Overview
December was a challenging month for financial markets driven by uncertain macroeconomic outlook. Some economies like Europe and UK are still struggling to find growth while US economy remained strong and resilient with positive outlook. Central banks turned hawkish amid recent surge in inflation and higher for longer debate got traction again. The near-term risk factors affecting markets include timing and intensity of potential tariffs, sticky inflation, higher interest rates, geopolitics, and consumers’ financial health. The positive attributes of the trade supporting financial markets, however, include hopes for easing monetary policy, AI and data centre boom, and resilient corporate earnings, especially big technology companies.
Looking at the performance of major asset classes, December proved to be difficult month for most of the assets. The U.S. equity market benchmark S&P 500 led the losses with 2.4% decline driven by hawkish Fed and profit taking after a significant run in November. The benchmark for shariah-compliant investments, DJ Islamic market index, fell by 1.4% while UK FTSE 100 index lost 1.3% as the UK economy stalled in third quarter and central bank took more cautious approach after recent surge in inflation. On the other side, Japanese equities delivered strong positive performance of 4.5% followed by the European equity market Euronext 100 that surged 1%, despite the headwinds from low economic growth and inflationary challenges in addition to potential tariffs threat, both from US and China. Although Chinese equities increased by 0.76% in the month amid a series of stimulus packages announced by the authorities, however, the market is expecting more on the fiscal and structural reforms front. In anticipation of higher for longer environment, yields surged resulting in DJ Sukuk Index ending the month with 0.6% drop. Lastly, UK pound depreciated by 1.8% against US dollar as US dollar strengthened amid strong US economy compared to UK.
Market Snapshot
News & Key Events in December
UK
• The annual inflation rate in the UK edged up for a second month to 2.6% in November 2024 from 2.3% in October, matching forecasts.
• The Bank of England left the benchmark bank rate steady at 4.75% during its December 2024 meeting, in line with market expectations, as CPI inflation, wage growth and some indicators of inflation expectations had risen, adding to the risk of inflation persistence.
• The British economy stalled in Q3 2024, revised down from the first estimate increase of 0.1% and below a downwardly revised 0.4% in Q2.
US
• The annual inflation rate in the US rose for a 2nd consecutive month to 2.7% in November 2024 from 2.6% in October, in line with expectations.
• The Fed announced another 25bps cut to the federal funds rate in December 2024, marking the third consecutive reduction this year and bringing borrowing costs to the 4.25%-4.5% range, in line with expectations.
• The US economy expanded an annualised 3.1% in the third quarter of 2024, higher than 2.8% in the second estimate and above 3% in Q2.
Europe
• The annual inflation rate in the Eurozone increased to 2.2% in November 2024 from 2% in October, but below 2.3% in the preliminary estimate.
• The European Central Bank (ECB) has decided to cut its key interest rates for the fourth time this year by 25 bps in December 2024, as expected. This move reflects a more favourable inflation outlook and improvements in monetary policy transmission.
• In Euro Area GDP expanded 0.40% in the third quarter of 2024 over the previous quarter.
China
• China’s annual inflation rate unexpectedly eased to 0.2% in November 2024 from 0.3% in the previous month, falling short of market forecasts of 0.5% and marking the lowest figure since June.
• The People’s Bank of China (PBoC) maintained its key lending rates steady for the second straight month at December fixing, aligning with market estimates. The one-year loan prime rate (LPR), the benchmark for most corporate and household loans, was held at 3.1%. Meanwhile, the five-year rate, a reference for property mortgages, was unchanged at 3.6%.
• The Chinese economy grew by a seasonally adjusted 0.9% in Q3 of 2024, after a 0.7% increase in Q2. It was the ninth straight period of quarterly rise, supported by recent government initiatives aimed at stimulating consumption, mitigating deflation risks, and reversing the downturn in the real estate sector.
Others
• The annual inflation rate in Japan climbed to 2.9% in November 2024 from 2.3% in the prior month, marking the highest reading since October 2023.
• The annual inflation rate in Russia rose to 8.9% in November 2024, up from a five-month low of 8.5% in the prior month and surpassing market forecasts of 8.7%.
• The annual inflation rate in Canada was at 1.9% in November of 2024, easing from the 2% in the previous month.
• South Korean president Yoon Suk Yeol got impeached over his attempt to impose martial law on 3rd December. Later, the South Korea court issued an arrest warrant against him.
• Bitcoin experienced a significant upside in December and reached all time high of $108000 amid hopes for loose crypto regulations under President-elect Donald Trump.
Disclaimer
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