As we step into December 2024, the global economy faces a critical juncture marked by slowing growth, persistent inflation, and heightened geopolitical tensions. Major economies like the United States show signs of resilience, with robust consumer spending but lingering concerns over labor market pressures. In Europe, economic activity continues to weaken, with contraction signals emerging in both the manufacturing and service sectors. Asia presents a mixed picture—China grapples with sluggish recovery efforts, while Japan navigates inflation and monetary policy adjustments.

Central banks worldwide remain cautious, balancing the need to control inflation against the risk of exacerbating economic slowdowns. Meanwhile, geopolitical uncertainties and fluctuating energy prices keep markets on edge. As 2024 draws to a close, the global economy braces for a challenging transition into the new year, with policymakers and investors closely monitoring inflation, growth, and external shocks.

This month’s outlook dives deeper into regional trends and critical economic indicators shaping the global landscape.

US Economy – November review

In November, we had a wealth of data and events to review, including elections, Federal Reserve meetings, and a surprising NFP report! The U.S. election results were well-received in the market, as both investors and consumers expressed increased hope for economic growth. Many Americans believe that President-elect Mr. Trump has better economic plans. Additionally, uncertainties over policy direction eased, as the market reacted positively to the new administration’s proposed economic priorities, particularly expectations of fiscal stimulus and infrastructure spending. This optimism was reflected in the equity market’s performance, especially in technology and construction-related sectors.

On the monetary policy front, the Fed’s decisions came with no surprises. However, post-meeting comments from officials significantly impacted market sentiment and investors’ expectations. The Federal Reserve cut its key interest rate by 0.25% to 4.75%. Subsequent remarks from Fed speakers aligned with a broader global trend of cautious monetary policy. This decision reflected improving inflation trends and a desire to support economic growth amid lingering geopolitical uncertainties. The market now anticipates one more rate cut in December. However, following a hawkish shift in communication from Fed officials, there is now over a 33% chance that the current rate will be maintained at the upcoming meeting. This will largely depend on inflation and labor market data released before the meeting.

On the inflation front, the October 2024 consumer inflation report showed no surprises, aligning closely with forecasts. The Core CPI (Year-over-Year) remained steady at 3.3%, meeting expectations and unchanged from prior readings, indicating consistent underlying inflation. The Core CPI (Month-over-Month) also matched projections at 0.3%, pointing to stable, moderate price increases. The CPI (Month-over-Month) came in at 0.2%, exactly as forecasted, reflecting a slight monthly rise in consumer prices. Meanwhile, the CPI (Year-over-Year) registered at 2.6%, in line with expectations and slightly higher than the previous 2.4%, suggesting a gradual increase in overall inflation.

The U.S. PCE inflation data also showed a modest uptick in October 2024. The Personal Consumption Expenditures (PCE) price index rose to an annual rate of 2.3% in October, up from 2.1% in September, aligning with market expectations. On a monthly basis, the index increased by 0.2%, maintaining the same pace as the prior month. Core PCE, which excludes food and energy, recorded a slight increase to 2.8% annually, compared to 2.7% in September, while the month-on-month rise remained steady at 0.3%, meeting forecasts. These figures indicate a gradual rise in inflation, keeping markets and policymakers alert.

As for the labor market, it continues to show resilience. The latest weekly report revealed initial jobless claims at 212,000, while October’s unemployment rate at the NFP release remained steady at 4.1%.

Overall, positive sentiment and economic data—despite a more hawkish outlook from the Fed—boosted both the USD value and stock prices. However, the strong dollar continued to pressure U.S. exports, widening the trade deficit. At the same time, manufacturing activity contracted, with the ISM Manufacturing PMI remaining below the 50 mark, signaling ongoing challenges in the industrial sector.

The S&P 500 and Nasdaq recorded gains in November, driven by optimism surrounding fiscal stimulus and easing inflationary pressures. Defensive sectors lagged, while tech and growth stocks benefited from improving market sentiment. In November, the US500 gained about 5.7%, the US100 rose around 5%, and the US30, with the best performance, closed with more than 7.6% profit. During the same period, the U.S. Dollar Index also gained 2%.

US December Outlook

As 2024 nears its end, the U.S. economy navigates a complex landscape of slowing inflation, resilient labor markets, and geopolitical risks. The Federal Reserve’s decisions for the remainder of the year will play a crucial role in shaping 2025, along with the new administration’s fiscal policies, which will determine the economic trajectory.

In December, we begin with the NFP (Non-Farm Payrolls) report in the first week. November payrolls are expected to rebound by 230K, driven by the resolution of strikes, particularly at Boeing (adding approximately 40K jobs), and the resumption of normal business operations in the Southeast following hurricane disruptions. However, some storm-related recovery may appear in subsequent revisions rather than in November’s headline numbers. While the overall labor market remains solid, it continues to show gradual signs of softening. The unemployment rate is projected to rise to 4.2%, while average hourly earnings (AHE) are expected to grow by 0.3% month-over-month, bringing the annual rate down to 3.9%.

Later in the month, the Federal Reserve meeting on December 18 will be a pivotal event during what could be considered the last truly active week of the year. We expect the Fed to cut interest rates by another 25 basis points. However, it is essential to monitor the news and market sentiment, as the chances of holding the current rate have also increased.

December and the Santa Claus Rally

Regarding stock market behavior, historical patterns offer some insights. A Santa Claus rally refers to a stock market uptrend typically observed during the Christmas season, encompassing the final five trading days of December and the first two days of January. Historically, these periods have shown positive returns, with data from 1950 to 2022 revealing a rally in 80% of cases, yielding an average 1.4% gain in the S&P 500.

Key Theories Behind the Rally:

• Optimism and holiday spirit: Increased positive sentiment among investors.
• Retail investor activity: With institutional investors often on vacation, retail investors—who tend to be bullish—dominate the market.
• Year-end factors: Tax-loss harvesting, reinvesting bonuses, and preparing for the January Effect contribute to the rally.

Historical Performance:

• From 2002 to 2022, the S&P 500 showed mixed results in the week leading up to Dec. 25, with 13 positive weeks, 5 negative weeks, and 2 unchanged.
• During the 2022-2023 rally, the S&P 500 rose by 0.8%.

January Connection:

The rally often extends into early January, aligning with the January Effect, where stock prices—particularly value stocks—tend to outperform. Investors may also allocate year-end cash bonuses or start new investment strategies in January.

While the Santa Claus rally has historically been frequent, its occurrence is not guaranteed. It may be influenced by random market anomalies rather than consistent patterns. Given the current geopolitical tensions and global uncertainties, predicting market behavior and prices remains challenging.

UK Economy- November Review and December Outlook

November 2024 was a significant and disappointing month for the United Kingdom, marked by continued economic adjustments amid persistent inflation, monetary policy decisions, and global economic pressures. And, of course, in the bigger picture, we shouldn’t forget the Labour Party’s budget and the reaction of the markets.

On the economic growth front, the PMI data for November 2024 indicates growing signs of economic weakening, with key sectors showing reduced momentum or contraction:

• The S&P Global/CIPS UK Composite PMI fell to 49.9, down sharply from the previous 51.8, slipping below the critical 50.0 threshold and signaling a contraction in overall business activity.
• The Manufacturing PMI dropped to 48.6, below the forecasted 50.1 and last month’s 49.9, indicating a deepening contraction in the manufacturing sector amid sluggish demand.
• The Services PMI decreased to 50.0, just on the expansion-contraction boundary, missing expectations of 52.3 and reflecting a significant slowdown in service sector growth.

This data suggests mounting economic pressures in the UK, with softening demand and ongoing challenges from elevated interest rates and inflation affecting business activity. The weakening trend could add to concerns about the UK’s economic resilience heading into 2025.

On the labor market front, UK labor market data were somewhat positive. The Average Earnings Index + Bonus in September (published in November) increased by 4.3%, aligning with expectations and slightly higher than the previous month’s 3.9%. This suggests moderate wage growth, indicating some resilience in earnings despite broader economic pressures. The unemployment rate, on the other hand, rose to 4.3%, compared to expectations of 4.1% and 4.0% the previous month, indicating a gradual increase. Overall, the labor data presents a mixed picture with stable wage growth and employment gains, but a slight uptick in unemployment, pointing to evolving challenges in the labor market.

In line with the wage growth, inflation also increased. Annual inflation in the UK accelerated to 2.3% in October, up from 1.7% in September, exceeding forecasts of 2.2%. This marks the sharpest rise since April 2021. On a monthly basis, the CPI jumped 0.6%, recovering from a flat reading in the prior month. The Core CPI, excluding energy and food prices, increased by 0.4% MoM, pushing the annual rate slightly higher to 3.3%, up from 3.2% in September. With inflation back above the Bank of England’s target and the Labour Party’s new budget potentially adding inflationary pressures, the BoE may opt to hold rates steady in its December meeting to assess economic developments.

We can see the effect of slower economic growth and increasing unemployment on consumer behavior. The UK Retail Sales report for October 2024 shows a significant slowdown in consumer spending. Core Retail Sales (MoM) declined by -0.9%. On a yearly basis, Core Retail Sales (YoY) grew by 2.0%, but this is a sharp drop compared to the forecasted 3.3% and last month’s 3.2%. Similarly, broader retail sales figures also showed weakness. Retail Sales (MoM) fell by -0.7%, while the annual (YoY) sales, which grew by 2.4%, were below the forecasted 3.4% and the prior 3.2%. These declines suggest that rising living costs, higher interest rates, and economic uncertainty are weighing on consumer spending in the UK. This could pose challenges for the broader economic recovery as household consumption remains a key growth driver.

UK December Outlook

Historically, the UK economy has shown some consistent trends in December. December is typically a strong month for retail due to the holiday season, with increased consumer spending on gifts, food, and festive activities. However, the UK’s GDP often experiences fluctuations in December. For example, in December 2021, GDP fell by 0.2%, while in December 2022, it fell by 0.5%. The services sector, which includes retail, often sees a boost, but other areas like production and construction can experience mixed results.

Considering the 25 bps BoE rate cut in November to 4.75%, we need to monitor inflation rates closely to see how the Bank of England may adjust interest rates in its December meeting. So far, we expect another 25 bps cut in its December meeting. With these expectations, we are generally positive about the stock markets, though we have more doubts about the British Pound.

Eurozone Economic November Review and December Outlook

November 2024 was a pivotal month for the Eurozone, as the region faced persistent economic challenges amid a mix of global inflationary pressures, moderating growth, and cautious central bank actions. Key data points highlighted ongoing vulnerabilities while offering glimpses of resilience in specific sectors.

The economic outlook for the Eurozone continued to disappoint investors, as evidenced by the PMI data for November. The S&P Global/CIPS Eurozone Composite PMI dipped to 49.7, indicating a contraction in overall business activity. This marks the second consecutive month of a sub-50 reading, signaling a contraction in economic momentum. The PMI data indicates that while some sectors, particularly services, continue to expand modestly, the broader Eurozone economy is showing signs of weakness as inflationary pressures, high energy costs, and global uncertainties weigh on demand.

On the inflation front, flash data shows that core CPI remains steady at 2.7%, but headline inflation, despite a -0.3% fall in November, increased to 2.3% on an annual basis, up from 2.0% in October. The higher-than-expected inflation continues to challenge the ECB’s monetary policy as it navigates between curbing inflation and avoiding further damage to economic growth. The likelihood of rate cuts has diminished in the short term, as the ECB continues to prioritize inflation control.

The labor market in the Eurozone showed some resilience in November, although with notable variation across member states. Unemployment remained at a record low of 6.3% across the Eurozone, signaling a tight labor market. However, average earnings growth slowed to 2.7% year-on-year, reflecting lower-than-expected wage pressures amidst economic uncertainty. Despite high employment, many businesses are facing pressure from rising costs and weakening demand, which has slowed down hiring intentions in some areas. This mixed labor market performance highlights the ongoing challenges for businesses as they balance wage growth with economic headwinds.

The retail sector showed signs of fatigue, with Eurozone retail sales declining by -0.5% month-on-month in October, following a small uptick in September. This signals reduced consumer spending amid rising inflation and higher borrowing costs. This weaker consumer spending could present challenges for the Eurozone’s economic recovery as household consumption remains a critical driver of growth.

Monetary Policy and ECB Outlook

The European Central Bank (ECB) did not have a monetary policy meeting in November. In its December meeting, we expect a more cautious stance in light of persistent inflationary pressures. ECB President Christine Lagarde, in her speeches in November, reaffirmed the central bank’s commitment to controlling inflation but emphasized that the economic outlook for the Eurozone remains fragile, especially as global uncertainties continue. The ECB’s next steps will depend heavily on inflation trends, as well as on external shocks, such as energy prices and geopolitical tensions.

There is growing speculation that the ECB may opt for a more dovish approach in its December meeting and 2025 if economic conditions deteriorate further, but this will be closely tied to inflation data in the coming months.

Looking Ahead

As the Eurozone enters the final stretch of 2024, the economic outlook remains cautious. While some sectors, particularly services, are holding steady, broader growth prospects are clouded by persistent inflation, weakening demand, and geopolitical risks. The ECB’s next moves will be crucial in determining whether the region can avoid a deeper slowdown or if it will be forced to recalibrate its monetary policy in response to economic challenges.

Geopolitical tensions and fluctuating energy prices continued to have a profound effect on the Eurozone economy. While energy costs eased somewhat from earlier highs, the region remained vulnerable to supply disruptions, especially as winter approached. High energy costs remain a key inflation driver and pose ongoing risks to economic activity.

The Euro continued to face downward pressure against major currencies like the U.S. dollar, reflecting broader global uncertainties, although some stability in the currency markets was observed towards the end of the month. As for December, we still do not have enough evidence to count on this trend.

Asia – What Happened in November and What Will Happen in December?

November 2024 was a dynamic month for Asian economies, with varied performances reflecting divergent economic strategies and challenges. Key players like China and Japan garnered significant attention as they navigated through slowing growth, policy adjustments, and external pressures. Here’s an overview with a focus on these two major economies.

China: Struggling with Recovery

China’s economic trajectory remained sluggish in November, as the country faced a challenging post-pandemic recovery, persistent deflationary risks, and tepid external demand.

China experienced some positive signs, mainly thanks to New Year sales. Industrial production grew by 5.3% year-on-year in October, while the official Manufacturing PMI for November rose to 50.3. However, the Services PMI weakened, reflecting slowing domestic activity. International demand improved, with exports jumping by 12.7% year-on-year in October, extending a streak of declines. November trade data showed similar challenges, as weaker global demand—particularly from Western economies—continued to impact China’s export-driven sectors. Imports also fell, pointing to subdued domestic consumption and business investment.

Inflation numbers remained disappointing, with the CPI decreasing by -0.3% and the PPI falling by -2.9% in October. These figures highlight structural challenges in China’s economy, including high youth unemployment, a struggling property sector, and weak confidence among private enterprises.

Policy Moves and December Outlook

In response to the ongoing slowdown, the People’s Bank of China (PBoC) cut the 1-year Loan Prime Rate (LPR) by 10 basis points to 3.35% in October, aiming to boost liquidity and lower borrowing costs for businesses. However, in November, the central bank held rates steady, a move that is likely to be repeated in December.

As the New Year holiday approaches, we expect to see more positive numbers, particularly in exports. Additionally, the Chinese New Year in January could boost domestic demand, leading to improved economic performance.

On a broader scale, there were negative impacts on China’s economy following tariff threats from the U.S. President-elect, which also pressured the Chinese Yuan. However, despite these challenges, we anticipate more stability for the Yuan for the remainder of 2024.

Japan: Resilience Amid Policy Shifts

Japan’s economy demonstrated resilience in November, supported by robust exports and a steady labor market, although inflationary pressures and uncertainties around monetary policy remained significant.

Japan’s GDP expanded by 0.2% quarter-on-quarter in Q3 2024 and 0.9% year-over-year, with this momentum carrying into November. Industrial production grew by 3% in October, bolstered by strong performance in automotive and electronics exports. However, growth faced headwinds from slowing global demand and yen volatility.

Inflation remained elevated, with the CPI rising by 3.4% year-on-year in October, exceeding the Bank of Japan’s (BoJ) 2% target. Core inflation, which excludes volatile food prices, stood at 2.3%, indicating persistent price pressures.

Japan’s unemployment rate remained steady at 2.6%, reflecting a tight labor market. However, wage growth, while improving, was modest at 2.4% year-on-year in October. Policymakers continue to prioritize wage increases as a critical factor for sustained economic recovery.

Despite the stable labor market, household spending showed a notable decline, with September data (released in November) indicating a drop of -1.3%. This decline underscores the impact of inflation on consumer behavior and overall economic sentiment.

Monetary Policy and Outlook

In its November meeting, the BoJ maintained its ultra-loose monetary policy but hinted at a potential shift toward normalization in 2025. Governor Kazuo Ueda highlighted the importance of stable wage growth to support a sustainable exit from deflationary pressures.

We anticipate the BoJ will maintain its current policy stance in the December meeting, allowing more time to adjust its strategies in response to evolving global economic conditions.

The Japanese yen is expected to perform better in December against its peers, particularly as rate cuts are anticipated from several major central banks, while the BoJ is likely to hold rates steady.