Sequoia Economic Infrastructure Income Fund Limited

Market Summary – November 2024

Interest rate announcements, inflation data and asset valuations






    		On 6 November 2024, the Bank of England (“the BoE”) reduced interest rates by 0.25% to 4.75%. On 7 November, the Federal Reserve (“the FED”) also reduced interest rates by 0.25% to 4.75%. The European Central Bank (“the ECB) did not reduce interest rates during November 2024, but did reduce them by 0.25% on 23 October 2024 to 3.25%, and again by a further 0.25% to 3.00% on 12 December 2024. Looking ahead, the Fed is also expected to cut policy rates by a further 0.25% during December 2024. In the UK, the most recent data on CPI inflation shows that it increased to 2.3% during October from 1.7% in September 2024. In the US, CPI inflation rose to 2.7% in November, from 2.6% in October 2024. In the ECB, CPI inflation increased to 2.3% for November 2024, up from 2.0% during October 2024. CPI inflation has risen across all three regions mainly due to continued upward pressure from energy costs.
The markets generally expect energy costs to trend downwards during the next few months, which could help to reduce CPI inflation across all three regions. In the UK, wholesale gas prices are stabilizing, and the Ofgem energy price cap will reduce costs for households. In the US, energy prices are expected to stabilize or fall due to increased domestic oil and gas production. In Eurozone, high natural gas storage levels and diversified supply chains are reducing the risk of sharp price increases. 
    Once a downwards trend toward a lower interest rate environment unfolds, this will be supportive of fixed rate loans and bonds. Further, as short-term rates begin to fall, yield curves will become less inverted or turn positive again, supporting a bid for risk in the market. 
As inflation abates in the long run, the likelihood of future interest rate cuts increases, which makes alternative investments such as infrastructure more attractive when compared to liquid debt. The markets have also priced in at least one further rate cut between now and the end of the year across all three regions.