News Recap • Week 51 2024

Equity markets around the world pulled back this week, fueled by rate outlooks and macro data from the US, China, Japan, and more. Asian markets fell steadily throughout the week while the decline in the US and Europe started on Wednesday after the US central bank lowered its 2025 projection from four rate cuts to just two. Higher rates generally slow down economic growth and are seen as "bad" for equity markets (grossly oversimplified).

Here’s the recap 👇

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Market recap

Equities

• 🇨🇳 CSI 300 outperformed Europe and the US with a slight decline of 0.14%. The Hang Seng lagged with a 1.25% drop.
• 🇺🇸 Nasdaq Composite fared slightly better than the S&P with a 1.78% decline.
• 🇯🇵 Nikkei 225 declined every day this week for a combined 1.95% loss.
• 🇩🇪 DAX followed suit with a 2.55% decline.
• 🇬🇧 FTSE 100 declined 2.6% in line with the broader European market.
• 🇺🇸 S&P 500 fell 1.99% for the week fueled by a 2.95% drop on Wednesday after the Fed’s hawkish rate outlook for next year.
• 🇪🇺 STOXX 600 plummeted 2.76% for the week after a big drop on Thursday in sympathy with the US market.
• 🇮🇳 Nifty 50 dropped 4.77% and gave back all of the past four weeks’ gains.

Currencies & Commodities

• The dollar index (DXY) rose 0.81% to its highest weekly close since November 2022 as the dollar gained strength after the Fed’s projection for fewer rate cuts next year.
• USD.EUR strengthened 0.71% for the week despite giving back 0.63% on Friday.
• USD.JPY gained 1.81% to its highest weekly close since July when the Bank of Japan decided to intervene to strengthen its weakening currency.
• USD.CNH only gained 0.17% after a big jump on Wednesday but declines on both Thursday and Friday.
• Gold fell 0.94% for the week but recouped some losses with a 1.11% gain on Friday.
• The crypto market is down 9.5% as of Saturday evening (CET) caused by big drops on Wednesday and Thursday. The market was down as much as 15% on Friday though. Bitcoin is holding up the best with a 6.6% decline while Ethereum and Solana have lost 14.6% and 18.1% respectively. Bitcoin dominance has risen accordingly to 59%.

Other

• The VIX had more than doubled on Wednesday after the Fed’s rate cut announcement but settled down for a 32.95% gain for the week, now at 18.36.
• The 10-year US treasury yield jumped 2.93% to 4.53%, its highest level since April. The 2-year rose 1.74% to 4.319%. The jump came on the back of the Fed’s hawkish rate cut outlook for 2025. A lot more on that below.

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Another US rate cut, but fewer to come

The US Federal Reserve on Wednesday decided to cut interest rates by 25 percentage points. The new overnight borrowing rate is now 4.25% to 4.5%, down a full percentage point since the Fed’s 50 bps cut in September and two consecutive 25 bps cuts in November and December.

The cut was fully expected and priced into the market. What was more interesting was the Fed’s projection for 2025 and 2026.

Fewer cuts to come

At the latest projection in September, aka the ‘dot plot’, the Fed saw four more rate cuts in 2025. Many Fed members even predicted five. This would have brought down the rate from the current level to around 3.4%. Two more cuts were projected in 2026 for a rate of 2.9%.

The Fed’s new projection is significantly more hawkish.

Consensus for 2025 is now just two additional rate cuts, bringing the rate down to 3.75% - 4%. So while the Fed still expects two more cuts in 2026, those would still leave the rate 50 basis points higher than previously projected.

The Fed now sees the “neutral rate” at 3% over the longer term, meaning no need for further cuts beyond this level (unless something changes in the meantime).

The market reaction

While many analysts expected a slower pace of rate cuts, the Fed’s hawkishness clearly took the market by surprise.

US equities immediately sold off on the news and continued declining throughout Jerome Powell’s press conference. The S&P 500 and Nasdaq Composite dropped 2.95% and 3.56% respectively on Wednesday. And that’s despite them being slightly positive up until the news just two hours before market close.

The crypto market also took a big hit. Bitcoin even caught a stray during the press conference when Jerome Powell was asked about his perspective on bitcoin as a reserve asset. His reply: The Fed is not allowed to and he’s not seeking to change that.

The US dollar meanwhile jumped 1.18% to surpass the peak from a month ago and reach its highest level since November 2022.

US treasury bond yields rallied as well with the 10-year gaining 2.84% to more than 4.5%, its highest level since May. The 2-year wasn’t far behind with a 2.64% gain to a yield of 4.365%.

The takeaway

The positive perspective is that the US economy is so strong that there’s no need to lower rates any further. The labor market is still relatively tight with unemployment near historical lows and GDP growing at a solid pace.

Meanwhile, inflation hasn’t yet come all the way down to the Fed’s 2% target. It has actually crept up over the past few months. Not by much but enough to raise some small concerns about its trajectory.

Regardless, there’s nothing preventing the US equity market and other risk assets from going up just because rates are near 5%. However, the market always needs to recalibrate and adapt to new realities like this one.

All in all, the Fed has no reason to speed up its rate cutting cycle–unless something changes. That something can either be on the negative side: A slowing economy and higher unemployment rate. Or on the positive: Inflation coming back to target faster than anticipated.

We actually got a small hope of the latter on Friday. More on that below.

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Cooling US inflation

On Friday we got the latest reading from the Personal Consumption Expenditure (PCE) index. It’s known to be the Fed’s preferred inflation gauge above the Consumer Price Index and Producer Price Index, for instance.

The data showed an increase of just 0.1% in November and a 2.4% annual rate, both 0.1 percentage points below expectations. The annual rate did tick up slightly from 2.3% in October though.

The core PCE which excludes food and energy also came in lower than expected at 0.1% monthly and a 2.8% annual rate. The latter was unchanged from October.

Even housing inflation, which has been one of the stickier components of inflation during this cycle, showed signs of cooling with just a 0.2% uptick in November.

All in all, this was a positive sign in the battle against inflation. Cooling inflation increases the likelihood of rates coming down faster and sooner than feared, as explained above.

The market reacted positively to the news with US equities rebounding from the prior days’ big losses. The S&P 500, Nasdaq, and Dow Jones Industrial all gained more than 1% on Friday. The dollar also gave back some of its gains for the week.

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Concerning economic data from China

Retail sales in China rose by 3% year-over-year in November. That was well below the forecast for 4.6%, pointing to continued economic struggles in the country. It was also a big drop from the 4.8% growth measured in October.

Real estate investments in the January to November period declined 10.4% from a year ago, worse than the 10.3% measured a month earlier.

Fixed asset investment rose by 3.3% on a year-to-date basis, slightly missing the forecast of 3.4%.

One of the few small bright spots was industrial production which rose 5.4% from a year ago and slightly beat expectations for 5.3% which was also the rate measured in October.

The urban unemployment rate remained unchanged at 5%.

The Chinese Hang Seng index fell 0.88% on Monday after the data was released and closed the week 1.25% lower. It still outperformed the US and European markets which all took a beating this week though.

Investors are still awaiting and expecting more stimulus for the Chinese economy. Perhaps that’s why the equity markets didn’t fall more than they did on the back of this negative data.

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In other news

Macro

• The Bank of Japan kept rates steady at 0.25%. Only one of the nine board members voted for a hike. The decision surprised economists who had expected rates to be raised to 0.5%. The yen weakened by 1.67% against the US dollar on Thursday following the two different rate directions from the Fed and BoJ. The yen reached its lowest level since July when the BoJ decided to intervene.
• Inflation in Japan picked up in November as the Consumer Price Index rose 2.4% vs 2.3% in October. Core CPI rose 2.7%, slightly above the 2.6% forecast. The data is expected to increase the likelihood of upcoming rate hikes from the BoJ who decided to leave rates unchanged earlier this week.
• Retail sales in US increased 3.8% year-over-year in November for its biggest annual gain since December last year.
• Industrial production in the US, contrary to retail sale, shrank by 0.9% for the year. It was the fastest pace of declines since January and the eighth month of contraction this year.
• The US government averted a shutdown after passing a last-minute stopgap funding bill late Friday night. The bill passed with overwhelming support by a vote of 366 to 34 in the House and 85 to 11 in the Senate.
• Donald Trump and SoftBank CEO Masayoshi Son announced a $100 billion investment in the US over the next four years. The money will go toward AI and related infrastructure and help create 100,000 new jobs.
• Inflation in the UK rose to 2.6% as expected in November. Core inflation, excluding energy, food, alcohol, and tobacco, came in at 3.5%. Economists had forecasted 3.6%. The headline number went up from 1.7% and 2.3% in September and October.
• The Bank of England held rates unchanged at 4.75% at its last meeting of the year. Three members of the Monetary Policy Committee did vote to cut rates though. Analysts had only expected this from one member. The BoE also lowered its economic growth forecast for Q4 from 0.3% to flat. The British FTSE 100 index fell 1.14% on Thursday after the news.
• German chancellor Olaf Scholz lost a confidence vote on Monday. This cleared the way for an election in February.
• Argentina exited its recession after showing GDP growth of 3.9% in the latest quarter. GDP is projected to contract 3.5% this year after shrinking 1.6% last year. Next year’s forecast is for a 5% expansion though.
• The Hong Kong bourse raised a combined $10.65 billion across 63 new IPOs this year. That was an impressive 80% jump from last year’s $5.89 billion and its first increase after three years of declines.
• China’s 1-year bond yield dropped below 1% for the first time since 2009 in the midst of the financial crisis triggered by Lehman Brothers’ bankruptcy.
• Russia president Vladimir Putin said he’s ready to compromise and make a deal with Donald Trump to end the Ukraine war. He also admitted that the country’s inflation rate is ‘alarming’ and that the economy is ‘overheating’.

Other

• Alphabet’s Waymo said it will begin testing its robotaxis in Tokyo in early 2025.
• AI startup Databricks secured an impressive $62 billion valuation after raising $10 billion in its latest funding round, one of the largest in history. The round was led by Thrive Capital with participation from Andreessen Horowitz, DST Global, GIC, Insight Partners, and WCM Investment Management.
• Quantum AI startup SandboxAQ announced a $300 million funding round at a $5.6 billion valuation, supporting its development of advanced AI systems for computation.
• The EU approved Nvidia’s $700 million acquisition bid for Run:ai.
• Novo Nordisk plummeted 20% on Friday after disappointing trial results for its experimental CagriSema weight loss drug. Patients reduced their weight by 22.7% on average vs +25% expected.

Earnings

• Nike delivered a solid beat on both earnings and revenue in its fiscal 2025 Q2, Elliott Hill’s first earnings report as Nike CEO. Both numbers were down year-over-year though. Hill also spent a good amount of time outlining the company’s turnaround strategy on the earnings call. Shares ended Friday down just 0.21% after some intraday volatility.
• FedEx earnings rose 1.5% year-over-year to $4.05 per share, beating estimates of $3.90. Revenue of $21.9 billion fell slightly short of expectations though. More concerning was the company’s lowering of 2025 projections. The stock initially jumped 7% on the news on Friday but finished the day essentially unchanged.
• Micron’s earnings and revenue came in line with expectations for last quarter but gave guidance well below expectations. Shares plummeted more than 16% after the report on Thursday and are now down 42% from the peak in June.

Crypto

• As bitcoin and crypto gain mainstream attention and adoption, more luxury brands are considering accepting cryptocurrency payments.
• Hong Kong approved four more crypto exchanges in continued battle to stay competitive in the space. Accumulus GBA Technology Co., DFX Labs Company, Hong Kong Digital Asset EX, and Thousand Whales Technology all got their licenses.