Investment Institute
Weekly Market Update

Take Two: Eurozone economy contracts in Q3, gold price hits record high

  • 11 December 2023 (3 min read)

What do you need to know?

Eurozone GDP contracted by 0.1% in the third quarter (Q3) compared to the previous three months, according to a final official estimate. Year-on-year, seasonally adjusted GDP remained flat, after 0.6% growth in the previous quarter. While household and government expenditure contributed to growth both exports and imports fell. Eurozone economic activity continued to struggle for a sixth month in November - the final composite Purchasing Managers’ Index (PMI) was revised up to 47.6, compared to 46.5 in October – a four month high, although the below-50 reading indicates contraction. Meanwhile Japan’s economy shrank by -2.9% (annualised) in Q3, more than the -2.1% contraction initially thought, as consumer and business spending fell.

Around the world

Keeping cool amid rising temperatures in a sustainable way was the subject of a landmark agreement at the United Nations climate change conference COP28 last week, as some 63 countries – including the US and Canada – pledged to reduce emissions from air conditioning, refrigeration and more. The Global Cooling Pledge commits countries to reduce their cooling-related emissions by at least 68% from 2022 levels by 2050, along with other targets, including establishing minimum energy performance standards. In addition, organisations including the Global Carbon Council vowed to improve transparency around the global trade in carbon credits, including developing common standards and principles.

Figure in focus: $2,135

The price of gold hit an all-time high, amid growing expectations the Federal Reserve (Fed) will cut interest rates next year. One troy ounce – the most commonly-used measure - rose 3% to $2,135 last Monday, before falling back to $2,025 later that day. Fed Chair Jerome Powell said monetary policy was “well into restrictive territory” in a speech at the beginning of December, giving investors fresh hope that rates were now high enough to reduce inflation. A weaker US dollar and heightened geopolitical tensions in the Middle East have also helped push the price of gold – traditionally seen as a safe-haven - higher.

Words of wisdom

VIXThe CBOE Volatility Index (VIX) – also known as the ‘fear index’ – is a measure of the market’s volatility expectation, based on price fluctuations of S&P 500 index options. During times of greater macroeconomic uncertainty, the VIX tends to move higher, while a more stable environment usually corresponds with lower values. The VIX stood at around 13 late last week - an exceptionally low level and below its long-term median of 18, despite fears of a global economic slowdown and geopolitical risks. The index has recently seen record average trading volumes in contracts betting on the VIX, suggesting investors may be cautious of the potential return of volatility.

What’s coming up?

Central bank activity dominates the week ahead. On Wednesday, all eyes will be on the Fed, when its Federal Open Market Committee meets to decide on interest rates. The European Central Bank and Bank of England follow with their own respective meetings on Thursday. In terms of data updates, on Tuesday, the UK releases its unemployment rate for October, and the US publishes its inflation data for November. On Wednesday Eurozone industrial production figures are issued. On Friday, Japan, the Eurozone, UK and US release flash PMI figures for December.

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    This document is for informational purposes only and does not constitute investment research or financial analysis relating to transactions in financial instruments as per MIF Directive (2014/65/EU), nor does it constitute on the part of AXA Investment Managers or its affiliated companies an offer to buy or sell any investments, products or services, and should not be considered as solicitation or investment, legal or tax advice, a recommendation for an investment strategy or a personalized recommendation to buy or sell securities.

    Due to its simplification, this document is partial and opinions, estimates and forecasts herein are subjective and subject to change without notice. There is no guarantee forecasts made will come to pass. Data, figures, declarations, analysis, predictions and other information in this document is provided based on our state of knowledge at the time of creation of this document. Whilst every care is taken, no representation or warranty (including liability towards third parties), express or implied, is made as to the accuracy, reliability or completeness of the information contained herein. Reliance upon information in this material is at the sole discretion of the recipient. This material does not contain sufficient information to support an investment decision.

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