Global equity funds saw significant inflows in the week leading up to December 25, recovering from the previous week’s sell-off. This surge was driven by a cooler-than-expected U.S. inflation report, the relief that Washington had avoided a government shutdown, and the effects of a “Santa Claus” rally. According to LSEG data, investors injected $34.38 billion into global equity funds, marking the largest inflow in six weeks, following a net outflow of $36.84 billion in the previous week.
The S&P 500 index ended the month down 1.2%, while the tech-heavy Nasdaq posted a return of 1.64%. Nonetheless, 2024 has been a remarkable year for the US stock markets. The S&P 500 has seen a growth of over 25%, while the Nasdaq Composite has surged more than 30% this year placing it among the strongest years on record.
The Federal Reserve reduced its key interest rate by a quarter percentage point, bringing it to a range of 4.25%-4.50%. The central bank also signaled a more cautious stance on future rate cuts. The Fed’s new forecast suggests only two more cuts in 2025, down from the four previously anticipated in September, reflecting the economy’s continued resilience and persistent inflation.
In terms of economic growth, the U.S. economy expanded at an annualized rate of 3.1% in Q3 2024, surpassing both the 2.8% second estimate and the 3% growth rate in Q2. Meanwhile, the U.S. annual inflation rate rose slightly to 2.7% in November, up from 2.6% in October. The annual personal consumption expenditure (PCE) inflation edged higher to 2.4% from 2.3%, although it remained below the expected 2.5%, signaling progress toward the Fed’s 2% target.
The 10-year U.S. Treasury yield surged to 4.63% as the Fed reduced its 2025 rate-cut projections, its highest level since May.
The pan-European STOXX 600 index closed the year in negative territory, down 1.5% in December. The European Central Bank (ECB) eased borrowing costs, reducing its deposit rate by a quarter percentage point to 3% for the 20-nation eurozone. This was the ECB’s fourth rate cut of the year. The ECB’s dovish stance continues amid political instability in the eurozone and the looming threat of a U.S. trade war. Eurozone inflation in November was 2.2%, below expectations. Economic growth in the region remains weak, with the ECB revising its 2025 GDP growth forecast to 1.1%, down from the previous 1.3%. The Eurozone’s GDP grew 0.9% annually in Q3 2024, a slight improvement from the 0.5% growth in Q2.
In the UK, the FTSE 100 index declined 2.2% in December. UK inflation increased to 2.6% year-on-year in November, driven by rising fuel and clothing prices. This marks the highest inflation rate since March 2024. The Bank of England (BoE) held its benchmark policy rate at 4.75%, with Governor Andrew Bailey indicating the need for a cautious approach to rate cuts due to “heightened uncertainty” in the economy.
The British economy stalled in Q3 2024, revised down from the first estimate increase of 0.1% and below a downwardly revised 0.4% in Q2. Despite the year being marred by a domestic economic slowdown, the FTSE 100 is set to log its fourth-straight year of gains and the FTSE 250 its second-straight increase.
In contrast to Western equity markets, both Chinese and Japanese equity markets ended the year on a positive note.
The Bank of Japan kept interest rates unchanged, with Governor Kazuo Ueda noting the need to analyze more data on wage momentum and the incoming U.S. administration’s economic policies. Japan’s annual consumer price index rose to 2.7% in November, up from 2.3% in October, backing the case for a rate hike from the Bank of Japan early next year. Consumption has shown signs of improvement as intensifying labour shortages push up wages; Ueda noted, stressing on the progress Japan has made in durably achieving the BOJ’s price target after years of aggressive monetary stimulus. Japan’s GDP grew by 0.3% in Q3 2024, following a 1.1% contraction in the previous quarter. However, factory output declined for the first time in three months, reflecting the impact of weaker overseas demand on the economy.
China’s stock market outperformed, pushing aside U.S. trade-related anxieties, driven by fresh domestic policy support and a historic shift in the country’s monetary policy at the Central Economic Work Conference. China announced that it would adopt an “appropriately loose” monetary policy in 2025 to support economic growth, marking the first such move in over a decade.
The Chinese government has also considered allowing the yuan to weaken in 2025 to act as a buffer that would absorb the higher tariffs that will become effective as soon as Trump takes office. China’s annual inflation rate eased to 0.2% in November, down from 0.3% in October, signaling potential deflation risks despite ongoing stimulus measures.
Bitcoin reached an all-time high of over $105,000 in December, following signals from U.S. President-elect Donald Trump indicating support for pro-cryptocurrency policies. However, as the final weekend of 2024 came to a close, the value dropped to below $93,000 with analysts forecasting short-term corrections before a potential new high. Bitcoin has gained over 190% this year, driven by increased interest and investment, including nearly $35 billion in flows into Bitcoin-linked exchange-traded funds (ETFs) since their launch.
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