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• Asian ex Japan and emerging market equities, which rose +0.8% and +0.7% respectively in sterling terms
• Brent crude, which recovered +0.9% in dollar terms

• UK equities, which declined -0.6%
• The US dollar, which declined a further -0.7% against sterling
• Gold, which gave up -1.0% in dollar terms

UK construction activity has slumped to its lowest level in 5½ years, according to data released last week from S&P Global. Steep falls were reported throughout all construction sub-sectors, with infrastructure and residential building work faring worst. Weaker confidence and delayed orders ahead of the UK Budget are likely to blame. With a level below 50 signalling contraction, S&P Global’s Purchasing Managers’ Index (PMI) for construction showed activity had shrivelled to 39.4 in November from a still very weak 44.1 in October. PMI data is forward-looking, so a steep reduction in new orders and employment clearly does not bode well for future activity. Business optimism is also at its lowest point since December 2022. Finally negotiating the Budget might at least remove some of the uncertainty that may have been holding some sectors of the economy back.

Nationwide reported that the council tax bolt-on for high-value homes announced in the Budget would not have a significant impact on the UK’s housing market. Taking effect from April 2028, Nationwide estimates that fewer than 1% of all properties in England would be captured by the levy – dubbed a “Mansion Tax” – increasing to 3% in and around London. And it is thought that this measure in isolation will not dampen demand from buyers. However, higher rates of tax on income from properties could further dampen supply in the already stretched rental market. The house price-to-household-earnings ratio remains close to its 25-year average of around 5.6 times; the ratio of household debt-to-disposable income is at its lowest for two decades; and futures markets expect two-to-three interest rate cuts from the Bank of England over the next twelve months, supporting affordability. The average UK house is now worth £272,998, after annual price growth slowed to +1.8% in November from +2.4% in October. This is almost 7 times the median full-time UK salary of £39,039, before tax and other deductions, using data from the Office for National Statistics. It is still very hard to buy a home alone.

The Bank of Japan (BoJ) is increasingly facing a dilemma as it continues its process of monetary policy normalisation. Raising interest rates and quantitative tightening risks higher bond yields and stifling economic growth. Japanese government borrowing costs scaled multi-year highs last week, with the benchmark 10-year bond yield reaching its highest level since 2007. But abandoning the policy could further stoke rising inflation, which has been above the BoJ’s 2% target for over 3½ years. Higher borrowing costs could be particularly significant for Japan as its debt-to-GDP ratio is the highest in the world at 230%. Furthermore, new Prime Minister, Sanae Takaichi, is set to unleash a fiscal stimulus package in an effort to ease cost of living pressures and boost growth, but this could also exacerbate concerns around the debt pile and boost consumer price inflation. For over a year now, expectations of hawkish BoJ action have led to a partial unwinding of the yen funded carry trade, whereby investors have borrowed in a currency with low interest rates to invest in higher yielding assets. But with the BoJ hiking rates at a time when many other developed market central banks are cutting, that interest rate differential has narrowed. If the yen carry trade unwind was to accelerate once again, it could stoke further bouts of market volatility.

The Organisation of the Petroleum Exporting Countries and allies (OPEC+) agreed to maintain oil output quotas for 2026 at a meeting at the end of November. Key members also agreed to stick with plans announced at the start of November to pause production increases during the first quarter of the new year. This more cautious move comes after OPEC accelerated the reversal of production cuts from 2023 earlier in the year. Global oil supply has outstripped demand growth, even after controls on Russian-sourced crude, and contributed to the oil price decline witnessed this year. OPEC also approved a mechanism to assess maximum production capacity amongst members, which is to be used to set output quotas from 2027. This issue has long been on the group’s agenda, it is hoped that an external audit will satisfactorily define member capacity, meaning quotas align more closely with reality in future. This should help ease disputes within OPEC and ultimately increase market confidence by making future production cuts more credible. Some counties have increased production capacity and want higher quotas, while others struggle to pump as much as they’re permitted.

• Swiss reject new wealth tax – voters unanimously rejected the proposal which would have seen the government implement a 50% inheritance and gift tax on wealth exceeding 50 million CHF
• Eurozone inflation – higher energy prices pushed the Eurozone’s headline inflation figure higher last week, rising 0.1% in November to 2.2% year-over-year, above forecasts of 2.1%. Core and food inflation remained unchanged over the month
• German pensions bill – A key pensions bill narrowly passed in the German parliament, averting a potential government crisis which threatened the ruling coalition
• Bank of England (BoE) capital requirements – The BoE eased the amount of capital it estimates banks need to hold – a move which could support lending and stimulate growth. It is the first such reduction since the financial crisis
• New Federal Reserve (Fed) Chair – President Trump’s reportedly preferred candidate, Kevin Hassett, has become the favourite to replace Jerome Powell as Chairman of the Fed in May
• Fed to cut rates – Market pricing is now anticipating a Federal Reserve interest rate cut on Wednesday this week, amid further signs of cooling inflation and a softening labour market
• US consumer sentiment rises – after falling to its second lowest level in November, US consumer sentiment rebounded in December. However, inflation and unemployment remain at the forefront of consumer’s minds
• Anthropic – The company has seemingly become the latest private US AI firm to consider a public listing. Should it beat rival Open AI to a public listing it could be one of the largest ever, potentially valuing the company at c.$300bn
• Global growth to remain sluggish – in its latest publication, the Organisation for Economic Co-operation and Development (OECD) forecasted slowing global economic growth in 2026, before a partial reacceleration in 2027. Global growth is expected to slow from 3.2% in 2025 to 2.9% in 2026, before increasing to 3.1% in 2027

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