Santa rally helps boost markets in December
Market Snapshot
There was lots of festive cheer to end the year, where continuing the theme of the previous two months, gains have come from the anticipation of a more benign inflationary outlook.
Fed cuts its inflation expectations
In December, the Fed surprised markets with dovish language that accompanied their announcement that policy would remain unchanged.
In their statement, the Fed cut its inflation expectations, raised growth expectations and more meaningfully, lowered the expected interest rate at the end of 2024 to a level that implies three rate cuts in 2024. This rare nine-week winning run for the S&P lifted it to +24% for the year, and a soft-landing looks increasingly likely in the year ahead.
Property market remains the thorn in the side for the Chinese economy
A lot of data was released this month in regard to the Chinese economy. There are some signs of recovery, with the annualised 10% expansion in retail sales pretty healthy. This is somewhat illusory though, as China was in lockdown this time last year.
The thorn in the side of the Chinese economy remains the property market. Data released in December showed the continued decline in new home prices. It comes after the conclusion of the Central Economic Work Conference, which signalled some measures would come in to try to bring relief to the Chinese economy, while they also maintained their 5% growth target.
More latterly, there was some unusual see-sawing from the Chinese authorities regarding the gaming industry. After announcing some strict regulations, which led to an $80bn market rout, led by companies such as Tencent, their stance softened. The authorities have now said they will listen to feedback from both companies and players on how to improve the rules. In a further boost, they also approved 105 domestic games, and markets breathed a sigh of relief.
New President for Argentina
In Latin America, Javier Milei, a maverick libertarian economist, was sworn in as president of Argentina following a campaign based on radical change. He arrives to power with a daunting in-tray with rampant inflation, 40% of the population living in poverty, a collapsed currency and payments of over $4bn are due to the International Monetary Fund and private-sector creditors by the end of January!
What will 2024 bring?
What we know for certain, without the luxury of a crystal ball, is that there will be political volatility, with US elections in November.
In the UK we will almost certainly head to the polls with some saying late spring but the majority think autumn. There are also major and regional elections across Finland, Belgium, Austria, Germany, Spain and of course the most populous country in the world, India.
While many will look to the coming election season with dread, the good news is that US election years have historically produced decent investment returns!
