October's US inflation rate was published on 10 November. It came in below expectations prompting speculation that the path of future monetary tightening would be softer than the markets were anticipating. Those hopes were dashed at the Federal Reserve's meeting in early December. Despite another drop in US inflation in November, the Chairman of the Federal Reserve reinforced the message that policy would remain tight until it was clear that inflation would fall back towards 2.0 per cent. The bond market responded positively, with the 10 Year Treasury bond yield falling to 3.4 per cent, its lowest since June. It brought an abrupt end to the equity market rally that had seen the S&P 500 gain 15 per cent from its October low. Markets were concerned that tight policy will exacerbate the economic slowdown in 2023.
Sterling's rallied nearly 20 per cent from the intra-day low of 26 September. This was in part due to the markets rewarding the return of “competency” under Rishi Sunak and because of the US dollar weakness. Sterling has since fallen back to below 1.2 to the US dollar and is at a three-month low against the Euro as there seems to be a consensus that the UK economy will underperform other markets in 2023.
November's US equity rally spilt over into other markets, most notably commodities. Optimism about economic growth helped industrial metals gain ground. Nickel was up 24 per cent, zinc 13 per cent, platinum 11 per cent, aluminium 11 per cent and copper 11 per cent. Continental European markets did well, with the Italian MIB up 9.2 per cent, the DAX up 8.6 per cent and the CAC 7.5 per cent. In the UK, the FTSE All-Share gained 7.1 per cent. For the first time in a long while, the FTSE 250, up 7.1 per cent, beat the FTSE 100.