Quarterly Outlook
Q4 Outlook for Investors: Diversify like it’s 2025 – don’t fall for déjà vu
Jacob Falkencrone
Global Head of Investment Strategy
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London Quick Take – 28 Nov - Mixed start in quiet Thanksgiving hangover trade, outage at CME hits futures, UK debt profile is changing
Neil Wilson
Investor Content Strategist
Note: This is marketing material. This article is not investment advice, capital is at risk.
It's a mixed bag in Europe in a quiet open on Friday with the FTSE 100 ticking up a touch and the DAX and CAC both a shade lower. Wall St reopens later for a pointless half-day – something about the 1929 crash and markets not being allowed to shut for more than three consecutive days. In today's world with 24/5 trading that seems a bit of an anachronism, but disruptions in derivatives and futures markets - which provide liquidity and price discovery outside the normal trading hours - do happen!
Thanksgiving trading isn’t thin enough ...Trading in Wall Street futures was disrupted overnight due to an outage at the Chicago Mercantile Exchange. Trading in a host of commodity futures and derivatives, FX and Treasuries were also disrupted by the outage. US stock markets were closed on Thursday and will reopen today until 1pm, Eastern time. The outage combined with the lack of volume on a usually quiet day means price discovery is shot today.
It's been a while since we’ve had such a long outage. Good news was it happened during the US holiday so there was not a lot of action and orders...silver conspiracy theories going about that CME was worried about a thin order book and shut it down to prevent a breakout...
All the major indices are heading for a down month - the S&P 500 was down 0.4% month, the Dow Jones Industrial Average 0.29% lower and the Nasdaq Composite notching a 2.15% retreat. That’s despite a hefty bounce this week as all three major indices rose for a fourth straight day on Wednesday. Volatility has cooled - the VIX has slipped back to around 17 after sitting above 25 just a week ago.
Markets have been buoyed in recent days by a shortening in the odds for a December rate cut following some dovish remarks by Fed officials and softer economic data in the US. White House National Economic Council Director Kevin Hassett is seen as the front-runner to be the next Fed chair and could be announced before Christmas. Fed + White House in sync = ‘run it hot’ = lower rates, higher inflation expectations, steeper curve and equities positive in 2026. It's a lukewarm end to a volatile November but European indices are poised to eke out a fifth month of gains, which would be the best run since March 2024.
Finally...just when you thought Labour might have pulled off a tax-and-spend Budget without too much political damage, buying off restless MPs by ending the two-child benefit cap and soothing restless bond vigilantes with higher taxes to create more fiscal headroom (albeit based on pie-in-the-sky forecasts and assumptions), the government decided to bin its headline day one dismissal protections from its flagship employment rights bill, risking a fresh run-in with its own backbenchers once more. But businesses will be a little happier.
Sterling has slipped back after its post-Budget relief rally. The doji candle on GBPUSD yesterday indicates indecision at best, perhaps a reversal with the cross now testing 1.320 round number support having posted its best in a month on Thursday at 1.3270. EURGBP meanwhile has climbed off its 50-day SMA to rally a touch after hitting a three-week low.
STIR the pot: Gilt markets are still steady post-Budget – lots of reporting today about the UK shortening the maturity of its debt profile to benefit from lower rates at the front end. This is a sensible move, given the structural shift as defined benefit pension schemes exit the market - even if it means coming back to the market often and being a little more sensitive to short term rates. Britain currently has an average maturity of 14 years, which is about twice that of peers. UK pension fund ownership of gilts will fall from almost 30 per cent of GDP in 2025 to 11 per cent by 2074. This would raise the interest rate on UK govt debt by 80bps, according to a Banque de France report. The problem with shortening maturities might be a lack of demand for money market funds in the UK. Which is where perhaps stablecoins should come in. The UK has, of course, some catching up to do with the US in creating an ecosystem for stablecoins - which require debt instruments like Treasury bills as backing. Stablecoins designed to maintain a 1:1 peg to, say, the USD are required to back their issued tokens with highly liquid, short-term assets, such as short-term US Treasury bills (T-bills), typically with maturities of 90 days or less. The Bank of England proposed a regime for sterling-denominated stablecoins earlier this month – the wheels are in motion, it seems, for a significant restructuring in the way the UK government issues debt.
Thanksgiving trading isn’t thin enough ...Trading in Wall Street futures was disrupted overnight due to an outage at the Chicago Mercantile Exchange. Trading in a host of commodity futures and derivatives, FX and Treasuries were also disrupted by the outage. US stock markets were closed on Thursday and will reopen today until 1pm, Eastern time. The outage combined with the lack of volume on a usually quiet day means price discovery is shot today.
It's been a while since we’ve had such a long outage. Good news was it happened during the US holiday so there was not a lot of action and orders...silver conspiracy theories going about that CME was worried about a thin order book and shut it down to prevent a breakout...
All the major indices are heading for a down month - the S&P 500 was down 0.4% month, the Dow Jones Industrial Average 0.29% lower and the Nasdaq Composite notching a 2.15% retreat. That’s despite a hefty bounce this week as all three major indices rose for a fourth straight day on Wednesday. Volatility has cooled - the VIX has slipped back to around 17 after sitting above 25 just a week ago.
Markets have been buoyed in recent days by a shortening in the odds for a December rate cut following some dovish remarks by Fed officials and softer economic data in the US. White House National Economic Council Director Kevin Hassett is seen as the front-runner to be the next Fed chair and could be announced before Christmas. Fed + White House in sync = ‘run it hot’ = lower rates, higher inflation expectations, steeper curve and equities positive in 2026. It's a lukewarm end to a volatile November but European indices are poised to eke out a fifth month of gains, which would be the best run since March 2024.
Finally...just when you thought Labour might have pulled off a tax-and-spend Budget without too much political damage, buying off restless MPs by ending the two-child benefit cap and soothing restless bond vigilantes with higher taxes to create more fiscal headroom (albeit based on pie-in-the-sky forecasts and assumptions), the government decided to bin its headline day one dismissal protections from its flagship employment rights bill, risking a fresh run-in with its own backbenchers once more. But businesses will be a little happier.
Sterling has slipped back after its post-Budget relief rally. The doji candle on GBPUSD yesterday indicates indecision at best, perhaps a reversal with the cross now testing 1.320 round number support having posted its best in a month on Thursday at 1.3270. EURGBP meanwhile has climbed off its 50-day SMA to rally a touch after hitting a three-week low.
STIR the pot: Gilt markets are still steady post-Budget – lots of reporting today about the UK shortening the maturity of its debt profile to benefit from lower rates at the front end. This is a sensible move, given the structural shift as defined benefit pension schemes exit the market - even if it means coming back to the market often and being a little more sensitive to short term rates. Britain currently has an average maturity of 14 years, which is about twice that of peers. UK pension fund ownership of gilts will fall from almost 30 per cent of GDP in 2025 to 11 per cent by 2074. This would raise the interest rate on UK govt debt by 80bps, according to a Banque de France report. The problem with shortening maturities might be a lack of demand for money market funds in the UK. Which is where perhaps stablecoins should come in. The UK has, of course, some catching up to do with the US in creating an ecosystem for stablecoins - which require debt instruments like Treasury bills as backing. Stablecoins designed to maintain a 1:1 peg to, say, the USD are required to back their issued tokens with highly liquid, short-term assets, such as short-term US Treasury bills (T-bills), typically with maturities of 90 days or less. The Bank of England proposed a regime for sterling-denominated stablecoins earlier this month – the wheels are in motion, it seems, for a significant restructuring in the way the UK government issues debt.
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