20/12/2024
Global Financial Markets Weekly Recap: Volatility Amid Policy Shifts and Geopolitical Risks
Stock Markets and Key Data Releases
Global equity markets faced significant pressure this week as concerns over central bank policies, geopolitical tensions, and economic uncertainty dominated sentiment. European markets saw sharp declines, with the Stoxx 600 down 0.9%, setting the stage for its worst weekly performance in three months. Major indices like Germany’s DAX, France’s CAC 40, and the UK’s FTSE 100 dropped 1.1%, 1.1%, and 0.4%, respectively.
In the U.S., the S&P 500, Dow Jones, and NASDAQ all experienced weekly losses exceeding 3%, driven by hawkish signals from the Federal Reserve and heightened fears of a government shutdown. Meanwhile, in Asia, a key gauge of shares extended its losing streak to six days, reflecting regional challenges, including China’s slowing economy and Japan’s inflationary pressures.
Attention is fixed on the U.S. Personal Consumption Expenditures (PCE) data (December 20th, 13:30 GMT), expected to show an annual increase of 2.9% in the core index for November. This followed faster-than-anticipated GDP growth and robust consumer spending, which undermined the case for imminent rate cuts.
Central Bank Policy and Bond Yields
The Federal Reserve’s outlook for rate cuts in 2025 was scaled back, with markets now pricing in only one to two quarter-point reductions. This shift followed a 25-basis-point rate cut earlier in the week, accompanied by cautious commentary. U.S. Treasury yields reflected these developments, with the 10-year yield settling near 4.55%, its highest since July.
In Asia, China’s one-year bond yield fell to 0.88%—a level not seen since the global financial crisis—amid growing expectations for monetary easing. Meanwhile, Japan’s inflation data strengthened, prompting renewed concerns over currency market intervention.
U.S. Government Shutdown Risks
Political uncertainty weighed heavily on U.S. markets as the threat of a government shutdown loomed. A Trump-backed spending bill failed to pass, increasing the likelihood of a partial shutdown starting Friday night. Goldman Sachs estimates that each week of a shutdown could reduce quarterly GDP growth by 0.15 percentage points.
Trade War Tensions
Geopolitical risks intensified after President-elect Donald Trump threatened the European Union with tariffs, demanding increased purchases of U.S. oil and gas to address the trade deficit. This rhetoric added to fears of a potential trade war, which would exacerbate existing economic challenges in the eurozone.
Commodities and Currencies
Oil prices fell sharply, with Brent and WTI futures declining to $71.75 and $68.66 per barrel, respectively, amid a stronger U.S. dollar and concerns over waning demand. Limited clarity on Chinese stimulus measures and reduced U.S. fuel consumption added to the downward pressure.
Gold, however, advanced as investors sought safe havens amidst the market volatility. Bitcoin extended its decline from record highs earlier in the week, reflecting reduced risk appetite.
Outlook
Market participants remain cautious as macroeconomic uncertainties persist. Key factors include the outcome of the U.S. PCE data (December 20th, 13:30 GMT), developments in government funding negotiations, and the trajectory of global monetary policies. Combined, these elements set the stage for continued market volatility in the near term.
IMPORTANT DISCLAIMER
The information in this report is of a general nature only. It is not a piece of personal financial advice. It does not take into account your objectives, financial situation, and personal needs.
a-Quant is not responsible for your actions and recommends you contact a licensed financial advisor before acting on any information contained in this general information report.
