The last full week of 2024 started off with a burst of US exceptionalism which helped US equity futures shrug off downbeat performances in other global markets as traders prepared for a slate of interest-rate decisions by major central banks due later this week. S&P and Nasdaq futures both traded at record high, as did Bitcoin which hit a fresh all-time high of $106,000. As of 8:00am ET, S&P futures were 0.3% higher and Nasdaq futures gained 0.5% as the panic chase of momentum, which pushed the index at an all-time high on Friday, continued. MicroStrategy advanced more than 6% in premarket trading, fueled by its pending inclusion in the index following the software maker’s transformation into a leveraged bet on Bitcoin. Monday’s US stock performance stands in stark contrast with broad losses in Asia and Europe as weaker-than-expected retail data in China weighed on sentiment. A contraction in the euro-area’s private sector also dragged on European equities. Treasuries climb, pushing US 10-year yields down 2 bps to 4.38%. The Bloomberg Dollar Spot Index falls 0.1%. Oil dipped with WTI falling 0.9% to $70.60 a barrel. Today's key macro events are the Empire Fed Manfuacturing index and S&P Global PMI prints for the US.
In premarket trading, MicroStrategy leads fellow cryptocurrency-exposed stocks higher on optimism about the company’s upcoming inclusion of the company in the Nasdaq 100 Index. MicroStrategy (MSTR) +4%, Riot Platforms (RIOT) +2%, Mara Holdings (MARA) +2%. On the other end, Super Micro Computer tumbled 15% after the announcement that the stock is to be removed from the Nasdaq 100 in the annual reconstitution of the index. Here are some other notable premarket movers:
An expected quarter-point rate cut from the Federal Reserve on Wednesday could add fresh support and extend US stocks’ outperformance. The S&P 500 has rallied 27% so far in 2024, with strategist expecting the rally to build further steam in anticipation of favorable economic policies under President-elect Donald Trump and strong earnings.
"Central banks have been helpful in 2024 as they start cutting interest rates when the economy was still strong," Marija Veitmane, senior multi-asset strategist at State Street Global Equities, told Bloomberg TV. Going forward, “what we need to rely on is earnings and where they can grow the fastest. In the US, we can still see solid growth.”
Wednesday’s Fed decision will be followed by peers in Japan, the Nordics and the UK over the following day. Swaps traders are now pricing in around three quarter-point rate cuts by the Fed over the next 12 months, whereas they’d seen better than 50/50 odds of a fourth one a week ago.
In Europe, the Stoxx 600 is down 0.3% in the wake of disappointing retail-sales data in China, while traders assess the impact of Moody’s Ratings’ France downgrade. Banks are the best performers while Novo Nordisk boosts healthcare stocks after announcing its Catalent deal got the go-ahead. Automakers and consumer goods are the biggest laggards. France's CAC 40 falls 0.7%, underperforming its regional peers after Moody’s cut the French credit rating on Friday. Here are some of the biggest movers on Monday:
Earlier in the session, Asian stocks also slumped, dragged lower by shares in mainland China after the country’s retail sales data came below expectations. The MSCI Asia Pacific Index declined 0.2%, with China Eastern Airlines and Australian miner Fortescue Ltd among the biggest losers. Hong Kong and mainland China were among the worst performing markets in the region, while the stock benchmark in Taiwan rose. China’s data dump on Monday showed retail sales for November rose 3% on-year, well below an expectation of a 5% gain. That weighed on sentiment at a time when Beijing has been touting more stimulus to support spending. Home prices fell for a third month in a row, although the decline is slowing. Chip makers Taiwan Semiconductor Manufacturing Co and SK Hynix were among the gainers. A gauge tracking Asian IT shares was up around 0.3%.
The retail-sales data “is a reflection of the dire situation there and how the stimulus efforts have prioritized optics over delivering meaningful economic improvements,” said Charu Chanana, chief investment strategist at Saxo Markets in Singapore. “Even for a tactical recovery, we need more after a series of false starts and the risk of tariffs ahead.”
“This data really verifies that the headwinds for consumers are still very very high,” said Johanna Chua, head of emerging market economics at Citigroup Global Markets in a Bloomberg TV interview.
In FX, the Bloomberg dollar index was little changed after six days of gains. Wall Street is starting to sour on the dollar as President-elect Donald Trump’s policies and the Fed’s interest-rate cuts will likely put pressure on the greenback in the latter portion of 2025. Roughly a half dozen sell-side strategists are now forecasting the world’s reserve currency will peak as early as mid next year before starting to decline. Euro-area PMIs were mixed and largely ignored with the euro little changed versus the dollar. The pound outperforms, rising 0.2% as investors seemed to focus on the services PMI beat rather than the manufacturing PMI miss.
In rates, treasuries hold small gains, tracking bigger rallies in bunds and gilts after mixed European PMI readings and recovering some of last week’s steep loss. US yields are richer by 1.5bp to 3bp across maturities with gains led by front-end and belly, steepening 5s30s spread by ~1bp. 10-year is back around 4.37% after topping 4.4% Friday for the first time since Nov. 22. OATs also lag their German counterparts, widening the 10-year yield spread to around 79 bps, after France was downgraded unexpectedly by Moody's on Friday. Treasury coupon auctions this week include $13 billion 20-year bond reopening Tuesday and $22 billion 5-year TIPS reopening Thursday. US session includes Empire manufacturing survey and US PMIs, with November retail sales ahead Tuesday before Wednesday’s Fed rate decision. Oil trades lower, also supporting Treasuries.
In commodities, oil prices declined, with WTI falling 0.9% to $70.60 a barrel after rising 6.1% last week. Spot gold adds $12 to around $2,660/oz. Bitcoin rallies to a record high.
Today's US economic data calendar includes December Empire manufacturing (8:30am) and S&P Global US manufacturing and services PMIs at 9:45am
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A more detailed look at global markets courtesy of Newsquawk
APAC stocks saw an uninspiring start to the week following the mixed session on Wall Street on Friday and ahead of this week's risk events including the final FOMC, BoJ, and BoE meetings of the year. ASX 200 saw gold miners pressured by the recent pullback of the yellow metal towards USD 2,650/oz levels, with sentiment also weighed on by the downticks in prelim. Aussie PMIs. Nikkei 225 swung between modest positive and negative territory throughout the session as the index oscillated the 39,500 level, whilst the Japanese Flash PMI highlighted "stubborn inflation" with "anecdotal evidence placing particular emphasis on the impact of the weakness of the yen in relation to inputs sourced from abroad." KOSPI conformed to the broader risk tone with little sustained move after South Korean MPs successfully voted to impeach President Yoon in their second attempt. Hang Seng and Shanghai Comp fluctuated between modest gains and losses with little initial reaction seen to the Chinese activity data, which saw a marked miss in Retail Sales whilst Industrial Output saw a modest surprise uptick. Furthermore, Chinese markets failed to garner much support from weekend reports that China has room to further cut the RRR, according to PBoC officials on Saturday via CCTV.
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European bourses began the European session on a modestly mixed footing, with indices generally trading on either side of the unchanged mark. As the morning progressed, sentiment slipped a touch to display a slightly negative picture in Europe. Today's EZ PMIs strengthens the case for further ECB easing, but had little impact on the complex. European sectors hold a strong negative bias, with a clear defensive tilt given the risk tone. Healthcare takes the top spot, after heavyweight Novo Nordisk (+1.9%) gains after it announced regulatory approval for Catalent deal. Autos parks itself at the foot of the pile, weighed on by losses in Porsche SE (-1.7%) after the automaker withdrew guidance. US equity futures are very modestly on a firmer footing, with sentiment a little better vs in Europe. The NQ marginally outperforms vs peers.
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Geopolitics: Middle East
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US Event Calendar
DB's Jim Reid concludes the overnight wrap
This morning we will publish our 2025 survey results with lots of interesting answers. Your two favourite Xmas films are quite violent though so that's the demographic of the responses! Long-time readers of the EMR will be wondering where time is going when I tell you that our belovedly wayward dog Brontë, who used to play a starring role in the EMR, was 10 over the weekend. Brontë is the most affectionate, good natured, people dog you can imagine but has zero recall. So in the first 2-3 years when we were trying to get used to having a dog, with extensive gun dog training included, we lost her on probably 7 or 8 occasions on walks. One of which was followed by my wife uttering (or shouting) the word "divorce" when I lost her on a motorway service station in France in the dark while my wife was feeding a very young baby around 8 years ago. She was seen crossing the motorway at one point before returning to the petrol pumps tired, bedraggled, and hungry two hours later. Since then she's not been off the lead, and I saved my marriage by having our garden fortified. As she gets older, the calmer she doesn't get. Happy birthday Brontë.
As we hit the last full week of the year, the natural winding down of activity will be punctuated by bursts of activity, centred around the Fed (Wednesday), the BoJ (Thursday) and the BoE (also Thursday) meetings. In terms of data, the highlights are the global flash PMIs today, US retail sales (tomorrow) and inflation prints from the US (PCE on Friday), Canada (tomorrow), UK (Wednesday), and Japan (Friday). Outside of that, today’s German government vote of no confidence should almost certainly pave the way for a February 23rd election and tomorrow’s CDU/CSU manifesto announcement will help shape the campaign (more later). Another thing to watch is France where Moody’s surprisingly cut France late on Friday night in a rare unscheduled move, albeit one that brings it in line with S&P and Fitch (also more below).
Let’s expand on some of these highlights now and start with the Fed. Our economists’ preview is here but in brief they expect a 25bps cut and then for them to be on hold for the entirety of 2025 as the SEP should show meaningful revisions to the 2024 economic forecasts, with growth and inflation revised higher and the unemployment rate lower. The median dot is likely to show three additional rate cuts but we think Powell will likely deemphasis this signal in the press conference and be as data dependant as he can be. Powell will also likely emphasise that it is still too early for officials to build any major policy changes from the new Trump administration into their outlook. The long-run dot will likely continue its upward migration, rising to 3.1%. Our economists' estimates of neutral are notably above the Fed’s and we think they will likely continue to move this higher.
The BoJ meeting on Thursday is more uncertain, but most economists expect no change and with only a 16% probability of a hike priced in. Our Chief Japan economist previews the meeting here and goes against consensus in seeing a rate hike as the most likely scenario. One of the reasons why a hike might wait until January though is that MP Ishiba is trying to push a stimulus plan through parliament this month and the BoJ may prefer to avoid political interference and delay the hike.
On Thursday our UK economist expects a BoE hold, with a 9-0 vote decision, keeping the rate at 4.75%. The full preview of the meeting is here. The Riksbank is expected to cut rates 25bps on Thursday in a busy last full week of the year for central banks.
For core PCE on Friday our economists believe it comes in a little soft at 0.16% mom versus 0.27% previously with subcomponents in last Thursday's PPI and Friday's import price data, that feed into this number, on the weaker side. However, the year-over-year rate for core PCE should still tick up from 2.8% to 2.9%.
In Germany, Chancellor Scholz's vote of confidence today is scheduled to start at 1:00 pm CET. The expected loss will likely clear the path to early elections on February 23. More importantly tomorrow sees the CDU/CSU publish their manifesto at 11.30 CET. According to current polls the CDU is likely to lead the next government, and the manifesto could give clearer signals on their economic policy priorities, even if the coalition agreement after the elections could result in policy compromises. The key question is whether the CDU will formally signal an openness to reforming the debt brake at this stage. Recently signalled openness by Merz to discuss reforms might just be intended to create optionality for potential compromises in coalition talks. However, a leaked draft of the CDU election manifesto late last week saw a continued commitment to the debt brake which at this stage is not unexpected and corroborates what our economists expect.
Staying at the centre of Europe, the Moody’s downgrade of France late on Friday night to Aa3 from Aa2 with a stable outlook was unscheduled and will surprise many when European markets reopen this morning. Their commentary on future deficits is quite damning but the fact that it’s a stable outlook for now, and that this just brings the rating in line with S&P and Fitch, will likely mean that this is more headline grabbing than massively market moving for now. OAT futures are only a little lower in Asia trading. France’s new Prime Minister Francois Bayrou will meet with far-right leader Marine Le Pen and Jordan Bardella (head of National Rally) at 9am CET this morning to start the process of agreeing a budget. So we may see some headlines post the meeting. For all the rest of the week's events, see the full day-by-day week ahead at the end as per usual.
Asian equity markets are falling this morning with Chinese stocks weak after disappointing retail sales data (more below). As I check my screens, the Hang Seng (-0.75%) and the CSI (-0.51%) are lower with the S&P/ASX 200 (-0.56%) and the Nikkei (-0.18%) also dipping. Elsewhere, the KOSPI (-0.39%) has erased its opening gains following the impeachment of President Yoon Suk Yeol over the weekend. In overnight trading, US equity futures are flat with 10yr UST -1.5bps lower.
Coming back to China retail sales unexpectedly slowed in November, rising +3.0% y/y (v/s +5.0% expected) and marking a sharp slowdown from the +4.8% growth in October. November industrial production rose by +5.4% from a year ago, accelerating from a climb of +5.3% in the prior month and in line with expectations. Fixed asset investment (Ex rural), reported on a year-to-date basis, rose by +3.3% through November on an annual basis, missing the forecast of 3.5%. The figure had risen by +3.4% in the period from January to October. However, new-home prices "only" fell -0.2%, the smallest decrease in 17 months, indicating a fragile stabilisation in China’s real estate market. Values of used homes dropped -0.35%, the least since May 2023. Yields on 10yr Chinese government bonds are -5.1bps lower, trading at a record low of 1.72% with longer-tenor yields also tumbling.
Looking back at last week now, markets struggled to keep up their momentum thanks to the combination of underwhelming data and an ECB decision that whilst dovish was less so than many hoped for. That meant risk assets slipped back, with the S&P 500 falling -0.64% last week (-0.003% Friday to be very precise), whilst the STOXX 600 fell -0.77% (-0.53% Friday). In fact for both indices, the moves ended a run of three consecutive weekly gains, although Japan was a relative outperformer as the Nikkei rose +0.97% (-0.95% Friday). In a remarkable metric of the weakening breadth of momentum in US equities, Friday marked the tenth session in a row that more stocks fell than rose within the S&P 500, the longest such run since 1996.
US inflation data didn’t really help matters, as it raised fears that inflation might be proving sticky above the Fed’s target. To be fair, it wasn’t so bad as to prevent a December rate cut in investors’ eyes, but the longer-term trends were of concern. Indeed, US monthly core CPI has been running at +0.3% for four consecutive months, so it doesn’t look like a temporary blip anymore, and the 3m annualised pace of core CPI now stands at +3.7%. In the meantime, headline PPI inflation also surprised on the upside, with the year-on-year rate moving up to +3.0% for the first time since early 2023. As we mentioned in the core PCE preview above, some of the sub components were weak but we're about to enter the more seasonally unfavourable H1 period for US inflation so there are concerns that inflation hasn't behaved well enough in the seasonally dovish H2 period this year.
Concerns about the inflation outlook contributed to a selloff among US Treasuries last week, with the 10yr yield up +24.4bps last week to 4.40% (+6.9bps Friday). That’s its biggest weekly jump since October 2023, and the 2yr yield was also up +14.2bps (+5.4bps Friday) to 4.25%. Over in Europe, government bond yields also moved higher after the ECB’s latest decision. They cut rates by 25bps as expected, but there was some disappointment among investors that the tone wasn’t more dovish, as President Lagarde described inflation risks as “two-sided”. In fact yields on 10yr Italian BTPs were up +20.0bps (+4.3bps Friday), in their biggest weekly jump since July 2023. And yields on 10yr bunds were up +15.0bps (+5.2bps Friday) in their biggest rise since March.
Although equities and bonds both struggled last week, there was a stronger performance among several commodities. For instance, Brent crude oil prices rose +4.74% (+1.47% Friday) to $74.49/bbl, and gold prices were up +0.56% (-1.42% Friday) to $2,648/oz. Meanwhile in the FX space, it was another good week for the US Dollar, with the dollar index moving up for the 10th time in the last 11 weeks.