The PULSE: Global Economic and Market Update: December 17, 2024

Federal Reserve's Interest Rate Decision Drives Market Focus

Today, the Federal Reserve is expected to announce a widely anticipated 25 basis-point interest rate cut, lowering the federal funds rate to a target range of 4.25%–4.50%. This adjustment comes amidst persistent economic momentum in the U.S., with the November retail sales report showing a stronger-than-expected 0.8% increase. This marks the third consecutive month of gains, indicating sustained consumer spending. Additionally, the Atlanta Federal Reserve's GDPNow model projects a robust 3.3% growth for Q4 2024, showcasing the economy's resilience despite earlier fears of a slowdown.

Market watchers see the Federal Reserve's decision as a balancing act between promoting growth and managing inflation, which has remained above the Fed's 2% target but shows signs of easing. (Reuters).

Political Instability in Europe and North America

In Germany, political uncertainty looms as the Bundestag voted to withdraw confidence in Chancellor Olaf Scholz. The unexpected development has triggered a parliamentary election scheduled for February 23, 2025. Despite the political turmoil, the DAX index continued its upward trajectory, reflecting investor confidence in German multinationals like Siemens and SAP, which have capitalized on global demand for green technology and automation solutions.

Meanwhile, Canada faces a political shakeup following the finance minister's abrupt resignation. Bond yields rose as markets braced for potential shifts in fiscal policy under new leadership. This event has added pressure to the Canadian dollar, which weakened slightly against the U.S. dollar. (Reuters).

Currency Markets Show Resilience Amid Policy Shifts

The U.S. dollar has held steady, buoyed by expectations of higher long-term interest rates despite the anticipated Fed rate cut. The euro, however, has struggled, trading near $1.0509, reflecting investor caution over Europe's political uncertainties and weaker economic data, mainly from Germany, where industrial production declined for the fourth consecutive month.

The Japanese yen remained stable at 154.06 per dollar, supported by safe-haven demand and expectations of the Bank of Japan maintaining its ultra-loose monetary policy into 2025. (Reuters).

Commodity Markets: Oil and Gold React to Economic Signals

Oil prices slipped by approximately 1% today, reaching a one-week low. Brent crude traded at $74.50 per barrel, with West Texas Intermediate (WTI) at $70.10. The declines are attributed to softening demand from major economies, including China and Germany, and investor caution ahead of the Fed decision. This comes despite OPEC+ maintaining production cuts to stabilize the market.

Gold prices remained steady at $1,940 per ounce as investors adopted a wait-and-see approach, balancing fears of a stronger dollar against potential shifts in global monetary policy. (Reuters).

Stock Markets: Mixed Sentiment Amid Tech Sector Weakness

U.S. stock markets have shown modest declines, with the S&P 500 down 0.2%, the Dow Jones Industrial Average falling 0.1%, and the Nasdaq slipping 0.3%. The tech sector led the losses, driven by Nvidia's eighth drop in nine trading sessions. Nvidia, a key contributor to the year's market rally, is now down over 12% from its peak due to concerns over slowing demand for AI-related products.

In Europe, stock markets demonstrated resilience, with Germany's DAX and France's CAC 40 posting gains of 0.4% and 0.3%, respectively. Asian markets were mixed, with Japan's Nikkei gaining 0.6%, while Hong Kong's Hang Seng fell 0.5% amid ongoing concerns about China's economic recovery. (AP News).

Investor Sentiment and Key Risks for 2025

As the year ends, investors remain cautiously optimistic but alert to several risks. A Bank of America survey revealed fund managers are heavily overweight in U.S. equities while maintaining historically low cash levels. Top concerns for 2025 include:

• A potential U.S.-China trade war, as President-elect Donald Trump, outlines more aggressive tariff policies.
• Persistent inflationary pressures, significantly if oil prices rise or wage growth accelerates.
• Uncertainty in the tech sector, where lofty valuations could face corrections.

Despite these risks, the S&P 500 is on track for its best annual performance since 2000, up over 20% year-to-date, underscoring investor confidence in the U.S. economy's resilience. (MarketWatch).

Conclusion

Today's global economic and market developments highlight a dynamic interplay of monetary policy, political instability, and market sentiment. Investors closely monitor the Federal Reserve's rate decision and its potential ripple effects across global markets. As 2024 concludes, a blend of optimism and caution prevails, setting the stage for an eventful 2025 in international financial markets.

Disclosure Statement

This article is for informational purposes only and does not constitute an offer, solicitation, or recommendation to buy, sell, or hold any securities or other investments. The opinions expressed herein are those of the author and do not necessarily reflect the views of any financial institution or organization. All information is based on publicly available data as of December 17, 2024, and is subject to change without notice.

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Forward-Looking Statements

Certain statements contained in this article may be forward-looking and are subject to uncertainties and risks that could cause actual outcomes to differ materially from those anticipated. Such statements are based on assumptions as of the date of publication and are not guarantees of future performance or results.

Sources

·  Reuters Global Markets Update: https://www.reuters.com/markets/us/global-markets-view-usa-2024-12-17/

·  Reuters Dollar Analysis: https://www.reuters.com/markets/currencies/dollar-supported-bets-2025-rate-cuts-evaporate-2024-12-17/

·  AP News Stock Market Today: https://apnews.com/article/017d11af3f82972d2ae80e8d229fe3e3

·  MarketWatch Risks for Market Stability: https://www.marketwatch.com/story/stock-and-bond-investors-fear-these-biggest-risks-to-market-stability-in-2025-5b5dcdaf

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