23/12/2024
Weekly Financial Markets Outlook: Inflation Eases, Rate Cuts Speculated, and Geopolitical Tensions Loom
Global Equities
U.S. stock futures edged higher early in the holiday-shortened week, bolstered by cooling inflation data and the aversion of a government shutdown. Contracts for the Nasdaq 100 and S&P 500 posted gains of 0.3% and 0.15%, respectively. The Federal Reserve’s core personal consumption expenditures (PCE) index showed a slower rise, fueling optimism about potential rate cuts in 2025. However, cautious sentiment persisted due to global tariff threats and China’s weak economic recovery.
European equities saw modest gains, supported by the Stoxx 600 index’s recovery despite challenges such as Novo Nordisk’s slump and regulatory scrutiny on Evolution AB. Meanwhile, Asian equities showed mixed performance this week, with South Korea and Taiwan seeing gains while broader regional markets struggled due to weak currencies, subdued economic momentum, and lingering uncertainties surrounding U.S.-China trade relations.
Monetary Policy and Inflation
The Federal Reserve cut interest rates by 25 basis points last week, bringing them to a range of 4.25%-4.50%. While the move was anticipated, the updated outlook signaling fewer rate cuts in 2025 reflected persistent inflation risks and robust economic growth. In Europe, ECB President Christine Lagarde highlighted lingering price pressures in services, even as the eurozone’s growth projections were downgraded. The UK economy flatlined in Q3, with inflation above the Bank of England’s target for two consecutive months, pointing to further monetary policy challenges.
Sector Performance
Technology stocks outperformed, driven by quantum computing advancements and strong consumer spending. Apple is positioned for a robust holiday season, with iPhone upgrades trending positively. Growth stocks outpaced value stocks overall, reflecting optimism about future rate cuts and resilient consumer demand. Conversely, energy and materials sectors underperformed, impacted by geopolitical uncertainties and shifting investor preferences.
Energy and Commodities
Oil prices rose modestly as inflation data and government funding measures improved market sentiment. WTI crude reached $69.27 per barrel, while Brent traded at $72.34. However, lingering concerns about global demand capped further gains. Gold prices declined as the dollar strengthened following the Fed’s cautious messaging.
Cryptocurrencies
Bitcoin experienced volatility, briefly crossing $107,000 before retreating. Institutional interest in digital assets remains strong, with firms like BlackRock advocating modest portfolio allocations. Regulatory divergence, with the U.S. signaling potential deregulation under the incoming administration, adds complexity to the crypto market outlook.
Geopolitical Risks
Geopolitical tensions intensified, notably with the assassination of a Russian general and U.S. President-elect Donald Trump’s rhetoric on reclaiming the Panama Canal. Such developments add uncertainty to global markets, particularly in Europe and emerging economies.
Outlook
As 2024 nears its conclusion, markets remain optimistic about a year-end rally, but headwinds persist. Key risks include inflationary pressures, monetary policy adjustments, and geopolitical instability. Analysts expect subdued trading during the holiday-shortened week, with attention focused on economic data and corporate performance heading into 2025.
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.
