For a more comprehensive round up of the week, listen to Stephen’s full report here

The fortunes of risk assets were mixed in November, although most major international equity markets were stronger over the month as both the current and prospective US Federal Reserve (Fed) Governors, Ben Bernanke and Janet Yellen, provided strong guidance that very easy US monetary would need to persist for some time to come. Equity markets in the US (S&P 500), Japan (Nikkei) and Europe (Eurostoxx 50) rose in November respectively by 2.8%, 0.6% and 9.3%. By comparison, the British FTSE 100 fell by 1.2% and Australia’s ASX 200 was down by 1.9%, the latter amid concerns about economic prospects when the mooted big downturn in mining investment spending eventually occurs and the slow, inadequate downward adjustment in Australian dollar so far to reflect the deterioration in Australia’s export commodity prices.

Credit markets undulated through November but finished the month stronger running counter to the deterioration in the Australian equity market. Longer term interest rates rose during the month with markets still cautious about Fed monetary policy guidance and trading as if the Fed will start to taper its $US85 billion monthly asset purchase program sooner rather than later. US 10 year and 30 year treasury yields finished November at respectively 2.74% and 3.81%, close to 20 basis points higher than at the end of October. The Australian 10 year bond yield also rose by nearly 20 basis points, finishing November at 4.22%. Early in the month, the RBA left its cash rate unchanged at 2.50% and in the accompanying statement again made it clear that no change to the cash rate was likely over the next few months as they assess incoming data.

On the economic data front, US indicators were on balance stronger than expected in November. Indicators of housing activity were mixed with pending home sales down for a fourth consecutive month in October, but permits to build new homes lifted sharply in September and again in October while house prices in the twenty biggest US cities in September were up by 13.3% y-o-y, the best annual improvement in the recovery so far. Manufacturing purchasing manager indices were again mostly stronger than expected in November. Two big upside surprises were the advanced reading of US Q3 GDP, 2.8% annualized growth against 2.0% market expectation and October US employment (non-farm payrolls) up 204,000 against market expectation of 120,000. Economic readings in China were a touch stronger than expected in November while European readings mostly disappointed. The European Central Bank surprised by cutting its cash rate 25bp to only 0.25% at its November policy meeting. Despite gloom about Australian economic prospects, Q3 business investment spending, September housing indicators, retail sales and international trade data were all stronger than expected. October employment growth however was weak.

Looking ahead, official forecasts (OECD, IMF and RBA) of slow global and Australian economic growth in 2014 look misplaced. Signs of improving growth momentum are showing in the US, China and Japan. Australian economic indicators also appear to be strengthening. Our view remains that official forecasts will be upgraded through the first half of 2014 and the next RBA interest rate move is likely to be a 25bp hike probably in Q3 2014.