Weekly Overview 9. – 15. Dec 2024

The content of this post does not constitute financial advice. It is intended for information and education purposes only.

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The Week in Global Markets

Financial markets summary:

– EUROPE: This week, most European stock indices recorded some small retracements, with the exception of the German DAX and the Italian FTSE MIB which advanced a bit. The ECB cut policy rates as expected by 25bp, but the Swiss central bank surprised with an unexpected move and cut by half a percentage point. The decision of the ECB was released together with an updated outlook which clearly shows that the euro area is now expected to grow less than previously projected. In the official statement, there is no more reference to rates having to be “sufficiently restrictive for as long as necessary” which might have signaled to the markets that further easing might be coming soon. In France, the political crisis ended for now as the country finally got a new prime minister, but without a clear path to resolve its deficit problem, which is why it got another rating downgrade. Moody’s cut the credit rating by one notch from Aa2 to Aa3 and changed the outlook to stable from negative, citing weakening public finances due to political fragmentation which will constrain the scope & magnitude of measures that could narrow large deficits. At the same time, the UK economy appears to have slowed as monthly growth turned negative (-0.1% QoQ). Industrial production and manufacturing output were also down in October MoM.

– UNITED STATES: Both the S&P 500 and the Dow dropped this week, while the Nasdaq crossed $20k for the first time ever. The performance of stocks like Alphabet (Google’s parent) and Tesla drove this and the generally better performance of growth vs. value during the week. However, many analysts are sounding the alarm that the US stock market has become overextended in a way that has not been seen in a long time and meanwhile, media and some major financial institutions keep claiming that another 20% gain can be added next year. But inflation data released during the week showed that in November, CPI inflation continued to accelerate – nevertheless, the Fed will likely go ahead with another rate cut. This creates a practical problem as the rate curve seems to have uninverted and 10-year yields keep surging. The Fed’s actions are likely going too far at this point as they are only contributing to higher inflation. This is causing bonds to be sold off and thus depressing their price, raising their yields. There was also a surprising increase in initial jobless claims to a two-month high of 242k.

– ASIA-PACIFIC: Both the Nikkei 225 and the TOPIX rose week-on-week, albeit moderately. The yen weakened to 153 against the US dollar as expectations grew that the Bank of Japan will likely skip December for the next rate hike. Investors now seem to have converged in their expectation that a 25bp hike at the central bank’s first meeting in 2025 is more probable. The yield on the 10y JGB ticked down a bit to 1.04%. A positive piece of news was that GDP growth was better than expected in Q3 and that sentiment at big manufacturing companies went up again. In China, stocks declined as investors did not seem to be that impressed with the new round of policy measures. The stated intention is that there will be a more proactive fiscal policy and an increase in the budget deficit in 2025, but meanwhile, deflation remained entrenched in deflation. Chinese exports also suffered, growing at a lower-than-expected rate in November.

– BITCOIN: At the beginning of this week, Bitcoin saw significant swings, which also impacted the behavior of altcoin markets. Liquidations of positions hit a 3-year high, with Coinbase traders reported to be selling particularly aggressively. Memecoins saw major sell-offs, reversing the gains realized with the election of Donald Trump for some. However, by the time of writing, BTC seemed to have regained its momentum as it hit a new high of $106,554 and investors now see a $125k price in early 2025. The problem is that this could be followed by a significant correction (some estimate 30%) as profits are taken at that level. Another news relevant for investors is that Microstrategy will be added to the Nasdaq index, meaning that investors in the index will automatically get exposure to Bitcoin.