News Recap • Week 50 2024

Most equity markets took a breather this week amidst a rate cut from the ECB, some potentially promising stimulus coming to China, and a slightly hotter inflation print from the US.

Here’s the recap.

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Market recap

Equities

• 🇺🇸 S&P 500 declined 0.64% after three straight weeks of gains.
• 🇺🇸 Nasdaq Composite eked out a gain of 0.34% to another all-time record, passing 20,000 in the process for the first time.
• 🇪🇺 STOXX 600 fell 0.77%, giving back some of last week’s 2% jump.
• 🇯🇵 Nikkei 225 jumped 0.97% as the yen weakened 2.4% against the US dollar.
• 🇨🇳 Hang Seng rose 0.51% after having been up as much as 6% earlier in the week on new stimulus announcements. More on that in my weekly market recap.
• 🇨🇳 CSI 300 followed the Hang Seng and declined throughout the week, ending 1.01% lower.
• 🇮🇳 Nifty 50 rose 0.37% and extended its winning streak to four weeks.

Currencies & Commodities

• The DXY rallied 0.92% to 106.945, especially fueled by dollar strength against the Japanese yen.
• USD.EUR rose 0.6% to 0.952. The Danish krone weakened to 7.099 against the dollar.
• USD.GBP jumped 0.97% to 0.792.
• USD.JPY soared 2.41% to almost fully recover its big drop from two weeks ago.
• USD.CNH stayed more or less flat after a big rally through October and November.
• Gold rose 0.56% but closed well off of its intraweek highs.
• The crypto market is down 2.5% as of Saturday afternoon (CET) despite Bitcoin holding strong above $100,000. Ethereum is down 3.4% while Solana is dragging down the market with a 6.2% decline. Bitcoin dominance is up 2.8% to 56.9% after declining for three weeks straight.

Other

• The VIX rose 8.14% but remains near historic lows at 13.81.
• The 10-year US treasury yield rallied 5.92% to 4.4%, recovering most of what it lost during the past three weeks. The 2-year followed suit with a 3.48% gain to 4.25%.

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Another rate cut from the ECB

The European Central Bank delivered another 25 basis point rate cut on Thursday as expected. This brought the deposit rate to 3%, down from 4% in June where the ECB began cutting to stimulate the slowing European economy.

Rates were initially raised from essentially zero in an attempt to combat inflation. With inflation back near the 2% target, and the economy showing signs of weakness, the ECB is widely expected to continue lowering rates in 2025.

The ECB’s two other main rates were lowered too. The rate for main refinancing operations (for banks that borrow funds from the ECB on a weekly basis) was set at 3.15% while the marginal lending facility (overnight credit to banks against broad collateral) was cut to 3.4%.

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China deflation and new stimulus

China’s leaders promised on Monday to bring “more proactive” fiscal measures and “moderately” looser monetary policy next year. This will be done in an effort to boost domestic consumption.

While we’ll likely have to wait a while for any specifics, markets interpreted the statement very positively. The Hang Seng index had been down earlier in the day but jumped more than 3% in an hour after the news broke. The China technology ETF KWEB soared 11% on Monday.

Interestingly enough, this news came shortly after the latest inflation data from China.

Deflation in China

China’s consumer prices rose just 0.2% in November from a year ago. This was the lowest inflation rate in five months.

Analysts had expected the rate to come in at 0.5%, a slight uptick from 0.3% in October.

Producer prices fared even worse, declining 2.5% year on year. This was slightly better than the 2.8% forecast though.

The near-zero inflation rate on the consumer side shows a lack of demand while producer prices continue to plummet due to “accumulated inventories of manufacturing inputs and finished goods…” - Erica Tay, director of macro research at Maybank.

While lower prices may sound nice, it’s not a sign of a healthy economy. And it’s certainly not what you want to see in what’s supposed to be one of the biggest growth countries.

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CPI and PPI from the US

We got the latest inflation readings from the US on Wednesday and Thursday.

First up, the Consumer Price Index (CPI) rose 0.3% in November for a 12-month rate of 2.7%. Both numbers were in line with expectations.

Excluding food and energy, which are generally more volatile, the core CPI also rose 0.3% for the month but 3.3% on an annual basis.

The headline inflation rate of 2.7% was a bit higher than the 2.6% reading from October. Core inflation remained unchanged and is arguably the more important number to the Fed anyway.

On Thursday we got the Producer Price Index. With a 0.4% inflation rate in November, the PPI was significantly hotter than the 0.2% forecast. The annual rate was 3%, the highest since February 2023. That’s up from 2.6% and 2% in October and September.

However, the core PPI was in line with expectations at 3.5%. It has remained stable between 3.2% and 3.5% since April.

The majority of the increase in November was caused by a 3.1% jump in food prices. Chicken eggs in particular soared 54.6%.

The market reaction

The US equity market rose to record highs after the benign CPI on Wednesday while the hotter PPI only put a small damper on the markets on Thursday. Perhaps investors looked through it because the inflation uptick was so concentrated to a single category.

The Fed is still trying to bring inflation back down to its 2% target while maintaining a strong economy. A hotter inflation print could have forced the Fed to keep rates unchanged at its next meeting on December 18, or at least slow down its pace of easing in the coming months.

However, the market still sees a 95% chance of a 25 basispoint cut next week. That’s slightly down from 99% reached on Wednesday though.

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In other news

Macro

• China saw disappointing imports and exports in November. Exports rose 6.7% in US dollar terms and missed the forecast for 8.5%. It was also significantly lower than the 12.7% growth seen in October. Imports were expected to grow 0.3% but surprisingly fell 3.9%. This was the sharpest fall since September 2023.
• Headline inflation in India slowed from 6.21% in October to 5.48% in November. Economists had expected 5.53%. The cooling in inflation raises hopes for lower rates in the new year.
• Javier Milei managed to eliminate Argentina’s deficit for the first time in 123 years.
• Mark Zuckerberg, founder and CEO of Meta, donated $1,000,000 Donald Trump’s inaugural fund.
• South Korea’s President Yoon Suk Yeol was impeached after his failed attempt to impose martial law.
• French president Emmanuel Macron named centrist Francois Bayrou as new prime minister.
• The Swiss National Bank delivered a surprise jumbo rate cut on Thursday, lowering its key interest rate by 50 basis points. 85% of analysts expected a 25 bps cut. The move came after Swiss year-on-year inflation came in at just 0.7% in November.
• Meanwhile, Brazil hiked rates by a full 100 basis points from 11.25% to 12.25%. Guidance points to rates at 14.25% as early as March.

Other

• Amazon entered the online car sales business on Tuesday with its launch of Amazon Autos. The move was announced a little more than a year ago.
• General Motors abandoned its Cruise division’s robotaxi development and will instead fold the unit into its broader tech team.
• Walgreens shares jumped 18% on Tuesday on reports that it could be taken private by Sycamore Partners. Even after this jump, the stock is down more than 60% this year alone.
• Alphabet announced a breakthrough quantum computing chip named Willow. The chip can complete computations in minutes that would take current supercomputers 10 septillion years (i.e., 10,000,000,000,000,000,000,000,000). Although there’s no real-world application or commercialization of the chip just yet, investors sent Alphabet shares to a new record high with +5% gains on both Tuesday and Wednesday.
• Alphabet was in the headlines again on Wednesday when it unveiled Project Mariner, an AI agent that can take control of your Chrome browser, move the cursor on your screen, click buttons, fill out forms, and more.
• Luigi Mangione was charged with the murder of United Healthcare CEO Brian Thompson.
• China opened an investigation into Nvidia over possible violation of antimonopoly law. Shares fell 2.55% after the news on Monday.
• MicroStrategy will join the Nasdaq 100 on December 23.
• ServiceTitan went public and jumped 42% in its first day of trading. The company raised around $625 million in its IPO.
• Elon Musk’s net worth topped $400 billion, fueled by Tesla’s recent run.
• ETFs in the US have seen more $1 trillion of inflows in 2024 to pass $10 trillion in assets overall.

Earnings

• Oracle reported a slight miss on both earnings and revenue. Shares dropped almost 7% after the report on Tuesday.
• Adobe beat Q4 earnings estimates but issued weak guidance. Shares plummeted almost 14% after the report on Thursday.
• Broadcom rallied more than 24% on Friday after reporting that its AI revenue for the year nearly tripled. And that’s despite Q4 earnings and revenue being roughly in line with expectations. The company cracked the $1 trillion market valuation and is now the 9th largest in the world.
• Costco topped expectations for both earnings and revenue in fiscal Q4, the former coming in at $4.04 per share vs $3.79 expected. E-commerce sales rose 13% compared with the same quarter last year.

Crypto

• Donald Trump is allegedly very focused on the price of Bitcoin and wants it to do well under his presidency. This resembles his view on the stock market as a score card.
• Texas formally introduced a bill to establish Bitcoin strategic reserve.
• Japanese lawmaker Satoshi Hamada pushed for government to consider a national Bitcoin reserve.