recession was just over the horizon, markets have bounced back and stopped worrying about the end of the world. One excellent marker for resurgent bullishness centres on the gap in performance between the benchmark UK index, the FTSE 100 and its US counterpart, the S&P 500. US equities have in recent years generally outperformed their British peers but in recent weeks the FTSE 100 has started to close that gap. Over the one month to Monday 12th November, the FTSE 100 index was up over 4% while the S&P 500 was only up 2.75%.

But I reckon it would be wrong to think that the bears have completely exited the frame. Let's take each of the 'challenges' worrying the bears in turn. China obviously tops any list of imminent disasters and although the consensus is that a hard landing has, just, been averted, worries persist. One telling example is that French bank Societe Generale recently put out a paper which suggested that the possibility of a lost decade of subpar economic performance for the ‘communist’ super power was a real possibility - the bank's analysts suggested a 40% probability. That has helped deepen anxiety about commodities where more and more investors are arguing that we've not actually seen the worst of this multi-year bear market. In this context Glencore’s recent travails may just be the beginning of a real rout. My own related concern is that we've not seen the bottom for oil, with no serious sustained breach yet of the $40 barrier. And then there's inflation of course which last month slipped back into negative territory in the UK although yearly rates are still positive. Lower oil prices help explain much of this number but the bears are convinced that these numbers tell us that the global economy is slowing down. That nervousness is reflected in turn in continuing market volatility - the widely watched fear gauge, the VIX index (which tracks the turbulence of the S&P 500), has fallen back markedly in recent weeks but at a headline rate of 17 it's still above near term averages. One last observation on this continued caution - bank CDS prices have continued to rise pretty much across the board. 

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