Donald Trump stepped up talk of taking control of Greenland and the Panama Canal. Israel and Hamas agreed a ceasefire deal.
Bond yields surged as robust US economic data sparked fears that the next move in US rates may be up – not down. Equities struggled given the increase in bond yields, but closed on a stronger footing, buoyed by outstanding US banking results.
The FTSE 100 closed at a record high, having rallied 4.1% since the start of the year, as a string of weak data boosted speculation that the Bank of England will need to cut rates aggressively to kickstart growth.
UK inflation slowed to 2.5% in December, down from 2.6% in November.
UK GDP rose 0.1% in November, the first positive figure in 3 months.
UK retail sales unexpectedly dropped 0.3% in December.
US
The S&P 500 rose 2.1% since the start of the year, while the Nasdaq gained 1.7%. The S&P 500 rose 23% in 2024, the second year in a row that returns have exceeded 20%.
US non-farm payrolls rose 256,000 in December, far exceeding analysts’ forecasts.
US headline inflation rose 2.9% on an annual basis in December from November’s 2.7%, but core inflation eased to 3.2%.
The ISM manufacturing PMI rose to 49.3 in December, while the non-manufacturing PMI climbed to 54.1.
TikTok was switched off across the US.
US banks JPMorgan Chase, Bank of America, Citigroup, Wells Fargo, Goldman Sachs and Morgan Stanley all reported a 20% rise in profits over 2024, helped by a surge in trading and deal making, marking the second-best year on records stretching to 2007.
US homebuilders tumbled as fears that interest rates will remain higher for longer add to concerns that president-elect Donald Trump’s potential tariffs and mass deportations will raise construction costs.
Europe
The Eurofirst 300 jumped 3.4% since the start of the year. Luxury goods companies were boosted by buoyant sales from Swiss group Richemont.
Eurozone inflation rose to a five-month high of 2.4% in December.
Minutes of the last European Central Bank (ECB) meeting emphasized a cautious and gradual approach to cutting interest rates but signalled that more easing is likely. The ECB’s chief economist warned that eurozone inflation could fall below target if policymakers do not continue to cut interest rates.
Germany’s economy shrank 0.2% in 2024, its second consecutive year of negative growth. GDP fell 0.1% in the fourth quarter.
Japan
The Nikkei 225 lost 3.7% since the start of the year, having closed 2024 at its highest year-end close since 1989.
Pacific Basin ex Japan
China’s economy grew 5% in 2024, meeting the government’s official target as strong exports and a concerted stimulus effort mostly offset weak domestic demand. GDP rose 5.4% year on year in the fourth quarter, accelerating from a 4.6% growth rate in the third quarter.
December’s official manufacturing PMI came in below expectations at 50.1, while non-manufacturing PMI was better than expected at 52.2.
China’s retail sales rose by 3.7% year on year in December, accelerating from November’s 3-month low of 3.0%. Industrial production grew by 6.2% year on year in December, higher than November’s 5.4% gain. Exports surged 10.7% year on year in December, up from a 6.7% rise in November as companies looked to beat Donald Trump’s threatened higher tariffs. Imports rose to a 27-month high of 1.0% year on year.
Consumer prices in China rose just 0.1% year on year in December.
Chinese corporate profits fell by an average of 4.7% year on year between January and November. If, as expected, the trend continues in December, this will mark the third consecutive year of declining profits.
Indonesia’s central bank unexpectedly cut interest rates despite a weakening rupiah, citing slowing growth momentum in south-east Asia’s largest economy.
Emerging Markets
The MSCI EM Index fell 0.8% since the start of the year in USD terms. Fears over president-elect Donald Trump’s proposed trade tariffs, a soaring US dollar and rising bond yields all weighed on sentiment.
In late December, Turkey’s central bank lowered rate by 250bps to 47.5%, marking its first rate cut in almost two years. Argentina’s government has paid $4.3bn to holders of its sovereign bonds, its largest repayment since a 2020 debt restructuring.
Bonds
The yield on the 10-year US Treasury rose 5bps since the start of the year to 4.62%, while 2-year yields rose 4bps to 4.28%. Earlier in January 10-year yields reached 4.8%, their highest level since 2023, as strong economic data caused markets to delay another expected 25-bps rate cut to September, with the odds of a second cut this year falling to about 20%.
US corporate bankruptcies hit a 14-year high in 2024 as elevated interest rates and weakened consumer demand punish struggling groups.
Since the start of the year, the yield on the 10-year German Bund rose 17bps to 2.53%. 10-year UK Gilt yields rose 10bps to 4.77%, having touched a 16-year high of 4.93% earlier in January amid fears that weak growth will curtail tax receipts and may mean UK taxes need to rise again.
The yield on the 10-year JGB rose 11bps to 1.2% since the start of the year. China’s 10-year bond yield fell to a record low of less than 1.6% in early January.
Commodities
Crude oil prices touched their highest level since August as the US said it was planning to increase sanctions on Russian oil companies, causing Chinese and Indian buyers to find alternative suppliers.
Currencies
The dollar index, which tracks the US currency against a basket of its peers, reached its highest level since November 2022.
