The war in Gaza cast a long shadow over global markets in 2024. The conflict underscored the fragility of regional stability, spurring fluctuations in oil prices and investor risk appetite. Brent crude spent a lot of the year in volatile territory, reacting to each geopolitical headline, and complicating inflation management for central banks worldwide. Russia’s updated nuclear doctrine further heightened geopolitical risks, contributing to a flight to safe-haven assets like gold and the Swiss franc. The doctrine’s emphasis on “escalating to de-escalate” added a layer of complexity to Western strategic and economic calculations.
Meanwhile, the re-election of Donald Trump and resumption of his policy agenda brought fresh challenges to global trade dynamics. The potential for sweeping tariffs on imports from Mexico, Canada and China have reignited fears of trade wars, casting uncertainty over global supply chains and adding fuel to inflationary pressures. Trump’s policies have collectively tested the market’s resilience, which, despite volatility, was bolstered by robust corporate earnings in certain sectors and growing optimism in emerging markets.
Across the globe, elections from India to Argentina showcased the political shifts shaping economic policies. India’s incumbent government leveraged infrastructure growth to retain power, reinforcing its standing as a global investment hotspot. South Africa managed to usher in new positive sentiment with a Government of National Unity, while Argentina saw a dramatic pivot toward market-friendly reforms, igniting hopes of economic recovery despite a legacy of debt and inflation.
Inflation: taming the beast
Central banks spent much of 2024 walking a fine line between controlling inflation and avoiding economic stagnation. The United States (US) Federal Reserve (Fed) held rates steady for most of 2024, as we saw the start of its rate cutting cycle being delayed much deeper into the year than initially expected. The Fed needed to balance a cooling labour market with persistent wage growth. Europe, too, grappled with sticky inflation, and a barely kicking economy, while Japan’s central bank cautiously began unwinding its ultra-loose policies, signalling a potential shift in global liquidity dynamics.
The year was ultimately shaped by investors looking for insights from central bankers and scrutinising the data to anticipate the trajectory of interest rates and growth across the globe.
Persistent uncertainties as 2025 looms
As always, uncertainty remains the only constant as we head into the new year. Geopolitical risks remain elevated, from unresolved conflicts in the Middle East to simmering tensions in the South China Sea. Russia’s aggressive nuclear posture and Trump’s trade policies are set to shape investor sentiment further.
Economic growth projections for 2025 are equally fraught. While some regions are poised for recovery, others face structural challenges, including aging populations, high debt levels, and climate-related risks. China, once a pillar of global growth, has yet to fully recover from its real estate woes and demographic shifts, leaving investors wary of its long-term growth trajectory.
Financial markets must also contend with monetary policy adjustments, as policymakers continue to walk the tightrope between inflation and growth. This will remain a key narrative in the US, where the new administration’s policies are broadly expected to be inflationary in nature.
Navigating 2025: a call for vigilance and adaptability
As we step into 2025, investors and policymakers alike must remain vigilant. Diversification, a renewed focus on fundamentals, and a keen eye on emerging risks will be critical. The green transition, digital innovation, and shifting demographic trends will offer opportunities, but only for those prepared to navigate the inherent uncertainties.
In a year characterised by so much unpredictability, one lesson stands out: adaptability is not just an advantage; it’s a necessity. As the world continues to grapple with rapid change, financial markets will remain both a barometer and a driver of broader economic dynamics. Here’s to a new year, filled with both challenges and opportunities, one to navigate with foresight and resilience.
A FINAL LOOK AT THE MARKET
Bonds
The US 10-year Treasury yield settled at 4.28% on Thursday, erasing earlier gains but remaining near a two-week high as markets assessed US economic data. US initial jobless claims surged to 242,000, their highest level in two months, stoking concerns of a weakening labour market. While this boosted bets for a final Fed rate cut in 2024, these were tempered by a stronger-than-expected producer price index (PPI) print. Markets are confident of a 25 basis point rate cut by the Fed next week, with expectations for a total of 150 basis points in rate cuts next year.
In the United Kingdom (UK), the 10-year gilt yield rose to 4.33%, its highest level in over two weeks, as investors anticipated the Bank of England (BoE) will hold rates in its upcoming meeting. BoE Governor Andrew Bailey hinted at more gradual UK rate cuts beginning in 2025, and markets are pricing in three 25 basis point cuts next year. Across the eurozone, the European Central Bank (ECB) reduced rates by 25 basis points, marking its fourth rate cut this year, while the Swiss National Bank surprised with a sharper 50 basis point rate cut.
Equities
US stock markets were all down c.0.50-0.60% yesterday. The technology sector led the losses, with Nvidia, Amazon, Tesla and Adobe among the key decliners. Traders are pricing in a 25 basis point Fed rate cut next week, supported by softer labour market data and easing inflation pressures.
In the UK, the FTSE 100 edged higher, buoyed by a 2.8% rise in beverage producer Diageo’s shares after an upgrade by UBS. However, global recruitment company SThree plummeted 26.6% following a profit warning, while retailer Currys jumped 17.3% on a return to first-half profit and upbeat forecasts.
In Europe, the DAX traded near record highs at 20,420, driven by mixed sentiment after the ECB’s policy announcement. Top performers included defence technology group Rheinmetall and sports apparel brand Adidas, while mail and logistics company Deutsche Post and global chemical ingredient distributor Brenntag lagged.
Commodities
Brent crude oil prices slipped to $73.50/barrel, reversing earlier gains after the International Energy Agency forecast a supply surplus in 2025. This contrasted with expectations of a balanced market from the US Energy Information Administration. Organisation for the Petroleum Exporting Countries, OPEC+, also downgraded its 2025 oil demand growth outlook for the fifth consecutive month, citing weaker demand in China and rising supply from regions other than the OPEC+.
Gold prices dropped over 1% to $2,680/ounce, ending a three-day rally. The decline followed stronger-than-expected US PPI data, which renewed concerns of stubborn inflation. Despite this, gold remains supported by market expectations for multiple Fed rate cuts next year, amid signs of labour market softening and easing inflation pressures.
Currencies
The US Dollar Index held steady around 106.6 as traders processed mixed US economic data. US initial jobless claims rose to 242,000, their highest level in nearly two months, supporting bets for a Fed rate cut next week.
The euro slipped below $1.05/€, nearing two-year lows after the ECB’s 25 basis point rate cut and downward revisions to European gross domestic product growth projections.
The pound traded at $1.276/£, near a one-month high, supported by expectations that the BoE would maintain rates at their current level. However, markets expect a cautious pace of monetary easing from the BoE in 2025.
In contrast, the Swiss franc weakened after the Swiss National Bank delivered an unexpected 50 basis point rate cut.
Key indicators:
GBP/USD: 1.2675
GBP/EUR: 1.2093
GOLD: $2,687
BRENT CRUDE: $73
Sources: Trading Economics, Bloomberg and Refinitiv.
Please note this will be the final Peregrine Wealth Weekly Market Wrap for 2024. The next edition will be published on 17 January 2025.
Written by Citadel Advisory Partner and Citadel Global Director, Bianca Botes.
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