J. Powell hinted towards 2 more cuts in 2025 instead of 4, hence a USD stronger and Bond yields higher across the board
WEEKLY TRENDS
FOMC’s decision last week, was to cut the FED funds by 25bps as expected, meanwhile J. Powell in his speech hinted towards 2 more cuts next year, instead of 4 previously expected. The USD consequently raised and so did the Bond yields, across the board
Year-end markets see adjustments and corrections, with credit margins rising and with EM suffering the most from a resurgent USD and rising UST yields. Real Estate are now flat for the year, WTI slightly negative
Last week, the BOE and the BOJ decided to stay put and kept rates unchanged
The Pharma sector had a turbulent week last week
Note that the GAFAM and the Mag7 are no longer it, long live the new BATMMAAN (trillion dollar companies comprised of: Apple at $3.7trn; Microsoft and Nvidia at $3.3trn; Amazon and Alphabet at $2.3trn; Meta at $1.6trn; Tesla at $1.3trn; Broadcom at $1trn)
MARKETS
Equities
Q3 earnings releases last week(stock WoW performance):
Minor Hotels Europe (+35%) the Thai hotel group buys back all shares of its sub at an 38% premium; Wise (+11%) partnered with MS
Pharma news:
Teva (+34%) following good test results on Crohn disease treatment; Galderma (+7%) after FDA’s approval for its Nemluvio treatment; Novo Nordisk (-22%) phase 3 results of its drug Cagrisema are not satisfying; Zealand Pharma (-7%) after the FDA rejected its new weight loss drug
Rates
US curve (2-10 years) steepening increased by 10bps to 20bps. Bond yields increased across the board, HY corporate spread raised also across the board.
Commodities
Oil price decreased (due to a stronger USD and US tariffs threat mainly, also waiting desperately for an economic boost coming from China)
Gold price lower (-1%) due to a higher USD and rising UST yields
Note that Cocoa has hit once again a new record high at $12000 per ton
US
PMI for Dec Services at 58.5 vs 55.8 expected and 56.1 prior. Dec Empire Manufacturing at 0.2 vs 10.0 expected and 31.2 prior
Crypto
BTC hit another record at $108k last week but ended the week at $98500 (-12% from its peak). Ethereum suffered too with -20%. NB: BTC current distribution is: 57% individuals, 18% lost, 4% ETF, Satoshi 5%, miners 3.5%, governments 2.5%, companies 3.5%, not mined yet 6.5%
Nota Bene
Moody’s downgraded French banks ratings (BNP, Credit Agricole)following its downgrade on the country’s credit rating the previous week.
CALENDAR
Stock Markets closings:USNYSE (25 Dec); EU: Euronext (24 Dec at 14.00, opening back on 27); UK: LSE (25-26 Dec)
WHAT ANALYSTS SAY
JP Morgan Asset Management - Investment Outlook 2025
JP Morgan Asset Management, 10 Dec 2024 - Investment Outlook 2025, pushing the boundaries
Authors: Karen Ward, Chief Market Strategist for EMEA; Tilmann Galler, Global Market Strategist
In brief
• Our central expectation is that President Trump’s policy agenda will be growth supportive. But there are risks, particularly if the balance of fiscal stimulus, tariffs and immigration curbs prompt more inflation than real growth.
• A renewed focus on ‘America first’ policies will require responses from other regions, notably Europe and China, where large scale monetary and/or fiscal stimulus is expected.
• For equity market leadership, how the technology boom evolves is more important than who is in the White House. We think the best of the tech gains have been had, and as these technologies proliferate around the broader economy the next stage of the technology evolution will lift asset prices elsewhere in the global stock index.
• It’s tempting to believe that Trump’s re-election will reinforce US outperformance. But it’s worth remembering that expectations embedded in European stocks are already low and it’s not just what you buy, it’s how much you pay for it. We like the UK market in particular.
• For multi-asset investors, today’s investment landscape demands that we re-think diversification, incorporating bonds for income and recession protection, but also assets that will perform well during inflation shocks.
Conclusions
Look beyond megacap tech stocks for AI opportunities
In our view the gap between the valuation of megacap tech and the broader S&P 500 is unsustainable. However, unlike 2000, we see a ‘catch up’ scenario as more likely than a ‘catch down’ scenario. From here, investors should focus on opportunities that will prevail right along the AI value chain. Investors need to weigh future potential earnings against what is already embedded in the price. Cheaper valuations and less demanding earnings expectations outside of megacap tech stocks suggest that even AI bulls should be positioned for further broadening across sectors in 2025.
Chinese policymakers want to support the Chinese economy.
Their demonstration of intent is more important than the exact measures delivered to date. We suspect they are saving their ammunition until it is clear exactly what trade hostility they are facing.
Nonetheless, it remains uncertain whether policymakers’ efforts will merely limit the downside to the Chinese economy and markets, or instead prove adequate to improve the medium-term trajectory of the economy and corporate earnings. The balance of risks, however, is now at least more two-sided, rather than skewed to the downside.
Current EM stock valuations look relatively cheap compared to developed market stocks.
However, EM valuations look merely average compared to their own history (Exhibit 25). Investors need to be active in the EM space to take advantage of wide dispersion across the region, shifting global trade patterns, and the impact of idiosyncratic US foreign policy.
Base case : the expansion continues
Macro: Global growth remains resilient, with moderate amounts of new fiscal stimulus announced in the US. Tariffs are levied against China but the new US administration stops short of a universal tariff. China continues to announce support for its economy. Europe cuts interest rates more rapidly than the US given lower inflation risk in the region. See Exhibit 30 for details of our expectations for Trump’s policies vs. those discussed on the campaign, and our expectations for the rest of the world’s (RoW’s) reaction.
Markets: The environment is pro-risk given the resilient economic backdrop. US equity performance broadens across sectors while there is scope for European and Asia stocks to follow if policy support is sufficient. Core fixed income delivers returns in line with coupons.
Downside risk : stagflation
Macro: A global trade war leads to a re-acceleration in inflation while hurting growth across the world. Punitive tariffs on China stymie a recovery despite stimulus, while the implementation of a universal 10% tariff on US imports hits Europe particularly hard. Tax cuts and anti-immigration policies further fuel US inflationary pressures, while oil prices remain elevated with tensions in the Middle East offsetting increased US production. The Fed is unable to cut rates to support the growth outlook given elevated inflation.
Markets: A negative environment for stocks, with interest-rate sensitive sectors hit hardest. Rising yields on core fixed income lead to losses as stock-bond correlations remain positive. German Bunds outperform US Treasuries. Gold, real assets and commodity strategies outperform cash while hedge funds that can benefit from higher volatility also perform well.
Downside risk : recession
Macro: Tough protectionist measures and geopolitical uncertainty hit business and consumer confidence, forcing companies to pull back on hiring. Tariffs are levied on China, but companies are forced to absorb higher prices through weaker margins given lower consumer confidence. Interest rates are cut by considerably more than currently priced to support the economy.
Markets: The negative stock-bond correlation returns. There is downside for stocks, but with higher quality and income strategies outperforming, while the environment is very positive for core fixed income, with significant capital upside.
Upside risk : Goldilocks
Macro: Growth accelerates driven by big fiscal stimulus and an artificial intelligence-induced productivity boom. Trade tensions ease as the threat of tariffs results in new trade deals, and geopolitical tensions calm. Rising productivity keeps inflation in check despite a tight labour market, allowing central banks to cut interest rates back towards neutral despite still solid growth.
Markets: A very positive environment for stocks globally, particularly in emerging markets. Fixed income also sees strong returns as interest rates move lower, and credit spreads tighten to new record levels.
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