Global stocks retreated and bond yields rose as the Federal Reserve (Fed) issued a more hawkish outlook on the prospects for interest rate cuts in 2025 given signs of stubborn inflation.
The Assad regime in Syria fell, with the ex-president fleeing to Russia.
The US/China trade war escalated: China banned shipments to the US of several minerals and metals used in semiconductor manufacturing and military applications; the US unveiled tougher restrictions on the export of critical semiconductor manufacturing tools and a ban on exports to China of advanced high bandwidth memory (HBM) chips.
UK
The FTSE 100 dropped 2.4% over the three weeks.
The Bank of England held interest rates at 4.75%, warning that stubborn inflation, particularly wage growth, would prevent it from cutting rates swiftly. It also downgraded its forecast for UK growth.
UK inflation rose to 2.6% in November, up from 2.3% in October.
UK GDP shrank 0.1% in October, the second consecutive monthly contraction.
US
The S&P 500 slid 1.1% over the three weeks, while the Nasdaq rose 2.6%. The tech-heavy index breached 20,000 for the first time on record, powered by a further rally in AI-related stocks. Currently, the S&P 500 Index is on track for its strongest yearly performance in five years.
The Fed cut interest rates by 25 bps to a range of 4.25-4.5% but reduced its pro¬jec¬tions for fur¬ther rate cuts as it raised inflation forecasts for 2025. Having previously signalled that it expected four cuts in 2025, the Fed’s dot-plot now suggests only two 25-bps cuts are likely.
US inflation rose to 2.7% in November, up from 2.6% in October. Core inflation held steady at 3.3%.
The US economy added 227,000 jobs in November, more than had been expected. The unemployment rate rose to 4.2%, from 4.1% in October.
The US narrowly avoided a federal shutdown after Donald Trump and Elon Musk torpedoed a bipartisan plan to raise the budget cap. Congress then rejected the president-elect’s proposal to remove the cap entirely, with several Republicans voting against Trump, before agreeing to a last-minute deal.
US producer prices increased 3% year on year in November, the biggest rise since February 2023.
US retail sales increased 0.7% over November 2024, following an upwardly revised 0.5% rise in October.
Shares of Broadcom soared after reporting that AI rev¬en-ues surged 220% in 2024 while also pro¬ject¬ing “massive” growth in the field.
Europe
The Eurofirst 300 lost 1.5% over the three weeks.
Germany is to hold elections in February after Chancellor Olaf Scholtz lost a vote of confidence. The Bundesbank slashed the country’s 2025 growth forecast to just 0.1% and warned that a US-led trade war risked pushing it into recession. It also called on Berlin to soften its tough spending rules, warning that Europe’s largest economy faced a “complicated” and “weak” outlook.
In France, Michel Barnier was replaced as prime minister after failing to get parliamentary backing for his budget of tax rises and spending cuts aimed at slashing the budget deficit. His replacement was former justice minister François Bayrou, a centrist politician.
President-elect Trump warned the EU that it must commit to buying US oil and gas on a large scale or face tariffs.
The Swiss National Bank cut rates by 50 bps, its largest rate cut in nearly a decade. It also lowered its forecast for inflation to 0.3% in 2025, half of what it projected in September.
Shares of Novo Nordisk slumped at least 20% after the drugmaker reported disappointing clinical trial results for its latest obesity drug.
Japan
The Nikkei 225 gained 1.3% over the three weeks.
The Bank of Japan kept rates on hold, citing uncertainty over Donald Trump’s impending presidency.
Pacific Basin ex Japan
Beijing loosened its monetary policy stance for the first time in 14 years, changing its stance to “moderately loose” from “prudent”.
China’s policymakers also called for “vigorous” efforts to boost consumption and domestic demand at the annual Central Economic Work Conference, a high-level meeting in which top officials plan the economic agenda for the next year, switching the priority away from investing in the technology and industry. The need for Beijing to act on promises is pressing.
Chinese retail sales grew by a lower-than-expected 3.0% in November, compared to 4.8% in October.
China’s inflation rate came in at 0.2% in November, a five-month low. The producer price index fell 2.5% year on year, easing from the prior month’s 2.9% drop but marking the 26th straight monthly decline.
Chinese exports rose a weaker-than-expected 6.7% in November from a year earlier, slowing from 12.7% in October. Imports fell 3.9%, deepening from the prior month’s 2.3% drop.
South Korean shares plummeted after its President Yoon Suk Yeol tried unsuccessfully to impose martial law.
Australian GDP grew by a disappointing 0.3% in the third quarter as high interest rates stifled consumer demand and an uncertain global outlook, including a weaker Chinese economy, dampened trade.
Emerging Markets
The MSCI EM Index ended the three-week period up 0.2% in USD terms.
Brazilian assets plunged amid plummeting investor confidence in the fiscal policy of President Luiz Inácio Lula da Silva. The turmoil reflected worries that not enough is being done to tackle a chronic budget deficit. During December, Brazil’s central bank raised the Selic rate by 100 bps to 12.25%, saying inflation expectations for 2024 and 2025 have “increased significantly.”
Argentina’s economy exited recession in the third quarter, marking the first quarter of growth since late 2023. President Milei promised to lift capital and currency controls next year. The government also said it would discuss a free trade agreement with the US once Donald Trump takes office. The central bank cut rates from 35% to 32% on lower inflation expectations, the 8th cut since Javier Milei assumed office in December 2023.
The Reserve Bank of India left rates unchanged at 6.5% as expected. India’s GDP rose 5.4% in the third quarter, less than the 6.5% expected. November CPI data came in 5.5% as expected, down from 6.5% in October due to a softening in food inflation.
Bonds
The yield on the 10-year US Treasury rose 27 bps over the three weeks to close 4.48%, having touched a six-month high of 4.59% in the aftermath of December’s FOMC meeting. Two-year yields rose 10 bps to 4.28%.
The yield on the 10-year German Bund closed the three-week period up 19 bps at 2.28%. Yields on 10-year UK Gilts rose 27 bps to 4.60%.
10-year JGB yields were unchanged at 1.05%, while China’s 10-year yield hit a record low of 1.74% amid a growing belief that the PBoC will cut rates further in 2025.
