Thanks Giving in the United States typically reduces volumes in markets with traders away from their desks. This year has been no expectation.

European indices took the reduced liquidity as an opportunity to grind higher yesterday, and these gains continued into Friday’s session. 

The FTSE 100 was 0.3% higher while European indices were broadly flat, although in positive territory.

After Federal Reserve minutes on Wednesday, analysts at AJ Bell highlighted a subtle shift in markets that are now becoming slightly more optimistic we could be approaching an inflection point after a year of tighter monetary conditions.

“Investors might not realise it, but we’ve just had an important week in terms of the potential direction of markets going forward. Signs that the Federal Reserve might slow down the pace of interest rate hikes is the first step towards the pivot in strategy desired by so many investors,” said Russ Mould, investment director at AJ Bell.

China

As political disruption in the UK and the US midterms fade into the rear view mirror, China has increasingly stole investors attention as the world’s second largest economy battles with COVID.

Rumours the Chinese authorities were considering the end of their Zero Covid policy have been quickly followed by reports of empty subways and deserted streets in China’s largest cities.

Nevertheless, investors have been betting on a response from China by buying into Chinese stocks and have been rewarded with a cut in the Chinese RRR to help stimulate the economy.

The cut will unleash billions of yuan into the system and ease financial conditions ready for the resumption of normal activities. 

The FTSE 100’s China-exposed stocks provided little reaction to the news with miners and Asia-focused banks such as HSBC and Standard Chartered hardly moving. These sectors have moved higher in recent weeks and the move to ease by China is largely priced in.

UK Housebuilders

The UK housebuilders were among the FTSE 100 worst performers after Berenberg cut their price forecasts in a bearish note.

“It has slashed pre-tax profit forecasts for the sector by 40% on average, saying a trough in earnings won’t happen until 2024. This may surprise investors who took the view that so much potential bad news was already factored into the value of housebuilders’ shares,” Russ Mould said.

The Lloyds share price has been building momentum since mid-October when a change in the UK government ignited a rally in UK assets.

Lloyds isn’t one of the FTSE 100’s top 10 performers since Liz Truss’s resignation, but Lloyds shares are a solid 10% higher since Sunak became PM.

An improvement in UK sentiment has seen FTSE 100 banks tick higher with Lloyds now trading at 46p, approaching the key psychological level of 50p. Whether the 50p target is reached depends on two key factors.

Inflation data

The UK economy is walking a tight rope with household spending erosion on one side, and detrimental fiscal measures on the other. Indeed, the UK government has steadied financial markets, but Lloyds customers will suffer as a result. The light at the end of the tunnel is falling inflation which will ease the pressure on households and allow the Uk government to adjust their fiscal plan in the Spring.

UK CPI inflation hit 11.1% in October, if this continues to rise in November, the market reaction could see Lloyds’ march higher thrown off course.

Global growth

Global growth data, including the UK’s economic data, will be increasingly scrutinised as we move into the end of the year. With the Federal Reserve signalling the pace of interest rate hikes could be about to slow, we could be about to see a global shift in monetary policy.

Each piece of economic data will become more important as investors attempt to gauge when this shift could happen. If perceptions of this shift changes materially before Christmas, Lloyds shares could be swept up in a broad risk-on rally which see their shares smash through the 50p mark.

Another source of potential good news for the global economy is China. Although Lloyds has minimal direct exposure to the Chinese economy, the end of the Chinese Zero COVID has the potential to unleash a tidal wave of cash as the world’s second largest economy lifts global investor sentiment. Cyclical sector such as banks would be likely beneficiaries.

Lloyds valuation and dividend

With the Lloyds share price at 46p, the bank trades at 5.9x historical earnings, 0.6x book value and has yield of 4.4%. All of these metrics are attractive on a historical basis and support further gains, should the macro picture permit.

Dr Martens shares were down heavily on Thursday as investors in the boot-maker reacted to falling margins and the board’s decision to favour investment over profits.

Dr Martens have pushed on with store openings and marketing which saw EBITDA margin lower by 2.8% to 21.2%. The company said they would continue investing in the brand for future growth – at the expense of short-term profits.

The promise of persistent investment wasn’t taken well by the market, despite fairly robust sales numbers for the first half.

Revenue grew 13% on an actual exchange basis to £418m in the first half, however EBITDA was flat at £88.8m.

Despite the company raising the dividend by 28% to 1.56p per share, investors choose to focus on the uncertain outlook and Dr Marten shares were down 20% at the time of writing.

“The maker of iconic footwear, Dr Martens has tripped up in a big way with investors following its first half results,” said AJ Bell investment director Russ Mould.

“The main reason the company has lost a bit of shine and polish is news that margins are under significant pressure.”

“While external factors such as a stronger dollar are playing a part, the company is also suffering from weakening demand and there are at least hints that its pricing power isn’t what many might have hoped given the apparent strength of the brand.

Liz Truss’s resignation 20th October marked the end of her disastrous tenure as the UK Prime Minister and a period of self-inflicted market turmoil.

Her doomed mini-budget sent shockwaves through financial markets and many FTSE 100 companies suffered heavy selling.

However, since Truss’s demise, many FTSE 100 shares have bounced back as financial conditions ease and investors pick up beaten down shares.

These are the top performing FTSE 100 stocks since Truss’s resignation 20th October:

1. Centrica +38.9%

2. Fraser Group +38.2%

3. Ocado Group + 34.8%

4. B&M European Value +33.7%

5. Melrose Industries +29.3%

6. JD Sports +27.1%

7. Fresnillo +25.9%

8. 3i Group +23.7%

9. Intermediate Capital +23.4%

10. Rolls Royce Group +22.8%

Clearly, sentiment around the UK consumer has improved dramatically since Liz Truss left office. The FTSE 100’s UK consumer facing stocks are standout performers with Fraser Group, JD Sports and B&M staging sharp rallies.

The move in Uk consumer stocks has coincided with an easing in mortgages rates and a recovery in the pound demonstrating a broad improvement in sentiment around UK assets.

Centrica is by far the best performer, which may be attributed to a different approach to energy bills by Sunak and Hunt.

The FTSE 100 was the best performer of major European indices on Wednesday with the FTSE’s commodity constituents proving support for the index.

The FTSE 100 was 0.33% higher at 7,477 compared to French CAC trading dead flat and German DAX down 0.14%.

The FTSE’s gains had been more pronounced earlier in the session, but a turnaround in oil prices saw Shell and BP turn negative. Oil traders are weighing up the demand outlook and a possible production increase by OPEC+ which has caused dramatic swing in oil prices this week.

Glencore was the FTSE 100’s top gainer with Anglo American and Antofagasta also rising.

Fed minutes

Investors were eagerly awaiting Federal Reserve minutes on Wednesday. The minutes will provide insight into policy makers’ thoughts on the next move in US interest rates.

Markets had taken a recent miss in US CPI inflation data as catalyst to buy into risk assets. This evening’s minutes have the power to validate, or invalidate, bets on the Federal Reserve slowing their pace of rate hikes.

Should the Fed signal they are planning to push on with 50 – 75bps hikes of the foreseeable future, markets may unwind the recent risk-on trade fairly quickly. This could see selling in both stocks and bonds – and dollar strength.

“Despite the prospect of the Federal Reserve’s latest minutes reminding markets that it has no intention of taking its foot off the acceleration pedal for interest rate hikes, investors in the US, Asia and Europe seem remarkably upbeat ahead of the central bank’s announcement,” said Russ Mould, investment director at AJ Bell.

FTSE 100 reshuffle

Dechra Pharmaceuticals was the FTSE 100’s worst performer as it looked set to be demoted to the FTSE 250 along with Harbour Energy.

In terms of promotion to the FTSE 100, a number of stocks were in the running including abrdn, Weir Group, Digital 9 Infrastructure and Beazley.