Markets Weekly podcast – 9 December 2024
9 Dec 2024
Real estate special & US trade tariffs
16 December 2024
In our final podcast of 2024, host Julien Lafargue takes a whistlestop tour of the main takeaways from financial markets and the global economy for December, and the year as a whole.
Key topics include US housing costs, the latest on China and the recent interest rate cuts from the European Central Bank and Swiss National Bank.
You can also stream this podcast on the following channels:
Julien Lafargue (JL): Welcome to a new edition of Barclays Markets Weekly podcast. My name is Julien Lafargue, Chief Market Strategist here at Barclays Private Bank, and I will be your host today.
Today, in fact, is going to be the last podcast of 2024. But we will be back, of course, in January. So, I’m going to be on my own today, just reviewing what happened last week and also thinking back at the year and everything that has happened in the last 12 months.
But, starting with last week, developed equities lagged somewhat as yields moved higher on the back of a disinflationary process in the US, in particular, that appears to be slowing or potentially even stalling. Indeed, we got the US CPI reading for the month of November and, both on core and headline figures, the numbers came in line with expectations.
So, core was at 3.3% and headline at 2.7%. In fact, headline inflation was a touch lower at 2.6% in October. But the key highlight of this report was the fact that we saw some deceleration in shelter inflation, which was only 0.23% up on a month-on-month basis, which is the lowest reading we’ve seen since January 2021.
This is very important, because we know that housing or shelter inflation has been one of the key reasons why US inflation has been so sticky, as such seeing some deceleration there is a very welcome development.
Now, one datapoint doesn’t make a trend and we’ll have to see if that continues as we move into 2025, but some encouraging signs nonetheless. That said, this was still the fourth month of very limited progress on the inflation front. Nonetheless, the in-line report should allow the Fed to cut interest rates by 25 basis points later this week.
Talking about central banks, we also got news from the ECB and the Swiss National Bank (SNB). So, starting with the ECB: as expected it cut interest rates by 25 basis points, while pledging to do more in 2025. So, overall, an in-line ECB meeting with no real surprise. Clearly, the message was dovish, in the sense that rates are due to come down even further in 2025.
The surprise came from Switzerland, where the SNB opted for a ‘jumbo’ 50-basis point cut. This had nothing really to do with growth. Inflation has been pretty low in Switzerland, but the real motivation behind the SNB’s decision was the fact that the Swiss franc has been strong in recent months, and the central bank wanted to counteract that strength from a currency point of view.
There was also a significant comment made by an SNB official, who said that zero interest rates weren’t envisaged in coming months or quarters. They fell short of talking about negative interest rates, but it looks like Switzerland is heading back to some sort of pandemic, or even pre-pandemic, level when it comes to interest rates.
Now, the other key news from last week came from China. The Politburo pledged more stimulus once again, but the lack of immediate detail was seen as another disappointment by investors. Over the weekend, we did get some macroeconomic data from China, which also suggest that the authorities should be acting sooner rather than later.
Indeed, China’s November retail sales and fixed-asset investment data missed market expectations. So, retail sales growth dropped to 3% year over year. That’s down from 4.8% in October, mainly driven by online goods sales, which, after jumping 11.2% in October, grew by only 3.6% in November. A lot of that, though, was linked to an earlier-than-usual start of the Singles’ Day shopping festival.
So, that’s it for last week. I thought we could take some time to look back at 2024, and what a year it has been. The S&P 500 is on track to close more than 25% higher for the second consecutive year. In fact, the S&P 500 has been up more than 20% in four of the last six years, which is quite incredible. And this is despite half of the world population going to the polls, continued geopolitical tension and many, many other worries that could have prevented markets from doing so well.
If we think about it, we saw an exchange of missiles between Iran and Israel and an Israeli incursion into Lebanon. We saw Japan become the fifth country to achieve a soft landing on the moon, but its stock market cratered 20% in just a week, as the world’s largest carry-trade unwound.
We saw an assassination attempt on former President Trump, and the fall of Bashar al-Assad in Syria. We also saw Hurricane Helene, the deadliest Atlantic hurricane since Hurricane Maria in 2017, as well as the worst floods in central Europe since 2010.
So, a lot has happened. It wasn’t only bad news. We also saw the advancement of AI, and the enthusiasm around the technology. But clearly, on paper, 2024 wasn’t supposed to be such a good year for investors, and that’s why, as we pointed out in our ‘Outlook 2025’, we expect 2025 to be, I would say, a more normal year when it comes to financial markets.
Now, before that, we have to look at the week just ahead of us. Quite a few important datapoints coming out this week, before a bit of a reprieve for the next two weeks.
First of all, we’re going to get the FOMC decision in the US on Wednesday. Here, a 25-basis point rate cut is widely expected. But, importantly, we are going to see an updated version of the ‘dot plot’ that summarises the Fed’s expectations when it comes to future interest rates. And we expect the 2025 dots to probably be taken up a notch, and hint at three 25 basis-point cuts in 2025, while Fed chair Jerome Powell may signal that rates could stay on hold at the following meeting, which is on 29th January.
We will also get two other central bank decisions: the BoJ decision in Japan, and the BoE decision in the UK. Here, interest rates are expected to stay unchanged. And finally, we will close the week with the US PCE figures for the month of November. This is the Fed’s favourite measure of inflation. Core PCE is expected to tick up to 2.9% versus 2.8% in October.
So, that’s it for this year. Thank you so much for your support. We will be back next year, but, in the meantime, we wish you the very best for the festive season ahead.
This communication:
Any past or simulated past performance including back-testing, modelling or scenario analysis, or future projections contained in this communication is no indication as to future performance. No representation is made as to the accuracy of the assumptions made in this communication, or completeness of, any modelling, scenario analysis or back-testing. The value of any investment may also fluctuate as a result of market changes.
Barclays is a full service bank. In the normal course of offering products and services, Barclays may act in several capacities and simultaneously, giving rise to potential conflicts of interest which may impact the performance of the products.
Where information in this communication has been obtained from third party sources, we believe those sources to be reliable but we do not guarantee the information’s accuracy and you should note that it may be incomplete or condensed.
Neither Barclays nor any of its directors, officers, employees, representatives or agents, accepts any liability whatsoever for any direct, indirect or consequential losses (in contract, tort or otherwise) arising from the use of this communication or its contents or reliance on the information contained herein, except to the extent this would be prohibited by law or regulation. Law or regulation in certain countries may restrict the manner of distribution of this communication and the availability of the products and services, and persons who come into possession of this publication are required to inform themselves of and observe such restrictions.
You have sole responsibility for the management of your tax and legal affairs including making any applicable filings and payments and complying with any applicable laws and regulations. We have not and will not provide you with tax or legal advice and recommend that you obtain independent tax and legal advice tailored to your individual circumstances.
THIS COMMUNICATION IS PROVIDED FOR INFORMATION PURPOSES ONLY AND IS SUBJECT TO CHANGE. IT IS INDICATIVE ONLY AND IS NOT BINDING.