December 2024

Global equities were up +3.8%, powered mainly by US markets which rallied hard after the decisive election result — led especially by small-caps. Most other major equity markets struggled. The big tailwind for US risk assets was the quick and clear/decisive election outcome that lowered volatility and fueled optimism about policy stimulus and deregulation and some easing of geopolitical conflicts. Positive earnings (which were in line with expectations) and upside macro surprises also helped even as inflation and payrolls stayed in line with consensus expectations. European growth stabilized in Q3, but the improvements were uneven, underlying industrial details were weak and business and consumer confidence weakened on political instability at core euro area economies; and the market priced-in further monetary easing. In Asia, Japan has continued to reflate. Its inflation prints remained firm even as rising wages are driving real incomes higher. With a larger than expected supplemental fiscal package on the way, the Bank of Japan is likely to hike policy by 25bps at its upcoming meeting later in December or at its January meeting. Chinese activity saw some green shoots with retail sales rebounding, more than expected and official manufacturing PMIs surprising to the upside. However, industry and property activity is still weak and deflation remains entrenched. Concerns about a forthcoming hike in U.S. tariffs on Chinese exports weighed on Chinese equities and boosted bonds.

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