The PULSE: Global Economic and Market Update: December 13, 2024

Today's global economic landscape reflects a complex mix of investor sentiment, central bank actions, and geopolitical dynamics shaping markets worldwide.

Asian Markets and U.S. Treasury Yields

Asian equity markets experienced notable declines as investors grappled with the impact of rising U.S. Treasury yields and a stronger U.S. dollar. The MSCI Asia-Pacific Index fell 0.6%, while Japan's Nikkei dropped by 1%. This was mainly due to reassessing the Federal Reserve's monetary policy outlook. The recent rally in U.S. Treasury yields, particularly the 10-year yield, marked its most significant weekly increase in over a year, signaling a potential recalibration in risk sentiment.

The Bank of Japan maintained its ultra-loose monetary stance earlier this week, adding downward pressure on the yen, which fell to 152.20 against the dollar. This further exacerbated concerns over capital outflows from emerging markets in the region.

Central Bank Activity and Currency Markets

Several major central banks—including the European Central Bank (ECB), the Swiss National Bank, and the Bank of Canada—implemented interest rate cuts this week to combat sluggish growth.

The ECB reduced its deposit rate by 25 basis points to 3.15%, signaling a shift from its previously hawkish tone as eurozone inflation showed signs of moderation. This move strengthened the dollar against the euro, pushing the EUR/USD pair to 1.0530.

The Swiss National Bank also cut its key rate by 25 basis points to 1.5%, a measure intended to support its export-reliant economy, facing headwinds from weaker European demand. The franc depreciated against the dollar, reflecting market expectations of continued divergence between U.S. and European monetary policies.

In emerging markets, central banks in Indonesia and India intervened in currency markets to stabilize their currencies amid pressures from capital outflows. The Indonesian rupiah fell 0.8% this week, prompting the Bank of Indonesia to deploy reserves to mitigate the impact.

U.S. Stock Market Update

Wall Street ended the week with mixed results as corporate earnings and economic indicators painted a nuanced picture of the economy. The S&P 500 closed flat, maintaining its position near a yearly high, while the Dow Jones Industrial Average fell 0.2%, and the Nasdaq Composite edged up 0.1%.

Earnings reports offered some relief to markets. Broadcom outperformed expectations, driven by robust demand for AI-related semiconductor products, with its shares rising 5%. Similarly, RH (formerly Restoration Hardware) raised its revenue forecast, driving a 12% surge in its stock price. These gains offset concerns from weaker retail sales data for November, which declined 0.3% month-over-month, suggesting a softer holiday shopping season.

China's Economic Policy Moves

China's annual Central Economic Work Conference concluded with promises of stronger government spending, relaxed monetary policies, and measures to boost consumer confidence. These steps come as policymakers aim to navigate challenges posed by a slowing property market, weakening exports, and geopolitical tensions, including renewed tariffs expected under the incoming U.S. administration.

China's GDP growth forecast for 2025 has been downgraded to 4.8%, reflecting structural challenges. However, the government emphasized its commitment to achieving a "soft landing" for the property sector, where companies like Evergrande are navigating restructuring processes.

Chinese equity markets showed muted reactions, with the Shanghai Composite dipping 0.2% as investors remained cautious over the long-term impact of these measures.

Oil Prices and Commodities

Oil prices rose slightly as markets digested news of potential OPEC+ output adjustments in response to falling demand from Europe and Asia. Brent crude gained 0.8%, trading at $80.65 per barrel, while WTI crude settled at $76.50 per barrel.

Gold prices fell for the second straight day, declining 0.5% to $1,920 per ounce, pressured by a stronger dollar and rising Treasury yields, which dampen demand for non-yielding assets.

Geopolitical Risks

Geopolitical tensions remained a backdrop to economic developments, with NATO expressing concerns over Russian military buildups in Eastern Europe. Meanwhile, Middle Eastern instability added to oil market volatility, as supply disruptions in Iraq's northern oil fields raised questions about long-term supply stability.

Looking Ahead

Investors will closely watch next week's Federal Reserve meeting for insights into its 2024 outlook. With inflation data showing signs of cooling, the market remains split on whether rate cuts will materialize early next year.

Sources:

1. Reuters: "Asian shares drop, long-dated Treasuries set for worst week in a year" - https://www.reuters.com/markets/global-markets-wrapup-1-2024-12-13/
2. Reuters: "Morning Bid: Global rate cuts put dollar in driver's seat" - https://www.reuters.com/markets/europe/global-markets-view-europe-2024-12-13/
3. Associated Press: "Stock market today: Wall Street ends mixed after a bumpy week" - https://apnews.com/article/44ade1d46d9dc7ed714934238e810f65
4. MarketWatch: "Oil scores biggest weekly gain in 3 weeks as China's stimulus boosts demand view" - https://www.marketwatch.com/story/oil-prices-head-for-first-weekly-gain-in-three-on-sanctions-worries-29f34c43

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